By Medha Singh

(Reuters) – Wells Fargo (NYSE:) & Co shares have rallied ahead of its quarterly earnings later this week as analysts expect the U.S. central bank to lift a damaging asset cap that has curtailed growth at the lender amid signs of rising interest rates.

The shares of San Francisco’s bank have increased 14% in 2022. Analysts expect a 67% increase in profit in the fourth quarter.

Wells Fargo is primarily focused in the lending industry and has cut costs to deal with the consequences of the sales practices scandal. This first emerged in 2016, forcing the Federal Reserve’s to set a cap on its assets at $1.95 billion.

While the asset cap has limited loan and deposit growth to cover interest income, and costs at fourth largest lender in the country, rival balance sheets have increased.

While it’s not known how long, the cap could be kept in place for a while. However, brokerage actions have been encouraging. Barclays LON: The lender stated last week that it expected “substantial progress” in its regulatory matters and cost reductions.

It is difficult to balance the costs of maintaining service and risk while also avoiding negative publicity. They appear to be working as planned for the moment,” Rick Meckler from Cherry Lane Investments, New Vernon, New Jersey, said.

Investors hope that the new management can put behind recent scandals and rehabilitate this once-premier banking brand.

Jefferies and Raymond James were among the top brokerages to name the bank as a top choice. CFRA Research believes that Wells Fargo (NYSE:) and Bank of America Corp will benefit most from the increasing interest rates.

Investors have switched technology shares to economy-linked stocks like banks since the U.S. Treasury yield curve sharpens. Higher yield curves increase profitability, which allows banks to borrow more cheaply in the short term while earning higher interest on long-term borrowing.

Banks index was trading at an all new high Monday after it posted its sharpest percentage rise since November 2020.

Bank of America Corp. Citigroup Inc (NYSE:), JPMorgan Chase & Co (NYSE:), Goldman Sachs (NYSE:) and Morgan Stanley (NYSE:) Expected to start reporting quarterly results starting Friday.

See a related graphic on Wells Fargo shares outpace peers over the past year: https://fingfx.thomsonreuters.com/gfx/mkt/klvykqqqovg/WFC.PNG