Wells Fargo is in trouble yet again.
Federal regulators slapped Wells Fargo with sanctions on Tuesday after the bank failed to come up with an adequate plan to dismantle itself in an orderly way in a bankruptcy.
Wells Fargo (WFC) is the first bank to be penalized over the "living wills," which are required as part of the post-crisis regulatory overhaul known as Dodd-Frank.
It's the latest legal trouble for Wells Fargo, which has been embroiled in a scandal for the past three months over the creation of millions of fake accounts and its treatment of workers.
Regulatory officials said the action has nothing to do with the sales practice problems that Wells Fargo has gone through.
The Federal Reserve and FDIC ruled that Wells Fargo "did not adequately remedy all of its deficiencies" that were raised by regulators back in April for the 2015 living will plan.
Regulators are punishing Wells Fargo by prohibiting the bank from establishing international bank entities or acquiring any non-bank businesses.
If Wells Fargo fails to address the questions raised by regulators by the end of March, more harsh penalties may be imposed. First, regulators said they would limit Wells Fargo's non-bank and broker-dealer assets at the levels they were at on September 30, 2016.
Regulators warned that if Wells Fargo fails to fix its living will within two years, they could require the bank to sell certain assets or operations "to facilitate an orderly resolution of the firm in bankruptcy."
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By comparison, Bank of America (BAC), JPMorgan Chase (JPM) and the other two financial institutions that didn't had shorfalls in their living will in April all passed the test on their second try.
In a statement, Wells Fargo said it's "disappointed" with the result, but is "dedicated to sound resolution planning and preparedness." The bank said it believes it will be able to "address the concerns" by the March deadline.
So far, investors seem mostly unfazed by the penalties. Wells Fargo shares dipped less than 1% in after-hours trading on Tuesday.
Specifically, regulators faulted Wells Fargo for failing to come up with a less complex legal structure that would make it easier to wind down the bank if it ever had to file for bankruptcy. That was one of the problems that made the 2008 Lehman Brothers collapse so troublesome.
The Fed and FDIC also said Wells Fargo didn't make enough progress toward identifying shared services and establishing contingency arrangements in case of a bankruptcy.
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"Regulators are looking at every nook and cranny to see what they can find on Wells Fargo," said Mike Mayo, a veteran bank analyst at CSLA.
Mayo said the Wells Fargo living will decision shows how the more subjective aspects of bank regulation have become "murkier and murkier." He complained that the letter regulators wrote to Wells Fargo over the living will problems is "like a language unto itself."
Wells Fargo has found itself in a legal penalty box since the September fake account settlement.
Last month, a Wells Fargo regulator placed new restrictions on the bank that allow the government to reject the hiring of senior executives and more closely review branch openings and closures. Wells Fargo also faces investigations from the Department of Justice, SEC, Congress and state authorities.
