By Manya Saini and Nupur Anand
(Reuters) -Wells Fargo’s latest rebuke by regulators for insufficient efforts to combat money laundering is likely to extend another major regulatory punishment that has limited growth at the bank, analysts said.
Despite some progress in resolving issues stemming from a 2016 counterfeit billing scandal, the new compliance issues indicate that Wells Fargo’s cleanup efforts may be far from over. be extended.
The Office of the Comptroller of the Coin said Thursday it was imposing restrictions on Wells Fargo’s ability to expand into high-risk businesses after finding the bank had insufficient safeguards against money laundering and other illegal transactions.
“This is very surprising given that Wells Fargo quite recently, in January 2021, resolved an anti-money laundering consent order after many years of work and expense,” wrote Vivek Juneja, an analyst at JPMorgan Securities, in a note.
The order says Wells Fargo will require approval from the OCC to introduce riskier new products or services, as well as provide risk assessment plans, even for lower-risk offerings, and a detailed action plan. It did not impose a fine on the bank.
“We have been working to address a substantial portion of what is required in the formal agreement, and we are committed to completing the work with the same sense of urgency as our other regulatory obligations,” the bank said in a statement on Thursday.
Wells Fargo operates under a $1.95 trillion asset ceiling, preventing it from growing until regulators believe it has resolved problems dating back to the fake account scandal. The country still has eight legal penalties, so-called consent orders, that it is working on.
Fed Chairman Jerome Powell said in 2021 that the asset limit would remain in place until the company fully resolved its problems. The Fed has not publicly discussed Wells Fargo’s asset cap since.
“While an enforcement action against a bank over its anti-money laundering policies and procedures is unfortunately not all that uncommon, it is unique to Wells,” KBW analysts led by David Konrad wrote in a note. “It adds uncertainties to the asset cap timeline and their cost outlook.”
In a filing with regulators last month, the bank had said it was being investigated by government agencies on issues related to money laundering and sanctions programs, which JPMorgan’s Juneja said could mean other agencies would also take action.
The 2016 fake account scandal led to heightened scrutiny, billions of dollars in fines and multiple shareholder lawsuits against the bank, with regulators imposing more scrutiny.
In February, the OCC revoked a 2016 consent order over the bank’s sales practices. At the time, analysts said the move could pave the way for the Fed to withdraw its consent order as early as this year.
Thursday’s blow from regulators is “an unfortunate but not shocking step back in what had otherwise been good progress this year in resolving regulatory issues,” Piper Sandler analysts wrote in a report this week.
For other analysts, the prospects for Wells Fargo’s regulatory cleanup remain murky.
“We still don’t have a clear picture of when the repeal of the asset limit would even happen, much less if additional actions like today’s could further change the path,” Jefferies said.
CEO Charlie Scharf has been working to contain the fallout and help resolve the consent orders since taking the top job in 2019.
The asset cap limits Wells Fargo’s ability to take on more corporate deposits and expand its trading business, two potential growth areas for the bank, Scharf said earlier this year.
Wells Fargo shares are up nearly 7% this year, lagging a 15% jump in a broader banking index.
