WFC Wells Fargo and Company

By Emily Glazer 

Wells Fargo Chief Executive Timothy Sloan said the bank's asset cap imposed by the Federal Reserve will continue into the first part of 2019. Mr. Sloan, speaking at Wells Fargo's investor day presentation Thursday, said the bank needs time to address and incorporate feedback from the Fed.

The Fed, which cited "widespread consumer abuses" at Wells Fargo, imposed the asset cap in an unprecedented enforcement action in February. 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. It can continue to lend and take deposits.

Mr. Sloan said Thursday the bank is having a "constructive dialogue" with the Fed on its recently submitted plans but can't disclose further information due to confidential regulatory discussions. The bank said in February that third-party reviews of Wells Fargo plans related to Fed's enforcement action would be completed by Sept. 30, 2018. After the Fed signs off on those reviews, the cap would be lifted.

Despite the delay, Wells Fargo Treasurer Neal Blinde said during the Thursday investor presentation that Wells Fargo won't have to take as many actions as it expected related to the Fed's asset cap since "loan and deposit growth is below previous expectations," according to the investor presentation. The net income impact after tax, he said, will likely be less than $100 million instead of the $300 million to $400 million Wells Fargo initially disclosed in February. He also said while the asset cap's earnings impact was "nominal" in the first quarter, it is expected to "modestly increase" in future quarters.

As Wells Fargo presents at its investor day, one of the big questions from analysts and shareholders is how it will return to revenue growth.

Bernstein banking analyst John McDonald wrote in a May research note that Wells Fargo's revenue, along with growth and any updates on the Fed consent order, are key questions investors want clarity on.

In April it settled with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau for $1 billion over failures to manage risk, causing it to adjust first-quarter earnings by $800 million.

In the first quarter, revenue fell to $21.9 billion, down nearly 2% from a year earlier. Total loans of $947.3 billion declined compared with the prior quarter and from a year earlier. And the bank's mortgage business, once the largest in the U.S., has shrunk.

Wells Fargo's expenses have also remained high, in part because of the bank's need to address regulatory and business issues. The bank has operated above its target efficiency ratio, or expenses as a share of revenue, for several quarters. The bank's finance chief, John Shrewsberry, said in April Wells Fargo's efficiency ratio will likely stay above 59% for the rest of 2018.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

May 10, 2018 11:40 ET (15:40 GMT)

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