With the emergency brake off, Wells Fargo & Co. announced Wednesday that it is expanding its participation in the Paycheck Protection Program (PPP), the small business lending initiative that is funded through the recently passed CARES Act.

The bank has 10 offices in the Wilmington market.
 
Late last week, the bank announced that the “no growth” restriction Wells Fargo is under from the Federal Reserve Board meant it would set a $10 billion limit on its PPP lending.
 
But Wednesday, the Fed granted Wells a reprieve of sorts, saying that it would temporarily modify the restrictions imposed on the bank that caused the bank to impose the cap, opening the door for Wells’ greater participation in the PPP and in the companion Main Street Lending Program soon to be launched by the Fed.
 
Wells Fargo’s lending limitations stem from a consent cease-and-desist order the Federal Reserve Board sent the bank Feb. 2, 2018, in response to what it termed the bank’s “widespread compliance and operational breakdowns that resulted in harm to consumers and because the company's activities were ineffectively overseen by its board of directors.”
 
The enforcement action consisted of a requirement that Wells Fargo improve its governance and risk management processes, including strengthening its oversight by the board of directors. Until those improvements were made, then-Fed Chair Janet Yellen stated, the Fed would restrict Wells Fargo from growing any larger than its total asset size as of the end of 2017.
 
Wells Fargo responded almost immediately to Wednesday’s announcement from the Fed, saying it was ready to begin processing applications for PPP loans, which are meant to allow small businesses and nonprofits to maintain their payrolls and pay for critical overhead expenses.

“To start the process for PPP with Wells Fargo, customers must meet the overall Small Business Administration program requirements, have a Wells Fargo Business checking account as of Feb. 15, 2020, and be enrolled in business online banking,” bank officials stated in their release on Wednesday. More information is available here.

The Fed is prohibiting Wells Fargo from making any money from its PPP or Main Street Lending Program loans, however.

“The Board will require benefits from the PPP and the Main Street Lending Program to be transferred to the U.S. Treasury or to non-profit organizations approved by the Federal Reserve that support small businesses,” the Fed’s news release stated.

Wells Fargo’s top executive emphasized the fact that the Fed’s action does not relieve his bank from its obligation to satisfy the terms of the consent order.

“While we are pleased to be able to help more small businesses through the Paycheck Protection Program, we note that the Federal Reserve’s action does not – and should not – in any way relieve us of our obligations under the consent order,” Wells Fargo CEO Charlie Scharf said in the release. “I have said consistently since arriving at Wells Fargo that management has the responsibility to do the work necessary under the consent order.

“The consent order exists because of deficiencies that have existed at Wells Fargo for years,” he continued. “The work required under the consent order is clear, has been outstanding for too long, and is a prerequisite for consideration of the asset cap being lifted. While work on our consent orders is our top priority and we are devoting all necessary resources, we still have much to do.

"Until our work is completed to the Federal Reserve’s satisfaction, we will continue to actively make decisions on how to allocate our balance sheet to support the needs of our customers under the existing asset cap.”

Meanwhile, Wilmington-based Live Oak Bank has been busy processing applications from local small businesses as well as from prospective borrowers within the bank’s lending verticals nationwide. According to an announcement on the Paycheck Protection Program page on Live Oak’s website, the bank is accepting no new applications at this time but hopes to be open to more in the future.

Live Oak is the nation’s largest SBA lender in terms of total loan value. It has seen a wave of requests for the PPP loans, which can be forgiven if the borrowers use most or all funds to maintain their employee counts and pay critical overhead costs. 

In a BizTalk interview Monday with the Business Journal, Live Oak President Huntley Garriott said the bank’s PPP lending is giving first consideration to existing customers.

“We have about 4,000 small business customers. That's been our first priority to see how many we can get done,” he said, adding that, as of Monday, Live Oak had about 2,500 loans “that have been created in some phase of the application process.”

Live Oak Chairman and CEO James “Chip” Mahan said during the BizTalk interview he anticipates the bank will disburse significant funds through the PPP.
 
“It would not surprise Huntley or I if we did not make a billion, $2 billion dollars of loans, not only to our existing customers – someday shortly to Wilmington – but also in [the] verticals of the 33 industries that we represent across the United States of America.”