Wells Fargo & Co. is likely to receive a regulatory downgrade that could hamper its business activity and growth, according to people familiar with the matter.

The Office of the Comptroller of the Currency is considering a downgrade of Wells Fargo on a community-lending scorecard, these people said.

A decision on Wells Fargo's potential downgrade was expected by the bank as early as Thursday afternoon but was delayed by the OCC for unknown reasons, a person familiar with the matter said. The bank may have more clarity on an official decision in the next week, this person added.

The expected downgrade would likely be a result of Wells Fargo's sales-tactics scandal. The OCC may take advantage of a longstanding rule that if a bank engages in unfair and deceptive practices, then a regulator can lower the bank's rating for purposes of the Community Reinvestment Act. News of a possible OCC downgrade of Wells Fargo was previously reported by Reuters.

In the last 18 months, the OCC has more aggressively lowered other banks' ratings, including this year those of Fifth Third Bancorp and Regions Financial Corp. based on the rule, which has been around for decades, one of these people said. At least several more banks' CRA ratings may be downgraded in the next several weeks, this person said.

Comptroller of the Currency Thomas Curry recently told a gathering of housing lenders the agency would soon be releasing more CRA grades as the agency works through a huge backlog of exams, some which were done years ago.

"We expect to issue most of those older evaluations by the end of the year," Mr. Curry said during the early December meeting.

Wells Fargo hasn't had a CRA grade released since 2009 and banks are supposed to be examined every three years. The OCC in March launched an effort with senior officers dedicated to working through the backlog. This means more banks are likely to get downgraded, people familiar with the effort said.

This is "a major issue because there's never been so many institutions that are supposed to be examined every two to three years that are not having an exam report released for every seven to eight years," said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group.

CRA ratings are related to banks' work in lower-to-moderate income neighborhoods. The rating is used to evaluate applications for future approval of bank mergers and acquisitions and branch openings, among other business matters.

Wells Fargo has had an "outstanding" or top grade for years. Over the past four years, the bank provided nearly $500 million in grants to charitable organizations focused on community development in distressed communities, including affordable housing, homeownership counseling, financial education, workforce development and job creation.

Wells Fargo in September agreed to a $185 million fine and enforcement action related to its sales practices with the OCC, Consumer Financial Protection Bureau and the Los Angeles City Attorney. The regulators said that Wells Fargo employees opened as many as 2.1 million accounts without customers' knowledge.

The San Francisco bank didn't admit or deny wrongdoing as part of the agreement. But it continues to face public and political outrage along with a spate of federal and state investigations, including from the Department of Justice and the Securities and Exchange Commission.

Separately, the OCC last month imposed more-stringent management restrictions on Wells Fargo after revoking waivers given to Wells Fargo that provided relief from tight restrictions on the bank's operations under the enforcement action related to its scandal.

Write to Emily Glazer at emily.glazer@wsj.com and Rachel Witkowski at rachel.witkowski@wsj.com

 

(END) Dow Jones Newswires

December 09, 2016 09:55 ET (14:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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