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Banks, Financial

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Categorized | Banks

Wells Fargo hit by new restrictions from regulator

Posted on November 21, 2016

An influential US regulator has imposed new restrictions on Wells Fargo in the wake of the bank’s sham account debacle, a sign it is flexing its muscles ahead of a change at the helm of the watchdog by the incoming Trump administration.

As a result of the unexpected order from the Office of the Comptroller of the Currency, Wells will no longer enjoy “expedited treatment” when it wants to open branches or make other important business decisions.

Wells must also get the OCC’s approval before it changes senior managers or directors and makes “golden parachute” payments to executives — potentially making it harder for the bank to attract new people.

The move threatens to hamper Wells’ efforts to get its business back on track after regulators found that thousands of its staff had opened fake bank accounts for customers without their consent.

The head of the OCC is appointed by the US president with the consent of the Senate. Thomas Curry’s term is due to end in April.

Ian Katz, director at the policy analysis group Capital Alpha, said: “It’s an indication that the OCC and other financial regulators don’t intend to slide into lame-duck mode.”

The decision surprised executives at Wells. Under the terms of its $185m settlement with regulators in September the OCC had granted the bank relief from restrictions it can impose when it takes enforcement actions.

However, the scandal has since triggered a public and political outcry and several other public bodies and prosecutors have opened new probes into Wells. The decision by the OCC revokes the waivers that it had previously granted.

The OCC would not explain why and declined to comment beyond a brief statement that set out the restrictions. Several lawyers and consultants told the Financial Times that they suspected the OCC had taken the move under political pressure to take a tougher line against the bank.

Shares in Wells were down 1 per cent by midday in New York, while the broader market was up. The stock had surged after the election, recouping heavy losses since the scandal erupted in September.

Wells was already facing widespread disruption to its business from the episode. Figures released last week showed current account openings tumbled almost half in October compared to a year ago.

However, in a note published on Monday, the rating agency Moody’s highlighted “only a modest uptick in account closings” — a sign existing customers were not deserting the bank.

In a memo to staff, the bank’s new chief executive Tim Sloan said: “We will comply with the revised requirements and continue to co-operate with the OCC and other regulators.”

He said the development “means we can continue to expect challenges as our work continues. We are making progress, and we will get through this situation.”

The new restrictions will apply until the OCC’s requirements are satisfied.