U.S. Senator Elizabeth Warren scored a coup in her campaign to improve oversight of the beleaguered bank Wells Fargo & Co. (WFC) , as Federal Reserve Chair Jerome Powell promised to hold a full vote of the regulator's board before lifting sanctions imposed earlier this year.
In a letter Thursday to the Massachusetts Democrat, Powell wrote that a full vote of the Fed board of governors will be held prior to lifting the asset-growth suspension placed on Wells Fargo in February. Previously, the decision on when and whether to lift the sanctions would have been delegated to Wells Fargo's regional overseer, the Federal Reserve Bank of San Francisco, with the concurrence of the national Fed's director of supervision.
"I'm glad the Fed's board of governors changed course and will vote on whether to lift the growth restriction, rather than delegating that important question," Warren said in a press release.
The decision by Powell raises the stakes on San Francisco-based Wells Fargo as the bank struggles to recover from a series of scandals that emerged in 2016 involving overly aggressive sales practices that harmed customers. The bank faces more than $2 billion in fines and extra legal costs related to the issues, which include the opening of millions of unauthorized accounts and charging auto borrowers for insurance they didn't need.
The scandal has sent Wells Fargo's shares down 10% this year, while JPMorgan shareholders have seen a 6.8% gain and the Standard & Poor's 500 Index of large U.S. stocks is up 1.9%.
The bank has since overhauled its board of directors, installing former Fed Governor Betsy Duke as the new chair and retiring members who failed to stop the scandal. Wells Fargo also has given women a greater share of the votes on the board -- a practice that corporate-governance advocates argue will improve risk management and lead to superior long-term investment returns.
On Thursday, Wells Fargo CEO Tim Sloan said he wants the bank to become "THE leader" -- his emphasis -- in the financial industry in terms of customer service.
That shift would represent a remarkable turnaround in corporate strategy following years in which former Wells Fargo CEOs Richard Kovacevich and John Stumpf touted the benefits of "cross-selling," essentially the idea that account executives would push customers hard to buy as many of the bank's products as possible, from simple checking accounts to home loans, brokerage accounts and insurance.
Warren has been a dogged critic of the bank's management and board since the alleged customer abuses first came to light in 2016. She berated former CEO John Stumpf at a Senate hearing that year, adding to pressure on the executive that eventually led to his departure. Then, starting in 2017, she began lobbying former Fed Chair Janet Yellen to take more vigorous steps to push out Wells Fargo board members who failed to avert prevent the scandals, according to her office.
Yellen, during her final days in office in February prior to turning over the Fed's leadership to Powell, pushed the central bank's board to cap Wells Fargo's growth at the current level around $2 trillion.
At a senate hearing in March, Warren had asked Powell to assure her that the order wouldn't be lifted without a full vote of the Fed board.
Powell wrote in his letter Thursday that the decision to hold the full board vote came "after further consideration" following Warren's questioning during the hearing.
"The firm must make significant progress in remedying its oversight and compliance and operational risk-management deficiencies before relief from the asset-growth restriction would be forthcoming," Powell wrote.
Wells Fargo CEO Tim Sloan told investors separately Thursday that it could take longer than previously expected to resolve the Fed's requirements, likely extending the asset cap into the first part of 2019.