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Wells Fargo has freed itself from a $1.95 trillion asset cap that limited its growth for nearly a decade, with the Federal Reserve Board certifying Tuesday that the bank has put “widespread consumer abuses and other compliance breakdowns” behind it and improved its governance and risk management program.
The Fed imposed the asset cap in 2018, in the wake of a series of scandals, including “cross-selling” practices in which bank customers were enrolled in new deposit and credit card accounts without their knowledge.
“Wells Fargo pursued a business strategy that prioritized its overall growth without ensuring appropriate management of all key risks,” federal regulators said in imposing the asset cap. “The firm did not have an effective firm-wide risk management framework in place that covered all key risks. This prevented the proper escalation of serious compliance breakdowns to the board of directors.”
Tuesday’s lifting of the asset cap “represents successful remediation to the required standard based on focused management leadership, strong board oversight, and strict supervision holding the firm accountable,” Federal Reserve Governor Michael Barr said in a statement. “All three will need to continue for the firm to have a sustainable approach.”
Wells Fargo CEO Charlie Scharf said Wells Fargo is “a different and far stronger company today because of the work we’ve done” to address past problems.
Since 2019, the bank has closed 14 consent orders imposed by regulators over its business practices.
Wells Fargo announced in January that the Consumer Financial Protection Bureau had lifted a 2022 consent order related to a $3.7 billion settlement over the bank’s alleged mismanagement of mortgages, auto loans and deposit accounts.
On May 29, Wells Fargo said it had closed a 2015 consent order with the Office of the Comptroller of the Currency, leaving only the 2018 consent order with the Federal Reserve Board in place.
Wells Fargo has “changed and simplified our business mix, and we have transformed the management team and how we run the company,” Scharf said in a statement Tuesday.
“We have been methodically investing in the company’s future while improving our financial results and profile. We are excited to continue to move forward with plans to further increase returns and growth in a deliberate manner supported by the processes and cultural changes we have made.”
Lifting of the asset cap could give the bank greater leeway to originate jumbo mortgages that exceed Fannie Mae and Freddie Mac’s $806,500 conforming loan limit in most markets. Lenders who make such loans often hold them on their balance sheet, since they’re more difficult to bundle up and sell to investors.
Once the nation’s largest mortgage lender, Wells Fargo was overtaken by direct lender Quicken Loans (now Rocket Mortgage) in 2017 and fell out of the top 10 in the face of regulatory issues, a shrinking branch footprint and rising interest rates.
Wells Fargo mortgage originations, 2020-24
Source: Wells Fargo earnings reports.
When borrowers rushed to refinance during the pandemic, Wells Fargo originated $223 billion in mortgages in 2020 — more than 10 times as much business as it did last year ($20.2 billion).
But nearly half of that business came through correspondent lenders — typically smaller institutions who originate and fund their own loans, then resell them to other lenders or investors. Wells Fargo announced in January 2023 that it was shutting down its correspondent channel, following a report by Bloomberg that executives at the bank were concerned about the risks involved in buying mortgages from third parties.
Scharf has said Wells Fargo is “not interested in being extraordinarily large in the mortgage business, just for the sake of being in the mortgage business.” He reiterated that stance in an interview with Reuters Wednesday, saying the bank will continue to focus on expanding its credit card and investment banking businesses.
But theoretically, technology like artificial intelligence employed by the nation’s biggest mortgage lenders — UWM and Rocket — could allow Wells Fargo to rapidly scale its mortgage business despite its reduced branch office footprint and staffing levels.
Wells Fargo closing branches, growing digital customer base
Retail bank branch and digital customer count at the beginning of the year. Source: Wells Fargo earnings reports.
Wells Fargo ended 2024 with 4,177 retail bank branches, down 22 percent from 5,352 at the beginning of 2020.
But a growing number of customers — 36 million at the beginning of the year — access the bank online or through mobile devices, up 19 percent since the beginning of 2020.
Editor’s note: This story has been updated to note that that much of Wells Fargo’s mortgage businesss came through third-party correspondent lenders, and that CEO Charlie Scharf told Reuters Wednesday that home loans will not be a focus for growth.
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