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Wells Fargo CEO: Fed-imposed asset cap to continue into 2019

Wells Fargo & Co.'s chief executive said an unprecedented penalty levied on the banking giant is likely to continue into 2019. Executives had previously suggested that regulators might lift a cap on its assets late in 2018.

Under a first-of-its-kind enforcement action by the Federal Reserve, Wells must keep its asset size under roughly $1.95 trillion — the level at which it finished 2017 — until it can demonstrate substantial improvements with its risk management and internal controls. The Fed imposed the action in February in the wake of a massive sales scandal.

President and CEO Timothy Sloan said during a May 10 meeting with investors and analysts that the bank needs more time to absorb and implement guidance from the Fed. Sloan described ongoing conversations with regulators as constructive.

Wells executives previously said they were braced to make divestitures, curb some business activity and push certain deposits off the bank's balance sheet in order to free up room for it to grow core lending and remain under the cap.

But Wells Treasurer Neal Blinde said at the meeting in Charlotte, N.C., that loan and deposit growth have been "modest" relative to earlier expectations, and the bank has needed to take steps beyond downsizing commercial deposits from other financial institutions.

Blinde estimated the after-tax impact on net income from the Fed cap would be less than $100 million this year, down from an earlier estimate of at least $300 million.

Wells' public troubles date to September 2016, when regulators made it known that the bank's retail staffers had opened millions of sham accounts. Wells has since unearthed additional problems, including wrongly charged auto, mortgage and wealth management customers.

The company said this month that it would pay $480 million to settle a lawsuit that claimed Wells misled shareholders about the phony accounts. Earlier this year, federal regulators fined Wells $1 billion.

Wells executives also said at the meeting that they look to return 55% to 80% of earnings in dividends and share repurchases over the long term. That is up from a previous range of 55% to 75%.

Executives said net interest income will likely prove stable in 2018. The bank said it is earning more on loans following several Fed interest rate increases. But it also expects to pay out more in interest to depositors this year.

Wells reiterated that it continues to expect it will reduce its noninterest expense base by $4 billion before the end of 2019.