Wells Fargo’s regulatory problems are not yet in the rearview mirror. As a result, the stock tumbles.
On Tuesday, Bloomberg reported that the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau were disappointed with Wells Fargo’s (ticker: WFC) progress in compensating victims of his fake account scandal and strengthening his internal controls. The slower-than-expected pace could mean the bank faces additional sanctions, the report said.
Wells Fargo shares fell 5.6% on Tuesday and fell nearly 4% in Wednesday’s trading. Representatives from Wells Fargo declined to comment, as did the CFPB. The OCC did not immediately respond to a request for comment.
Wells Fargo’s recent trading is a blip for a stock that had exploded in hopes of a recovering economy as well as the bank’s expectation to quickly get out of the regulatory fine box. Just three weeks ago, Wells Fargo shares were up nearly 70% year-on-year, outperforming the
SPDR S&P Bank ETF
(KBE), which is up nearly 25%.
Wall Street had given credit to Chief Executive Charlie Scharf, who took over nearly two years ago. Under Scharf, the bank has changed its leading positions and worked on cost savings and other measures to improve its operations. While Scharf has warned that the path to recovery may be uneven, Wall Street did not anticipate Tuesday’s negative news.
“This marks an unfortunate and unexpected turn of events,” Scott Siefers, chief executive of Piper Sandler, wrote in a note Tuesday, reiterating his neutral rating on the stock. “We believe the market had hoped that any additional news would be good, rather than comparable to what we have learned [on Tuesday].”
Other analysts were also cautious, calling the report negative for equities in the near term. John Pancari, an analyst at Evercore ISI, noted that the Bloomberg report did not appear to highlight regulatory concerns about additional bank misconduct, but that the prolonged recovery could lead to higher costs.
“[The] The risk of incremental regulatory action is negative given implications for resolution timing, as well as impact on operating costs,” he wrote. “In addition, we cannot rule out that these issues could impact investors’ perceptions of management’s ability to address the various concerns,”
Pancari maintained its Outperform rating on the stock.
The negative news comes almost exactly five years after Wells Fargo employees — eager to meet aggressive sales targets — were opening accounts for customers without their consent. The unauthorized accounts led to additional charges and dents customers’ credit scores. Quantifying the impact and compensating victims accordingly has proved challenging.
Write to Carleton English at email@example.com