NEW YORK – The Biden administration eased some of the restrictions on banking giant Wells Fargo, saying the bank has sufficiently fixed its toxic culture after years of scandals.
The news sent Wells Fargo's stock up sharply Thursday as investors speculated that the bank, which has been kept under a tight leash by regulators for years, may be able to rebuild its reputation and start growing again. The bank's shares closed up 7.2% to $52.04, its highest level since March 2022, in extremely active trading.
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The Office of the Comptroller of the Currency, the regulator of big national banks like Wells Fargo, on Thursday terminated a consent order that had been in place since September 2016. The order required the bank to overhaul how it sold financial products to customers and provide additional consumer protections, as well as employee protections for whistleblowers.
That consent order was put into place after a series of newspaper and government investigations in 2016 found Wells Fargo to have a poisonous sales culture that pressured employees into selling multiple products to customers even though the products were not needed. Employees — who worked at “stores” not bank branches — were forced to open millions of unauthorized accounts. Customers had their identities stolen and their credit scores impacted. Of the millions of customers effected, a disproportionate number were non-English speaking Americans.
The scandal severely tarnished the reputation of San Francisco-based Wells Fargo, which eight years ago was considered one of the best-run banks in the country by investors and analysts.
Since the scandal broke, Wells Fargo overhauled its board of directors and management, paid more than a billion dollars in fines and penalties, and has spent eight years trying to show the public that the bad practices are a thing of the past. The scandal led to unionization efforts at some branches as employees protested how managers pushed unreasonable sales goals.
In a brief statement Thursday, the Comptroller of the Currency said that Wells Fargo's “safety and soundness” and “compliance with laws and regulations does not require the continued existence of the Order."
The decision is a major victory for Wells Fargo's management and Charles Scharf, who took over as CEO in 2019.
“Confirmation from the OCC that we have effectively implemented what was required is a result of the hard work of so many of our employees, and I’d like to thank everyone at Wells Fargo involved for their dedication to transforming how we do business,” Scharf said in a prepared statement.
Citigroup banking analyst Keith Horwitz said in a note that the OCC's decision was “positive proof” that Wells Fargo's management was making the right decisions to fix the company's culture.
There remains in place a Federal Reserve consent order against Wells Fargo as well as a requirement by the Fed that bank grow no bigger than its current size until it fixes its sales culture. The Fed declined to comment, but the OCC's decision is likely to pressure the Fed to make its own decision regarding its restrictions on Wells Fargo.
Including the Fed's order, Wells Fargo still has eight consent orders that govern its operations. That's down from 14 when Scharf took over the bank. Management says they still have work to do.
“We’ve changed the company across a number of dimensions," said Scott Powell, Well Fargo's chief operating officer, in an interview. Powell joined the bank roughly around the same time as Scharf.
We’re doing better for customers and employees and we keep working to address the risk issues that are still outstanding.”