The Federal Reserve's unusual sanctions on Wells Fargo sent the company's shares sharply lower in Monday trading, compounding the problems facing one of the nation's largest banks.
The Fed announced after U.S. financial markets closed Friday that it would limit Wells Fargo's total assets to the closing level on Dec. 31 and require the embattled company to replace four of its current board members this year as the bank seeks to move past a scandal over millions of potentially fake customer accounts.
The actions came in response to "consumer abuses and compliance breakdowns," the Fed said, adding that the restrictions would remain in place until Wells Fargo's governance and risk management improve.
Wells Fargo said the efforts needed to comply with the sanctions could cut $300 million to $400 million from its 2018 profits.
Shares of the San Francisco-based bank plunged 9.2% and closed at $58.16 Monday as investors faced uncertainty about the lack of a definitive timetable for removing the restrictions, as well as the possibility that the intervention could signal tighter U.S. bank regulation.
The drop added to the 2.2% decline in Wells Fargo shares on Friday.
In an investor note Monday, Moody's classified the Fed sanctions as a credit negative for the bank, saying the actions "threaten to increase client attrition and undermine its franchise, especially since competitors will likely use Wells Fargo’s hobbled status to attract clients for themselves."
However, Moody's also said it expects the bank capital ratios will improve and projects that Wells Fargo's profitability will be satisfactory, aided by a lower tax rate and prospects of higher U.S. interest rates.
Separately, investment banking and financial research firm KBW downgraded Wells Fargo shares to market perform from outperform on Monday. KBW also said it has lowered its price target on Wells Fargo shares from $70 to $63.
Wells Fargo's reputation has been battered since federal regulators and Los Angeles legal officials hit the bank with $185 million in penalties over the potentially unauthorized accounts. After initially estimating that 93.5 million present and former customer accounts had been affected, the bank ultimately raised the count to 3.5 million.
The company's credibility was further shaken in July 2017 when Wells Fargo said it would make $80 million in refunds to 570,000 auto loan customers who were sold insurance coverage they didn't need. Three months later, Wells Fargo said it would issue refunds to customers who were charged extra fees to extend rate locks on mortgages because of delays caused by the bank.
Trying to recover investor confidence, Wells Fargo has ended salary incentive programs that pressed its employees to open as many accounts as possible for customers, a key factor behind the scandal.
Additionally, the bank dismissed several executives and clawed back tens of millions of dollars in compensation from two former executives — including former CEO John Stumpf, who retired after the scandal exploded.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc