S&P downgrades Wells Fargo credit rating after Fed sanctions

S&P Global Ratings on Wednesday downgraded the credit rating for Wells Fargo, after the Federal Reserve slapped the bank with unprecedented sanctions that limit its growth.

S&P lowered the grade by one notch to A- for Wells Fargo's long-term debt and A-2 for short-term debt after the Fed imposed the penalties Friday in the wake of the phony accounts scandal and "pervasive and persistent misconduct."

The Fed order restricts the bank from growing any larger until it improves its governance and controls, following the two-year-old scandal in which it uncovered millions of accounts created without consent of customers.

"This unprecedented asset cap on a large bank underscores the continued elevated regulatory risks for Wells, and the ongoing ramifications of its retail sales practices issues," S&P said in a statement.

The ratings agency said the downgrade "reflects our view that regulatory risk for Wells is more severe than we previously expected" and resolving it could take longer than expected.

As part of the Fed sanctions, Wells Fargo will replace four board members this year, which the ratings agency also noted as a concern.

In addition, "the company may be subject to prolonged reputational issues," S&P said.

Wells Fargo has been struggling to regain consumer confidence in the wake of the 2016 scandal in which its employees opened 3.5 million accounts for clients without their knowledge.

This led to damaged credit scores and millions in unjustified fees for customers.

Wells Fargo has paid $185 million in fines and offered redress to harmed customers. In October, CEO John Stumpf stepped down in the wake of the scandal, which cost it the top ranking as the world's largest bank by market capitalization.