The stock price is approaching historical highs; Wells Fargo Bank (WFC.US) is breaking free from its "shackles."

Notice that the stock price of Wells Fargo (WFC.US) has risen by 12% this year, exceeding all major competitors in the banking sector and approaching historical highs. An important reason for this is that investors believe that this San Francisco loan giant is slowly starting to overcome some of its past issues. Last month, the regulatory agency of the U.S. Office of the Comptroller of the Currency lifted the consent decree related to the 2016 fake accounts scandal, giving Wells Fargo a huge boost. This move was a victory for CEO Charles Scharf, who took on the role in 2019 with the primary task of cleaning up the mess left by his predecessor. Currently, Scharf is preparing to lead an effort to transform Wells Fargo into a major investment bank, advancing further into the competitive investment banking field. Wells Fargo currently lags behind Wall Street giants such as Goldman Sachs, JPMorgan Chase, and Morgan Stanley in this area. Last week, Wells Fargo announced the hiring of mergers and acquisitions veteran Doug Braunstein, another significant step in this direction. Scharf and Braunstein worked together at JPMorgan Chase. During the turbulent years after the 2008 financial crisis, Scharf and Braunstein both served as senior deputies to Jamie Dimon. Braunstein knows what it's like to face scrutiny from Washington. In 2013, he had to testify before senators during the "London Whale" trading debacle while serving as CFO of JPMorgan Chase. At Wells Fargo, Braunstein will serve as vice chairman reporting directly to the CEO. "Doug is a world-class banker," Scharf stated in a press release, highlighting his expertise and business relationships that reflect the bank's commitment to strengthening its Wall Street division. Not a "light switch moment" However, the CEO of the fourth-largest bank in the U.S. is not free from regulatory supervision. While Scharf has completed six consent orders set by regulatory agencies when he took office, he still has eight to fulfill, including two newly added during his tenure. The biggest issue is the Federal Reserves imposition of a cap on Wells Fargo's size. Unless regulators agree, its assets cannot exceed $1.95 trillion at the end of 2017. The Federal Reserve implemented broad restrictions in 2018, citing Wells Fargo's "widespread consumer abuse." Wells Fargo CFO Mike Santomassimo stated at a conference last Monday hosted by UBS in Florida that lifting this cap will help Wells Fargo increase its presence in capital-intensive market operations. "I remind people that when it really happens, it's not going to be that light switch moment, but we do believe there will be some opportunities there," Santomassimo said. Currently, "our focus really has to be on managing risk and doing the regulation work. ... We can't ignore that." Several analysts tracking the bank believe that Wells Fargo is taking the right steps and expect the Federal Reserve to eventually lift penalties on the bank. "They've done a lot under these very specific constraints," said Scott Siefers, an analyst at Piper Sandler who has studied JPMorgan for nearly 20 years. "In order to unlock the potential of the company, as they move further out, they'll definitely need more freedom for a period," he added. Ken Usdin, an analyst at Jefferies, said the timing of the Federal Reserve's lifting of the asset balance limit on Wells Fargo is still "difficult to predict." Even after the asset limit is lifted, a second round of third-party assessments will be needed to evaluate the bank's improvements. Cross-selling The regulatory challenges faced by Wells Fargo are ironic considering that not long ago, it faced fewer constraints than its peers. During the 2008 financial crisis, Wells Fargo avoided many of the issues plaguing other major banks and acquired Wachovia, weakened by the national mortgage crisis, becoming a giant spanning the East and West coasts. The bank was known for its conservative, low-risk strategy relying on cross-selling various products to existing customers to increase revenue. But over the past five years, as employees scrambled to meet sales targets, Wells Fargo opened millions of bank and credit card accounts without customers' knowledge, turning this advantage into a weakness. Former CEO John Stumpf, who worked at Wells Fargo for 30 years, resigned and was later banned from the banking industry by regulatory agencies. His successor Tim Sloan resigned in 2019 and is currently suing Wells Fargo in a California court for $34 million. He claims that Wells Fargo revoked stock grants, making Sloan the "fall guy" for the sales scandal. The bank stated that it stands by its decisions, and "compensation decisions are based on performance." Scharf, who previously oversaw consumer banking at JPMorgan Chase and later served as CEO of credit card giant Visa and custodial bank Bank of New York Mellon, has also implemented his own reforms. This includes a $3.7 billion settlement in December 2022 with the Consumer Financial Protection Bureau to resolve allegations of illegal overcharging on customer auto and mortgage loans. The controversial actions took place as recently as 2022. Scharf has also significantly reduced the number of employees at Wells Fargo. Since reaching a peak of 276,000 employees during the pandemic in 2020, Wells Fargo has cut approximately 18%, or 50,000 employees. The CFO of Wells Fargo stated last week that the bank may cut more real estate assets as a cost-cutting measure. Recent news also serves as a reminder that salesThe scandalous behavior has not completely subsided yet.A customer is suing the company in a federal court in San Francisco, claiming that the bank did not make enough effort to help those who were harmed by signing up to purchase products they did not want. Wells Fargo Bank had sent out letters asking customers who had purchased such products to contact Wells Fargo, but the lawsuit alleges that this letter burdened customers with taking action. Lawyers representing the bank's customers stated that Wells Fargo Bank tried to "avoid, minimize, and delay its ultimate responsibility, and conceal its long-standing pattern of misconduct". The bank stated that it is still reviewing these legal claims. A spokesperson for Wells Fargo Bank added, "Wells Fargo Bank is a different company today, with new personnel, structure, processes, controls, and culture, and we take correcting past customer practices very seriously."