The asset cap under which Wells Fargo laboured for seven years — finally lifted on Tuesday — remains one of the weirdest, and harshest, penalties meted out to a rogue financial institution. Having extensively defrauded customers, the bank was barred by the Federal Reserve in 2018 from growing its assets above $2tn. The cap was temporary; its impact is not.
Charlie Scharf, who took over as chief executive in 2019 after multiple scandals felled his two predecessors, has spent his time at Wells Fargo fighting through a thicket of consent orders, lawsuits and investigations. During that time, rivals have made hay, and lots of it. Bank of America and JPMorgan have grown their own balance sheets by 50 per cent and 70 per cent respectively, in round numbers.
That means a heap of profit that Wells Fargo has missed. Had Scharf’s bank grown as fast as Bank of America’s, its balance sheet today would be over $900bn bigger. At its current 1 per cent return on assets, Wells Fargo would be generating an extra $9bn a year of earnings. Value that on its current price-to-earnings multiple of 13, and the asset cap has cost the bank nearly $120bn of market capitalisation.