Wells Fargo & Co. said it can’t fully meet demand from small businesses rushing to participate in a U.S. relief program because of constraints imposed by the Federal Reserve on the bank’s growth.
The company has capacity to lend $10 billion to small-business clients under the $349 billion U.S. program, but customers already have expressed more interest than that, Wells Fargo said in a statement late Sunday. The firm will therefore focus on helping nonprofits and businesses with fewer than 50 employees.
“While we are actively working to create balance-sheet capacity to lend, we are limited in our ongoing ability to use our strong capital and liquidity position to extend additional credit,” Chief Executive Officer Charlie Scharf said in the statement. “We are committed to helping our customers during these unprecedented and challenging times, but are restricted in our ability to serve as many customers as we would like.”
The situation may ratchet up pressure on the Fed to ease the unprecedented asset cap it imposed on the nation’s fourth-largest bank in 2018 in response to mounting scandals at the company. As the coronavirus pandemic began, the firm — a leading lender to small and midsize U.S. companies, homebuyers and commercial-property investors — had about $384 billion of additional lending capacity that it can’t unleash because of the cap.
As markets swooned and commerce slowed this year, Wells Fargo’s representatives privately broached the idea of at least temporarily lifting the restriction so it could help more customers. The Fed has yet to publicly disclose a decision.
People with knowledge of the situation told Bloomberg in late March that the regulator was reluctant to ease or lift the cap because the bank has yet to fully address concerns that prompted the sanction. Scharf, who took over in October, has made progress in enacting reforms, but the company must still prove it’s done enough to prevent abuses of customers, the people said.
Friday was the first day that American small businesses hit by the fallout from the coronavirus pandemic could start applying for loans under the new U.S. program. It was part of the $2 trillion stimulus package Congress passed last month aimed at shoring up the economy.
Scharf noted in the statement that Wells Fargo already extended almost $70 billion in new and increased commitments and outstanding loans to consumers, small businesses and corporations in the U.S. last month. The firm also said it plans to donate the fees it generates from the small-business stimulus program.
Steve Troutner, Wells Fargo’s head of small business, instructed employees to suggest customers apply elsewhere to increase their chances of getting a loan before the stimulus money runs out, according to a memo seen by Bloomberg.
“We are hopeful that despite the restrictions of Wells Fargo’s asset cap, our customers will be able to get the help they need, either from us or through other lenders as we all navigate together through this time,” Troutner said in the memo.
(Updates with details, contents of internal memo beginning in eighth paragraph.)