Wells Fargo shares rise as US Fed lifts growth cap
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The news: Shares in US bank Wells Fargo climbed on Wednesday after the US Federal Reserve lifted a cap on its assets which had been mandated by The Fed since 2018.
The numbers: Stock in the bank climbed over 3.5% in premarket trading in New York, after the US central bank removed the USD1.95 trillion ($3.01 trillion) asset cap it had imposed to restrict its growth after Wells Fargo’s 2016 fake accounts scandal.
The context: The Fed on Tuesday evening said that Wells Fargo had “met all the conditions for removal of the growth restriction,” while other elements of the enforcement action remain in place.
The decision, which arrived two quarters earlier than had been expected, was described by Morgan Stanley as a “positive catalyst” which marks the start of a multi-year period of growth.
Wells Fargo suffered while restricted by the growth cap, while small and large rivals expanding their asset holdings significantly throughout the seven-year period. JP Morgan Chase's assets grew by nearly USD2 trillion since the start of 2018, while Bank of America expanded its assets by about USD1 trillion.
The WSJ reports that smaller banks across the US are likely to be impacted by unbridling of Wells Fargo, as regional banks added collectively around USD1 trillion to their average yearly deposits between 2019 and 2024. Had Wells Fargo match overall national deposit growth over the same period it may have added USD400 billion. If Wells Fargo chooses to claw back its prior market share, a significant amount of money could exit regional institutions.
The sources: US Federal Reserve, Reuters, WSJ
