Please ensure Javascript is enabled for purposes of website accessibility

Why Wells Fargo Stock Soared in February

By Lou Whiteman - Updated Mar 3, 2021 at 2:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

At long last, the bank might finally be moving out of the penalty box.

What happened

Warren Buffett's Berkshire Hathaway sold off some of its stake in Wells Fargo (WFC -0.34%) in February, but that wasn't enough to derail the bank stock for the month.

Shares of Wells Fargo were up 21.1% in February, according to data provided by S&P Global Market Intelligence, as the bank reportedly hit a key milestone in its recovery.

So what

Wells Fargo has been in the regulatory penalty box for a few years now, the result of a series of scandals dating back to the mid-2010s involving the creation of millions of fraudulent saving and checking accounts. The bank is currently prohibited by the Federal Reserve from growing larger than its asset size at the end of 2017.

Exterior of a Wells Fargo branch.

Image source: Wells Fargo.

That could soon be coming to an end. Reports surfaced mid-month that the Fed will accept a Wells Fargo plan to overhaul its governance practices, a key step in its effort to remove the growth penalty and other restrictions currently in place.

Banks also benefited in the month from talk of higher interest rates brought on by planned pandemic-aid spending and a hoped-for economic recovery in the months to come as vaccines are rolled out.

Now what

It's worth noting that the penalty is not going away immediately. Assuming the Fed does sign off on Wells Fargo's plan, the bank will still need to implement it to the satisfaction of regulators before it gets the all-clear signal.

WFC Chart

Bank data by YCharts.

But the asset cap has been an anchor weighing on Well Fargo, a big part of the reason the bank has been an underperformer compared to its peers in recent years. At long last, conditions might be turning favorable for Wells Fargo, and the stock reacted accordingly in February.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$41.97 (-0.34%) $0.14

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.