Aniket PujariThe removal of Wells Fargo’s $1.95 trillion asset cap holds a hidden benefit – billions upon billions of dollars in savings. Wells Fargo has been paying no small fortune to chip away at all of the regulatory fallout from past misdeeds at the bank, including the 2018 Federal Reserve-imposed asset cap and a long list of consent orders with other agencies. Charlie Scharf was brought in as CEO in 2019 to clean things up after the 2016 fake accounts scandal and others. A few weeks ago, Wells Fargo closed its 10th consent order , leaving four remaining. Proving that the bank has changed its ways has been a precursor to convincing the Fed to remove the cap. Many analysts believe the Fed will lift the cap, perhaps even this year. President Donald Trump ‘s softer approach to government regulation has raised hope that it will happen sooner rather than later. Free of the cap, Wells Fargo’s ability to expand is well documented. However, what is less known is how much the bank would save in costs allocated to staffing and running operations to comply with the conditions to clear the orders. During Wells Fargo’s post-earnings conference call in January, management forecasted expenses for 2025 that include operating losses of $1.1 billion — part of which goes to risk and control infrastructure. That’s $700 million less than last year. When asked about spending on remediation efforts, a Wells Fargo spokesperson pointed to its latest annual report, which indicated that the bank paid $2.5 billion more in 2023 than in 2018. Raymond James analyst David Long also said Wells Fargo’s operating losses would likely narrow even further if the cap were to be lifted. “A portion of it can be reinvested in revenue-generating expenses — whether it’s incremental hiring or improving internal operations or infrastructure,” Long recently told CNBC. “Having a larger balance sheet would be great, but on the expense side there’s upside to the bottom line as well,” Long added. To be sure, some of those expenses will likely “stay and remain in compliance.” Operating expenses Enhancing compliance and risk management has been the cornerstone of Wells’ operational strategy since Scharf took over. The bank has significantly invested in hiring and has added approximately 10,000 people across its numerous risk and control groups, according to Wells Fargo’s 2023 annual report, which was released in March 2024. The bank has also implemented new systems to mitigate operational risks, including revamping its employee incentive structures within its branches to avoid missteps that led to the cross-selling scandal and other misconduct. “Building the right risk and control infrastructure remains our top priority, and we will continue to invest in this important work,” CFO Michael Santomassimo said during the company’s Jan. 15 earnings call. All of these expenses seemed to have been worth it. Wells Fargo management announced the termination of four consent orders alone since the start of February and still has four more to go. That progress seen as needed in its bid to get the Fed to lift the asset cap drove shares to a record closing high of $81.42 back on Feb. 6. Since then, however, Wells Fargo has pulled back roughly 18%, as of the close on Monday, which continued a terrible recent stretch for the overall market due to economic uncertainty stemming from concern about the impact of President Donald Trump ‘s tariffs. The stock has done worse than the S & P 500 ‘s loss of more than 8.5% since its own record high closer on Feb. 16. Trump is expected to meet with business leaders Tuesday evening. WFC YTD mountain Wells Fargo (WFC) year-to-date performance After the asset cap Stock performance aside, imagine what those billions could go to once Wells Fargo doesn’t need to account for expenses toward removing its asset cap. Management could focus on further expanding budding lucrative businesses. Although Wells Fargo is commonly known as a money center bank, it has made efforts to grow its capital markets, trading, and investment banking (IB) businesses. In recent years, Wells has gone on a hiring spree for senior-level employees to boost its Corporate and Investment Banking (CIB) division. An IB expansion is a wise move for Wells because the business garners fees from Wall Street dealmaking via initial public offerings (IPOs) and mergers and acquisitions (M & A), which helps to further diversify the company’s revenue streams further. It also allows Wells to not rely so heavily on interest-based income for its bottom line, which is at the mercy of the Fed’s policy decisions. While perceived as business-friendly, IPOs and M & A were expected to increase under Trump. The economic turbulence over tariffs, however, has raised concerns about when that activity might pick up. Those questions have been a factor in recent bank stock weakness as well. To be sure, Scharf has said that Wells Fargo is going to be “very deliberate about how we go about business expansion,” if, and/or when, regulators remove the cap. During the company’s last earnings call, the CEO added, “We’re not going to sit here and say, ‘The shackles are off. Therefore, the following ten things are going to change materially.'” He continued, “It’s going to be disciplined, thoughtful, piece by piece, in a very controlled way, and only in places that are supported by the controls that we have in place.” But even with the current lid on Wells’ balance sheet, there are signs that this CIB expansion is already paying off. Wells Fargo’s IB fees surged 59% to $725 million year-over-year in the fourth quarter. The bank beat on earnings but missed expectations for revenue. We bumped our price target to $84 apiece from $80 at the time and maintained our hold-equivalent 2 rating. The timing of a Wells Fargo asset cap removal remains uncertain. Management has not commented on it directly. Raymond James models that the cap may come off in the second half of 2026. “I do believe that is a conservative forecast,” Long said. “Given that we have seen four consent orders come off recently, there’s [even] a pretty decent chance that the asset cap will be removed this year.” (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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A Wells Fargo branch is seen in New York City.
Gary Cameron | Reuters
The removal of Wells Fargo’s $1.95 trillion asset cap holds a hidden benefit – billions upon billions of dollars in savings.
