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UPDATE: Wells Fargo operating under asset cap through end of 2019


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UPDATE: Wells Fargo operating under asset cap through end of 2019

Wells Fargo & Co.'s regulatory asset cap restriction will remain in place through the end of 2019, management said during a fourth-quarter 2018 earnings call on Jan. 15.

The Federal Reserve imposed a cap restricting Wells Fargo's growth in February 2018 as a consequence for the bank's compliance and regulatory missteps and has said the cap will remain in place until third-party reviews are completed to its satisfaction.

The order limits the company's asset size to its end-of-2017 level of $1.952 trillion. It also replaced four board members and included letters informing the directors that they failed to meet the regulator's expectations. It focused on the bank's governance and oversight, which included the board, as well as its compliance and operational risk management.

Wells Fargo President and CEO Timothy Sloan has pushed back when the bank expects to be released from the cap before, initially from the end of 2018 to the first half of 2019.

Sloan said the changed date will provide more time for the bank to adopt and implement the Federal Reserve's detailed feedback and complete the third-party reviews. He said the plans the bank has drawn up are "very comprehensive [and] involve extensive documentation" that takes time to review and process.

"We continue to have very frequent and constructive dialogue with the Fed," Sloan said. "We're both working toward the same goal, which is that we want to have best-in-class risk management."

He highlighted Wells Fargo's numerous changes in response to regulators' scrutiny of the bank, including reconstituting several board committees, enhancing the bank's information flow and escalation procedures and the reporting and analysis that the board receives. Wells Fargo has also hired new C-level officers in areas such as risk, compliance, regulatory relations and operational risk, and it grew its corporate risk management employees by 15%, or 1,300 people, Sloan said. The bank also altered its risk management framework.

"From my perspective, we're making good progress," Sloan said. "It's just taking a little bit longer than what we had originally anticipated."

The announcement that the asset cap would remain in place was another reminder that regulators are still scrutinizing the bank. Its fourth-quarter 2018 earnings of $6.1 billion included $432 million of operating losses, of which $175 million was earmarked for the bank's recent settlement with state attorneys general for $575 million. The settlement covered sales practices that violated state consumer protection laws, such as the 2016 fake account scandal and auto insurance and mortgage interest rate lock matters. That settlement adds to the more than $1 billion in fines the bank has agreed to pay various regulatory agencies.