Introduction
S&P Global has upgraded its outlook on Wells Fargo to "positive" following the lifting of a significant asset cap imposed by the U.S. Federal Reserve. This decision signals a pivotal moment for the bank as it moves forward in its recovery efforts.Context
The U.S. Federal Reserve imposed an unprecedented seven-year asset cap on Wells Fargo in 2018 to address governance and compliance issues arising from a fake accounts scandal in 2016. This measure was designed to limit the bank’s balance sheet growth while it worked to rectify its internal problems.Developments
On Tuesday, the Fed unanimously agreed to lift the asset cap, a move that reflects the bank's substantial improvements in governance, risk management, and control. Following this announcement, Wells Fargo's stock price surged to a three-month high, achieving nearly 8.3% growth in a year where the broader S&P 500 index remained largely unchanged.S&P also highlighted expectations for Wells Fargo to expand its commercial and investment banking operations, which were heavily impacted by the asset cap as the bank had to refuse some nonoperational deposits. In contrast to Wells Fargo's limitations, peer institutions like JPMorgan Chase, Bank of America, and PNC Financial have seen substantial asset growth since 2018, with JPMorgan increasing by nearly $2 trillion, Bank of America by about $1 trillion, and PNC Financial by nearly $200 billion.