Wells Fargo shares drop amid report of regulatory issues
Wells Fargo’s regulatory issues are not yet in the mirror. The stock is plummeting because of this.
On Tuesday, Bloomberg reported that the Office of the Comptroller of the Currency and the Office of Consumer Financial Protection were disappointed with Wells Fargo’s progress (Ticker: WFC) in compensating victims of its fake accounts scandal and strengthening its internal controls. The slower-than-expected pace could mean the bank will face additional sanctions, according to the report.
Wells Fargo shares fell 5.6% on Tuesday and are down nearly 4% in Wednesday’s trading. Representatives for Wells Fargo declined to comment, as did the CFPB. The OCC did not immediately respond to a request for comment.
The recent Wells Fargo trading is a blow to a stock that had skyrocketed both on hopes of an economic recovery and on expectations that the bank would come out of the regulatory penalty soon. Just three weeks ago, Wells Fargo shares were up nearly 70% on the year, topping the
ETF SPDR S&P Bank
(KBE), up almost 25%.
Wall Street had given credit to chief executive Charlie Scharf, who took the helm nearly two years ago. Under Scharf, the bank made changes to its leadership ranks and worked on cost reduction and other measures to improve its operations. While Scharf warned the path to recovery could be uneven, Wall Street was not anticipating Tuesday’s negative news.
“This marks an unfortunate and unexpected turning point,” Scott Siefers, chief executive of Piper Sandler, wrote in a note on Tuesday, reiterating his neutral rating on equities. “We think the market had hoped that any incremental news would be good, rather than similar to what we learned [on Tuesday]. “
Other analysts were equally cautious, calling the report a short-term negative for equities. John Pancari, analyst at Evercore ISI, noted that the Bloomberg report did not appear to reveal regulatory concerns about additional wrongdoing by the bank, but that the prolonged recovery could result in higher spending.
“[The] the risk of further regulatory action is negative given the implications for the resolution schedule, as well as the impact on operating costs, ”he wrote. “In addition, we cannot exclude that these problems could have an impact on investors’ perception of the ability of management to respond to the various concerns”,
Pancari maintained its outperformance rating on equities.
The negative news comes almost exactly five years after it emerged that Wells Fargo employees, anxious to achieve aggressive sales targets, were opening accounts for clients without their permission. Unauthorized accounts resulted in additional charges and impacts on customer credit scores. Quantifying the impact and compensating victims accordingly has proven to be a challenge.
Write to Carleton English at [email protected]