Wells Fargo Rebuke Puts Bank Boards in Fed's Crosshairs
February 04 2018 - 09:15PM
Dow Jones News
By Ryan Tracy and Emily Glazer
The Federal Reserve's unprecedented move to handcuff growth at
Wells Fargo & Co. sent a message that boards of directors, not
just management, will be held accountable when big banks fail to
manage risks.
The Fed on Friday said Wells Fargo would be replacing four board
directors in 2018 and announced an enforcement action that limits
the size of the third-largest U.S. bank by assets, potentially
crimping revenue and profit growth.
While directed at Wells Fargo, which has struggled to overcome
the sales practices scandal that engulfed the bank in September
2016, the Fed's action has wider ramifications.
"The Fed just put the fear of God into bank boardrooms across
the country," Ian Katz, an analyst at Capital Alpha Partners, said
in a note on Sunday. "And that's exactly what it wants to do."
The Fed, which cited "widespread consumer abuses" at Wells
Fargo, has never before imposed such a broad restriction as part of
an enforcement action. Wells Fargo is barred from growing past the
$1.95 trillion in assets it had at the end of 2017, unless it gets
regulators' permission. Fed officials did say the company can
continue to lend and take deposits.
Wells Fargo said it was "confident it will satisfy the
requirements of the consent order."
CEO Timothy Sloan, also a board director, said on a call with
analysts Friday evening that the bank within 60 days will submit
plans to the Fed "that leverage existing plans and efforts already
under way to further enhance the board's effectiveness in carrying
out its oversight and governance of the company and further improve
the firm-wide compliance and operational risk management
program."
A letter Friday from departing Fed Chairwoman Janet Yellen to
Sen. Elizabeth Warren (D., Mass.), showed that the central bank is
thinking more broadly than just Wells Fargo. Ms. Yellen wrote that
the Fed is raising expectations for boards of directors across the
banking industry.
The letter cited guidance for boards the Fed proposed in August,
which Mrs. Yellen wrote "marks the first time that the Federal
Reserve has issued stand-alone expectations for boards of directors
as distinct from management."
"That distinction allows us to spotlight the core
responsibilities of effective boards, one of which is to ensure the
independence and stature of the risk management and internal audit
function," the letter said.
Mrs. Yellen handed over leadership of the central bank this
weekend to Jerome Powell. He was appointed by President Donald
Trump, who has pushed a deregulatory agenda for banks and other
industries.
But banks shouldn't necessarily think Mr. Powell will change
course. As a Fed governor, he took a leading role in pushing the
Fed to adopt the new regulatory guidance for board members.
Write to Ryan Tracy at ryan.tracy@wsj.com and Emily Glazer at
emily.glazer@wsj.com
(END) Dow Jones Newswires
February 04, 2018 21:00 ET (02:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Wells Fargo (NYSE:WFC)
Historical Stock Chart
From Feb 2024 to Mar 2024
Wells Fargo (NYSE:WFC)
Historical Stock Chart
From Mar 2023 to Mar 2024