Fed Eases Wells Fargo's Growth Limit to Support Small Firms

Having assessed the need to help small firms amid economic uncertainty caused by the novel coronavirus outbreak, the Federal Reserve has allowed Wells Fargo & Company WFC to "narrowly” cross the $1.95-trillion asset cap, which was imposed as a result of several compliance failures in the past.

Shares of Wells Fargo gained 5.3% yesterday, reflecting investors’ optimism on the easing.

The central bank said, “The change will only allow the firm to make additional small business loans as part of the Paycheck Protection Program, or PPP, and the Federal Reserve's forthcoming Main Street Lending Program.”

Notably, the move is only temporary and will be in place as long as the above-mentioned programs to help troubled firms are active. The bank will be able to accept deposits as well. Also, the Fed has asked Wells Fargo to transfer benefits from the programs to the U.S. Treasury or other Fed-approved non-profits organizations supporting small businesses.

“Wells Fargo appreciates the targeted action of the Federal Reserve to support the needs of small businesses through PPP and looks forward to expanding relief to many more small businesses and nonprofits,” said Wells Fargo’s CEO, Charlie Scharf.

Scharf added that the company remains committed to satisfy regulators by taking necessary actions under the consent order.

The $350-billion relief program was launched to help small business owners, who are facing the risk of shutting down. The aim is to help the firms cover employee compensation and other expenses like rent and utilities.

Soon after the program went live, Wells Fargo announced to have received the application for more than $10 billion that it was eligible to lend due to the asset cap.

Some other major banks such as M&T Bank MTB, PNC Financial PNC and Truist Financial TFC are participating in the program.

Over the past six months, shares of Wells Fargo have lost 37.8% compared with a 25.5% decline recorded by the industry.

 

 

Currently, the company carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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