Fed Eases Wells Fargo's Asset Cap to Lend to Small Businesses Harmed by Coronavirus -- 2nd Update
April 08 2020 - 3:33PM
Dow Jones News
By Ben Eisen and Andrew Ackerman
The Federal Reserve temporarily lifted restrictions on Wells
Fargo & Co.'s growth, allowing the troubled bank to make more
loans during the coronavirus crisis and giving it a chance to
improve its tarnished reputation.
The bank's lending capacity has been limited by a $1.95 trillion
cap on assets imposed by the Fed in 2018. The bank will now be able
to exceed that overall limit via loans it makes through two of the
government's small-business lending programs, the central bank said
Wednesday. The cap will remain in place for all other types of
lending.
The central bank said it would "temporarily and narrowly modify
the growth restriction on Wells Fargo so that it can provide
additional support to small businesses."
Exemptions to the limit apply to loans made through the $350
billion Paycheck Protection Program and the Federal Reserve's Main
Street Lending Program, which has yet to be rolled out. Any profits
must go to the Treasury or a nonprofit focused on small
businesses.
The change will amount to a real-time test of whether the
nation's No. 4 bank has fixed the compliance failures that led to
the cap, which was imposed after the bank was found to have created
perhaps millions of fake accounts. In October, the bank brought in
Charles Scharf as its chief executive officer, an outsider tasked
with helping the bank resolve outstanding regulatory issues.
"The Federal Reserve's action does not -- and should not -- in
any way relieve us of our obligations" under the Fed's asset cap,
Mr. Scharf said in a statement.
However, the temporary reprieve may help Mr. Scharf to rebuild
the bank's reputation among regulators and politicians who have
long taken a critical view of the bank, according to Jaret Seiberg,
a policy analyst at Cowen.
House Financial Services Committee Chairwoman Maxine Waters (D.,
Calif.) told Mr. Scharf last month: "The bank you inherited is
essentially a lawless organization that has caused widespread harm
to millions of consumers throughout the nation."
In recent days, Wells Fargo has been more vocal about the
burdens of the asset cap in the current crisis. It said on Sunday
that the balance-sheet restrictions forced it to limit lending
through the Paycheck Protection Program to $10 billion. It has been
prioritizing loans to business customers and nonprofits with fewer
than 50 employees.
Kim Gorton, CEO of Slade Gorton & Co., a Boston-based
seafood processor and distributor, said she hasn't been able to get
a Payment Protection Program loan through Wells Fargo despite
repeated attempts that began on Friday. The bank is her primary
lender.
A Wells Fargo representative told her Monday morning that her
company wouldn't be eligible because the asset cap had limited the
bank's ability to handle loans, she said. Slade Gorton employs
roughly 85 people, including about 25 who are on furlough. Wells
Fargo is a large commercial lender in the $100 billion seafood
industry, which is struggling right now as restaurants shut
down.
"It's not just my little company getting put in this situation,"
she said on Monday. "It's thousands of other companies."
Wells Fargo said on Wednesday afternoon that it would widen its
criteria to accept applications from those who meet the program
requirements and had a business account with the bank on Feb. 15.
In the first two days of the program, more than 170,000 potential
applicants expressed interest, the bank said.
The bank's shares rose about 4.4% in afternoon trading, topping
the S&P 500's 2.9% climb.
Write to Ben Eisen at ben.eisen@wsj.com and Andrew Ackerman at
andrew.ackerman@wsj.com
(END) Dow Jones Newswires
April 08, 2020 15:18 ET (19:18 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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