Via Financial Times

Wells Fargo has made a pitch to the Federal Reserve to remove an asset cap introduced in the wake of its fake accounts scandal, saying it would allow the US bank to extend support to businesses and customers hit by the economic fallout of the coronavirus pandemic.

People familiar with the situation said the San Francisco-based bank approached the Fed about a temporary or permanent lifting of the $1.95tn asset cap, which has been a curb on its growth and profitability since its imposition in 2018.

Removing the cap has been a priority for Charles Scharf, an outsider brought in as chief executive in October, and the issue has become acute as the Fed tries to encourage banks to extend credit to customers who have seen their revenues and incomes plummet this month.

Wells represents 9 per cent of the US loan market and 9 per cent of deposits, according to Bank of America analyst Erika Najarian. It had a $1.927tn balance sheet at the end of December. Adding a meaningful amount of either deposits or new loans would mean the bank bumps up against the cap, assuming it did not offset that by selling other assets such as market securities.

In a note to clients earlier this week, Ms Najarian said Wells would probably benefit from deposit growth during the current crisis as savers flock to safer institutions. “In our view, now is not the time for a big bank to pick and choose deposit growth for the sake of an asset cap,” she said.

Ms Najarian’s note was entitled “Five ways the Fed could stem the panic”, one of which was to “remove Wells Fargo’s asset cap for now”.

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The cap was imposed in 2018 after the mis-selling scandal exposed widespread risk and compliance failures. Since then Wells’ leadership team has substantially changed, most recently with the appointment of a new chairman, Charles Noski.

Mr Scharf was one of the bank chief executives who met President Donald Trump to discuss the coronavirus crisis on March 11. He told the president “we are all here to help . . . whether it’s to help them (customers) through issues with their fees, payments, or to be there to lend”, according to a transcript of the meeting.

A spokeswoman for Wells Fargo said: “During these challenging times, we are very focused on doing all we can for our clients while operating under the constraints of the asset cap.” She would not comment on talks with regulators.

The Federal Reserve declined to comment.

Mr Scharf’s predecessor Tim Sloan had hoped to the cap would be lifted in the “first part of 2019” as the bank brought its risk management and controls up to the standards demanded by the Fed after its 2016 discovery that Wells flattered its performance by falsifying records to open millions of unauthorised accounts.

Wells continues to face considerable political pressure following the scandal. California congresswoman Maxine Waters, who chairs the House of Representatives financial services committee, said at a recent hearing that the bank “is not ready to be America’s bank again. Absent significant reduction in Wells Fargo’s footprint [it] will never be able to rein in the culture of customer abuse.”

Additional reporting by Robert Armstrong in New York and Kiran Stacey and James Politi in Washington