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Here's Why Wells Fargo Stock Is Rising on Wednesday

By Matthew Frankel, CFP® - Feb 17, 2021 at 12:06PM

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The bank just got some excellent news, and shareholders are thrilled.

What happened

Wells Fargo (WFC -0.89%) is one of the best-performing stocks in the financial sector on Wednesday. As of 11:30 am EST, the large-cap bank had risen by nearly 6% on a day when most major indices are in the red.

So what

At first it might seem as if Wells Fargo should be down, especially if you follow Berkshire Hathaway (BRK.A -0.15%)(BRK.B -0.28%), which we just learned sold a large chunk of Wells Fargo stock.

Exterior of a Wells Fargo branch.

Image source: Wells Fargo.

While that certainly wasn't a positive catalyst, investors got some excellent news regarding the bank's future.

Specifically, it was reported that the Federal Reserve has indicated it will accept Wells Fargo's plan to overhaul its governance practices. This would be a key milestone in the bank's efforts to remove the growth penalty imposed by the Fed in the wake of the bank's numerous scandals in the mid-2010s. Under the penalty, the bank is prohibited from growing larger than its asset size at the end of 2017, which has been a major handicap in recent years.

Now what

To be sure, the penalty isn't likely to be removed right away. Wells Fargo would still need to implement its plan to the satisfaction of the Fed, which would still need to vote to remove the cap. Even so, the asset cap has been the main reason Wells Fargo has dramatically underperformed its peers in recent years, so any progress toward getting it removed is welcome.

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Stocks Mentioned

Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$42.26 (-0.89%) $0.38
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$464,333.00 (-0.15%) $-678.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$309.48 (-0.28%) $0.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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