Banking Regulator Imposes New Restrictions on Wells Fargo

By RACHEL WITKOWSKI for the Wall Street Journal.

WASHINGTON—The federal government has put Wells Fargo & Co. on a much tighter leash, requiring the firm’s banking unit to seek approval before making a wide range of business decisions, after a regulator revoked key portions of a two-month-old settlement in the company’s sales scandal.

The announcement late Friday caught Wells Fargo executives by surprise and injects regulators far deeper into the bank’s operations. The bank is now banned from offering departing executives “golden parachute” payments, according to the statement from the Office of the Comptroller of the Currency, and it must get the OCC’s permission before it changes its business plans, hires or fires senior executives, or revamps its board of directors.

The OCC, in the terse one-paragraph statement, didn’t explain why it had unilaterally altered the terms of the September agreement negotiated with Wells Fargo, which included a $185 million settlement over the opening as many as 2.1 million accounts using fictitious or unauthorized customer information. An OCC spokesman declined to elaborate beyond the statement.

“I’ve never seen anything like this,” said a former OCC official who asked not to be identified. “It’s surprising to see the agency reverse themselves on a negotiated agreement without some new information coming to light.”

In the wake of the sales scandal, CEO John Stumpf abruptly retired, and the bank’s new leader, Timothy Sloan, has been trying to persuade government officials and politicians that the company has been working diligently to correct the problems. Mr. Sloan most recently spread that message during a series of meetings in Washington, D.C., earlier in the week.

“We continue to cooperate with the OCC as well as all our regulators and will comply with these requirements,” Wells Fargo spokeswoman Jennifer Dunn said in a statement Friday. “This will not inhibit our ability to execute our strategy.”

The OCC’s move comes at a time when some Republican lawmakers have urged financial regulators to ease up on imposing new restrictions, following the Nov. 8 elections. President-elect Donald Trump and Republican congressional leaders have blamed excessive banking regulation for stifling economic activity.

The new regulations add to the list of challenges facing the bank as it tries to move past the scandal. It is also dealing with a raft of state and federal investigations, including probes by the Justice Department and the Securities and Exchange Commission.

And Wells Fargo continues to face heat on Capitol Hill. Earlier Friday, Ohio Sen. Sherrod Brown—the senior Democrat on the Senate Banking Committee—blasted the bank for the way it was handling questions from Congress, saying answers submitted “either ignored or provided insufficient responses to a host of the senators’ questions.”

Wells Fargo has also seen significant business fallout from the scandal. The company reported Thursday that consumer checking-account openings fell to about 300,000, or down 27% in October compared with the previous month and plummeted 44% versus the year-earlier period, largely because of a “full month of impact of customer reaction to the sales practices settlement and reduced marketing activities.”

When the OCC reaches settlements with banks accused of wrongdoing, one power it has is whether to impose wide-ranging limits on executive compensation and other business activities. The OCC granted Wells Fargo a waiver to those restrictions in September, and Friday’s announcement was a declaration that the agency was revoking that waiver.

The new restrictions apply to Wells Fargo’s bank, not the holding company. These curbs will remain in effect until the regulators are satisfied that the bank has met all the requirements set in the September settlement.

People familiar with the matter, reached Friday evening, said the bank was still in the process of trying to assess the implications.

The OCC move is likely going to result in “more notices and approvals” between the bank and the regulator, who will be more entangled in the bank’s decisions and business activities, one of these people said.

For instance, it is possible the bank may need to give notice to the OCC and get the regulator’s approval if it plans to change a branch location, though it is too early for the bank to know exactly which business activities would require such lengths, this person said. The bank may not be able to pay bonuses or fire executives without OCC approval, another one of these people said.

Wells Fargo has been in the spotlight since the September settlement with the OCC, the Consumer Financial Protection Bureau and the Los Angeles City Attorney’s office over the sham accounts scandal. The bank’s board clawed back about $60 million from Mr. Stumpf and former retail banking head Carrie Tolstedt, who retired earlier than planned.

More clawbacks or firings could be in order as the board continues its independent investigation, which it hopes to complete in the coming months, people familiar with the matter have said.