Illustration: Aïda Amer/Axios

Wells Fargo surprised small business owners late Sunday when it said that it had run out of money to lend to small businesses under the Paycheck Protection Program (PPP), the federal stopgap for COVID-19 relief.

  • But an announcement by the Federal Reserve today might quell concerns for the customers who will be hard-pressed to apply for cash elsewhere.

Why it matters: Because of restrictions placed on Wells Fargo after its fake accounts scandal, one of the nation's biggest lenders says it has to turn away struggling small business customers.

Driving the news: Wells Fargo opened its PPP application portal Saturday, a day after the program's debut on Friday.

  • Based on the influx of interest applications it received, Wells Fargo said it had already reached its capacity of $10 billion by Sunday night.
  • That's as much as the bank determined it could lend without exceeding the asset cap placed on it by regulators in 2018 as a penalty for a wave of scandals at the bank.
  • Wells Fargo also said it would only offer the government-backed loans to companies with 50 or fewer employees. It will donate any fees from the loans to charities that support small businesses.

Between the lines: The bank's $10 billion limit on PPP loans could shift, analysts say.

  • The Federal Reserve said this afternoon it would set up a facility that would backstop the PPP program — possibly by buying the loans from banks, removing them from their balance sheets, and freeing them up to issue more loans.
  • In that’s the case, Wells Fargo could sell its PPP loans to the Fed, then issue additional ones without bumping up against its asset cap.
  • Essentially, Wells Fargo's regulatory constraint could be "indirectly eased by what the Fed did today," Joe Brusuelas, RSM chief economist, emails Axios.

Yes, but: Details about the Fed's facility, including when it will launch and how it will work, are scarce. More details are expected later this week.

Of note: Wells Fargo CEO Charlie Scharf said in a press release the bank was "actively working to create balance sheet capacity to lend," meaning it could sell off other assets in order to essentially make room to hand out other loans.

  • Wells Fargo has "been making new loans for the past three years under the Fed asset cap and they've had to dance around a little bit to manage the balance sheet," Jesse Rosenthal, a bank analyst at CreditSights, tells Axios.
  • The Financial Times reported last month that the bank approached the Fed about removing the asset cap, which "would allow the US bank to extend support to businesses and customers hit by the economic fallout of the coronavirus pandemic," the paper said.

Customers want to know why Wells Fargo didn't signal its lending limitations sooner, particularly since it's been operating under the asset cap since 2018.

  • Wells Fargo would not comment on the Fed's announcement — or on why it didn't communicate plans to customers for PPP loans earlier.
  • “Small Business customers, we want to acknowledge and apologize for any frustration with PPP,” the bank said in a tweet on Monday night.

What they're saying: "They knew they would likely hit this weeks ago, and they didn't tell their customers until now?" Peter Bray, a small business customer of Wells Fargo, tells Axios.

  • Wells Fargo is the primary lender to Bray's company, Versionista, which monitors and detects website changes.
  • He submitted his PPP application while the bank's portal was open Saturday.
  • His story mirrors those of other outraged small business owners who aired their frustrations in response to Wells Fargo's tweet announcing the program's changes.

Editor’s note: This piece was updated to clarify how the Fed’s facility might backstop the PPP program.

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