Wells Fargo has cleared 6 regulatory hurdles since Charlie Scharf took over as CEO in 2019. Here’s how shares reacted to each

Published Sat, Mar 9 20242:00 PM EST

Since taking over as CEO of Wells Fargo in 2019, Charlie Scharf has been cleaning up the bank. He's cleared six consent orders tied to past misdeeds there that predated his tenure. Management has eight more to go, a source told CNBC , including one from the Federal Reserve about six years ago that caps the bank's assets at $1.95 trillion. However, every order does not have to be cleared before the cap can be removed. Most recently, shares surged after a major penalty tied to Club name Wells Fargo's 2016 fake accounts scandal was lifted by the Office of the Comptroller of the Currency (OCC) on Feb. 15. Wells Fargo's 16% stock gain in 2024 makes it this year's top performer among the biggest U.S. banks. For comparison, JPMorgan Chase and Bank of America are up nearly 11% and 6%, respectively, year to date. Fellow Club holding Morgan Stanley is down more than 6.5% in 2024. The KBW Bank Index is up 3.2% year-to-date. The S & P 500 index is up more than 7.5% in 2024. WFC .SPX,.BKX 5Y mountain Wells Fargo vs. S & P 500 vs. KBW Bank Index over 5 years The February OCC action is getting a lot of attention because that 2016 consent order was believed to be one of the main reasons the Fed imposed an asset cap on Wells Fargo in the first place. The cap curbs the bank's capacity to write new loans. A consent order in banking is a legal agreement between a bank and a regulatory agency to address business practices without admitting or denying the changes. "That's why I think investors really gravitated or rallied around this one getting lifted. Because even though they've already had a number of them lifted — and still have many more to go — this was kind of at the heart of the matter for them," Scott Siefers, Piper Sandler senior banks analyst, told CNBC on Friday. "I think, at least psychologically, it led investors to believe 'Okay, we're finally getting closer to the finish line.'" Wells Fargo's recent outperformance can be pinned on higher hopes that the Fed-imposed asset cap will be lifted sooner rather than later. Club analysts think this may be a 2025 event. While shareholders wait, here's a look at the progress Scharf has made to clean up the bank's act and how shares have reacted to consent order terminations and expirations along the way. Feb. 15, 2024: The 2016 consent order lifted by the OCC last month compelled the bank to revamp how it sells its retail products and services. The stock surged more than 7.2% on the announcement. Since then, the stock added more than 9.5% and hit a series of 52-week highs, including Thursday's peak price of $57.68. "The OCC's action is confirmation that we have effectively put in place new systems, processes, and controls to serve our customers differently today than we did a decade ago," Scharf said in a statement last month. "It is our responsibility to ensure we continue to operate with these disciplines." This cleared a big hurdle for Wells Fargo regarding the Fed's balance sheet restrictions. Days later on Feb. 20, the Club decided to make a sale on that strength to right-size the portfolio. Wells Fargo had swelled to be our largest position at nearly 5% on recent gains. At the time, Jeff Marks, director of portfolio analysis for the Club, described the regulatory news as a "clear-cut win" for Wells Fargo. Once the Fed's asset cap is gone, he added, this will assure more confidence in management's ability to deliver a sustained 15% return on tangible common equity (TCE), Marks added. Dec. 20, 2022: The Consumer Financial Protection Bureau (CFPB), a little over two years ago, terminated its 2016 consent order regarding student loan servicing misconduct. At the same time, Wells Fargo said it agreed to a $3.7 billion settlement with the CFPB regarding overdraft fees, auto loans, and mortgages. Shares fell 2% that day to $40.98 apiece. The stock began trending upwards in the year to follow, jumping 19% for all of 2023. The S & P 500 rose 26% last year while the KBW fell slightly Wells Fargo was able to notch gains over the period despite the regional bank fallout from the failure of Silicon Valley Bank in March of last year, which sent tremors through the entire sector. Jan. 20, 2022: Wells Fargo said more than two years ago that an OCC consent order was removed that addressed add-on products that the bank offered to certain customers before 2015. The stock fell 1% to $55 apiece that day. Shares tumbled 14% in 2022, much less than the KBW's 24% decline. 2022 was a terrible year for the overall market: The S & P 500 sank 19.4%. Sept. 9, 2021: Less than three years ago, a CFPB 2016 consent order around Wells Fargo's retail sales practices expired. The bank stock was up 1.2% on the announcement, climbing to $44.36 apiece. By year-end 2021, shares experienced another 8% advance since the expiration news. Wells Fargo stock gained 59% for all of 2021 compared with the KWB's 36% rise. The S & P 500 gained nearly 27% in 2021. Jan. 5, 2021: During the same year, Wells Fargo announced that an OCC consent order from 2015 had been terminated. This was related to the bank's anti-money laundering compliance program. Shares jumped 2.8% that day to $30.35 apiece on the update. January 2020: There was another CFPB consent order that expired more than four years ago. However, the bank did not formally announce the action at the time. CNBC reached out to Wells Fargo for clarification, and a spokesperson confirmed that on Jan. 22 the consent order had expired. Wells Fargo shares plunged nearly 44% in 2020, which were the early days of the Covid pandemic. The KBW lost 14% in 2020. The S & P 500, which dropped 30% in 22 sessions in March 2020, ended that year up just over 16.3%. Bottom line Overall, we're upbeat on continued efforts by Wells Fargo's management to fix the bank's previous misdeeds. Adapting to regulatory demands will push the bank closer to having its Fed-imposed asset cap lifted. Although the Club doubts whether it will happen this year, they are optimistic that once the bank's growth is no longer restricted, shares will have more upside. (Jim Cramer's Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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Wells Fargo bank signs in New Brighton, Minnesota.

Michael Siluk | UCG | Universal Images Group | Getty Images

Since taking over as CEO of Wells Fargo in 2019, Charlie Scharf has been cleaning up the bank.