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Fed's Asset Cap Limits Wells Fargo From Helping Small Firms

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The limit on asset growth placed by the Federal Reserve on Wells Fargo & Company WFC as punishment for involvement in an accounts scandal is keeping the bank from helping small businesses that are being affected by the coronavirus pandemic. Thus, the bank is requesting the regulator to lift the cap temporarily.

In the wake of the impacts of the coronavirus outbreak to the economy, the government designed a $350-billion U.S. Relief Program to help small business owners, who are facing the risk of shutting down. The loans are guaranteed by the Small Business Administration agency and carry low-interest terms to help small businesses cover employee compensations and other fixed costs such as rent, mortgages and utilities for the next two months.

Wells Fargo is eligible to fund about $10 million or only 3% of the program due to the asset cap. Citigroup C, Bank of America BAC and First Hawaiian (FHB - Free Report) are some other U.S. banks participating in the program.

Per a Bloomberg article, Wells Fargo has received requests for loans more than it is allowed to cater. Thus, on late-Sunday, the bank announced that it would not accept new loan applications under the program.

Despite limitations, it is focusing more on helping non-profit firms and businesses with less than 50 employees. Further, Wells Fargo is restructuring its balance sheet to remain in compliance.

The bank has supposedly paused some of the lending products such as cash-out refinance loans, most home equity loans above $250,000 and riskier non-conforming purchase loans, per a Reuters article.

Over the past six months, shares of Wells Fargo have lost 40.1% compared with a 28.9% decline recorded by the industry.



Currently, the company carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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