Adds analyst comments in paragraphs 4, 10-11, and 15, shares, details and context throughout

By Manya Saini, Niket Nishant and Nupur Anand

Jan 28 (Reuters) - Wells Fargo WFC.N said on Tuesday a U.S. regulator has terminated a 2022 punishment, bringing it a step closer to having the $1.95 trillion asset cap imposed on the bank removed.

The consent order imposed by the U.S. Consumer Financial Protection Bureau in 2022 was tied to automobile lending, consumer deposit accounts and mortgage lending practices at the bank.

Analysts said it marks another win for CEO Charles Scharf, who was appointed as the bank's top boss in 2019 and was tasked with fixing its longstanding regulatory issues. It is the seventh consent order closed by Wells Fargo's regulators since 2019.

"We view this news as a positive for Wells Fargo as it demonstrates progress of working with the company's regulators," RBC Capital Markets analyst Gerard Cassidy wrote in a note, adding the brokerage expects the Fed's asset cap to be lifted in the first half of 2025.

The asset cap imposed in 2018 prevents it from growing until regulators deem it has fixed problems dating back to the 2016 fake-accounts scandal. Regulators mandated additional oversight of the lender in the wake of the turmoil.

A consent order is a formal, public enforcement action between a regulator and a bank, which often comes with a fine and directives to address an issue in a timely fashion.

PROGRESS IN REGULATORY FIXES

"While it is yet to be seen if the new regulatory regime lifts the asset cap this year or not, these developments bring it a step closer," said Chris Marinac, director of research at Janney Montgomery Scott.

The asset cap is seen as one of the toughest punishments U.S. regulators can put in place, and its removal requires a vote by the Fed's board of governors.

Last year, Reuters, citing sources, reported the bank was in the last stages of a process to pass regulatory tests to lift the asset cap in 2025, after fixing the problems from its fake-accounts scandal.

The punishment could be removed as early as the first half of 2025, a source said at the time.

"While this isn't the big one (i.e., the asset cap), we view today's news as another important step forward on WFC's journey toward full regulatory remediation and a sign that WFC continues its transition from defense to offense," analysts at Piper Sandler wrote in a note.

In May 2024, Scharf said the asset cap imposed on the bank by regulators is curtailing its ability to take in more corporate deposits and expand its trading business.

The bank's cleanup efforts would make significant progress once the restrictions are lifted, analysts said. Since the scandal, Wells Fargo has been fined billions of dollars and slapped with a raft of regulatory punishments, some of which are still in place.

Wells Fargo had faced public outcry and intense scrutiny in the wake of what the Fed called "pervasive and persistent misconduct" that harmed consumers.

Fed Chair Jerome Powell said in 2021 the asset cap would stay in place until the firm had comprehensively fixed its problems. The Fed has not spoken publicly on Wells Fargo's asset cap since then.

"I'm confident that we will successfully complete the work required in our consent orders and embed an operational risk and compliance mindset into our culture," Scharf said earlier this month.

Investors have cheered the lender's efforts to address the regulatory shortcomings. Shares of Wells Fargo surged nearly 43% in 2024, handily outperforming both the broader markets .SPX and an index tracking large-cap banks .BKX.

Early last year, the U.S. Office of the Comptroller of the Currency also terminated a 2016 punishment for the bank's sales practices.

(Reporting by Manya Saini and Niket Nishant in Bengaluru and Nupur Anand in New York; Editing by Krishna Chandra Eluri)

((Manya.Saini@thomsonreuters.com; X: manya__saini;))