Charlie Scharf can finally play offense.

After more than a half-decade cleaning up Wells Fargo & Co.’s scandals, the chief executive officer has cleared away the firm’s biggest impediment to growth: the Federal Reserve’s seven-year-old cap on assets. That means the $1.95 trillion lender can once again seek to narrow the gap with larger rivals JPMorgan Chase & Co. and Bank of America — including in Wall Street business lines.

The unshackling of Wells Fargo sets up stiffer competition among the biggest U.S. banks — and a new chapter for Scharf, who has sought to keep a low profile since taking over in late 2019. That will change, according to people familiar with his thinking. As one of them put it, the job is just starting to be fun, and Scharf, 60, plans to stick around for that.

“Charlie has worked extremely hard over the years to resolve heritage issues at the bank and to get to this place today, and he and his team deserve a lot of credit,” said Jamie Dimon, the longtime JPMorgan Chase CEO who hired Scharf out of college and turned him into a protégé. “This is not only good for Wells Fargo but for the industry overall.”

After months of Wells Fargo executives awaiting a verdict, the Fed’s announcement last week was so abrupt that many of the bank’s senior leaders were scattered. Some were attending an intern orientation in Orlando, Fla. Its chairman was celebrating his 73rd birthday.

Until that moment, Scharf had mostly been a fix-it guy at Wells Fargo — the fourth leader to attempt to wrestle its problems into submission.

Wells Fargo, based in San Francisco, is actually the product of a 1998 acquisition by Minneapolis-based Norwest Bank, which took on the Wells Fargo name and moved the headquarters.

For years, it was the biggest bank in Minnesota by deposit market share, and now is second in that role to Minneapolis-based U.S. Bank.

Former chief executive John Stumpf, who came from the Norwest side, became the face of the scandal, which essentially involved bank employees creating millions of fake accounts for depositors without their permission in order to meet ever-stringent sales goals and incentives. Stumpf agreed to a lifetime ban from the banking industry.

What’s next

With the Fed asset cap now gone, shareholders will be eager to hear much more about Scharf’s strategy. The outlines of his aspirations are far from secret.

His team has been laying the groundwork and making targeted hires for years to ramp up trading operations that were limited by the cap. They have also been adding investment bankers in a bid to win more underwriting and advisory business. Scharf also marked credit cards and wealth management as key growth areas in his early years at the bank, and that list will likely expand now that the cap is gone.

“I honestly believe, with the exception of the mortgage business, all have the opportunity to grow in terms of returns and in terms of rate of growth,” Scharf said Wednesday in a CNBC interview. “And we have a little bit of a head start in the card business because we identified that as something strategically important early.”

Wide gap

The gap between Wells Fargo and other Wall Street banks is still wide. The firm’s trading revenue and investment-banking fees last year were about the same as what JPMorgan earned from those businesses in the fourth quarter alone.

The Fed imposed the asset cap after years of mounting frustration with the firm’s reaction to scandals. The unprecedented measure limited Wells Fargo’s balance sheet to its size at the end of 2017 until the lender finished shoring up risk management and board effectiveness to the Fed’s satisfaction.

That required a ground-up rebuild of those operations that neither side expected to take so long. The punishment proved so tenacious and costly that it’s now the most-feared sanction in bank regulation. By one measure it caused Wells Fargo to miss out on almost $39 billion of profits.

When Scharf accepted the job more than a year after the cap began, he didn’t know how much work remained. After all, any progress — or lack thereof — on regulatory sanctions fell in the bucket of “confidential supervisory information” that firms are strictly forbidden from revealing. His impression when he was recruited as CEO was that the firm was probably less than a year away from getting the cap lifted, according to people with knowledge of the situation.

In a conference call just after his appointment, he told listeners that he appreciated “all the work that has already taken place to begin the transformation of Wells Fargo.”

Shortly thereafter, he learned that the bank’s proposed overhauls hadn’t even been accepted by the Fed, one of the first hurdles toward lifting the cap. As Scharf assembled his team and embarked on deep reviews of business lines, they discovered the lack of progress extended beyond just the Fed’s order.

The firm’s predicament worsened before improving. After the pandemic set in, Wells Fargo reported a quarterly loss for the first time in more than a decade and slashed its dividend. In September 2021, as Scharf neared his two-year anniversary as CEO, the bank was hit with a fresh sanction over a lack of progress addressing long-standing problems in the mortgage business.

Shrinking workforce

Around late 2022, they started seeing signs of progress. Optimism mounted through 2023, and by a board meeting in New York that December, executives were confident they would meet their deadlines to submit the rest of their work to regulators — and that they were getting it right.

One of the final steps for getting the asset cap lifted was a third-party review of their work, which alone cost about $100 million. They submitted that last year.

While untangling the regulatory mess, Scharf and his team worked on a second track: reshaping the firm.

Improving earnings with the cap in place meant shrinking or shutting businesses that Scharf’s reviews deemed less desirable while freeing up room on the balance sheet for others. He dialed back the firm’s massive home-lending empire, once the largest in U.S. finance. He sold the bank’s asset manager, corporate-trust unit, student-loan book, rail financing portfolio and most of its commercial mortgage servicing business.

He split the corporate and investment bank into its own unit and marked it for growth, repeatedly saying that the fourth-largest U.S. bank shouldn’t be “afraid” to talk about its Wall Street presence.