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Wells Fargo Gets Break From Fed Cap for Small-Business Aid (2)

April 8, 2020, 5:22 PM

Wells Fargo & Co. is getting a break from the Federal Reserve’s order capping its assets, freeing up hundreds of billions of dollars in lending power when the U.S. economy needs it most.

The Fed announced Wednesday that it will “temporarily and narrowly modify” the restriction so Wells Fargo can expand lending to small businesses through the Paycheck Protection Program and the Fed’s upcoming Main Street Lending Program. Growth of the San Francisco-based lender’s balance sheet related to these programs will not count against the asset cap.

“The change today provides additional support to small businesses hurt by the economic effects of the coronavirus,” the Fed said in a statement Wednesday. The Fed is requiring Wells Fargo to transfer benefits from these programs to the Treasury or approved nonprofits to support small businesses.

Shares of Wells Fargo rose as much as 4.7% after the modification was announced, slightly outpacing the 4.2% gain in the 24-firm KBW Bank Index.

The nation’s fourth-largest bank had previously approached the Fed about easing the unprecedented penalty as the coronavirus pandemic weakens the economy. The order, imposed in February 2018, restricts the bank from increasing assets beyond their year-end 2017 level until it enacts reforms to the regulator’s satisfaction.

Earlier this week, the firm pressed its case with a statement saying that the asset cap prevents it from meeting demand from small businesses under the government’s stimulus plan. After the Fed’s announcement Wednesday, Wells Fargo put out a statement saying it will immediately expand lending to small businesses.

“While the asset cap does not specifically restrict Wells Fargo’s participation in this program, this action by the Federal Reserve will enable Wells Fargo to provide additional relief for our customers and communities,” Chief Executive Officer Charlie Scharf said in the statement. He added that the firm still has “much to do” on its outstanding consent orders.

The Fed cap is among the sanctions levied upon the bank for a series of consumer-abuse scandals that started coming to light in 2016 with the revelation that employees may have opened millions of accounts without customer permission to meet sales targets. As of the end of March, Fed officials were still reluctant to ease or lift the order because they determined Wells Fargo hadn’t made adequate reforms.

The firm is a leading lender to small and midsize U.S. companies, homebuyers and commercial-property investors. Last month, Bloomberg calculated that Wells Fargo has capacity for an additional $384 billion in lending based on its capital at the end of 2019 -- the most firepower among the nation’s eight largest lenders.

Read more: Wells Fargo has $384 billion of lending power stymied by Fed cap

(Updates with Wells Fargo statement beginning in sixth paragraph.)

To contact the reporters on this story:
Hannah Levitt in New York at hlevitt@bloomberg.net;
Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editors responsible for this story:
Michael J. Moore at mmoore55@bloomberg.net;
Jesse Westbrook at jwestbrook1@bloomberg.net

Dan Reichl, Daniel Taub

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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