Things aren’t going so well these days for Wells Fargo & Co (NYSE:WFC). In fact, if you own WFC stock, be prepared to have your conviction (and perhaps your patriotism) tested.
Wells Fargo shares were down along with the rest of the banking industry amid a report that some Deutsche Bank AG (USA) (NYSE:DB) clients were pulling cash and positions from their trades.
But buried beneath that was a Bloomberg report saying that the Justice Department is looking into whether to slap punitive actions on San Francisco-based WFC because it allegedly violated the Servicemembers Civil Relief Act (SCRA).
The SCRA was put in place to provide a wide range of protections for individuals who have voluntarily provided military service or were called into active duty. Its main purpose is to offer relief and to ease the economic and legal burdens on military personnel during their active service. These benefits include mortgage protection and various low-interest loans.
And in the event that lenders run into default-related issues with servicemembers, lenders are required to obtain court orders before taking action that involves seizures and or penalties.
In the case of Wells Fargo, federal prosecutors and the bank’s regulator, the Office of the Comptroller of the Currency, are ready to impose penalties of as much as $20 million on the company, Bloomberg reports. In WFC’s case, the company is facing a sanction “over improperly repossessing cars owned by members of the military, according to two people with knowledge of the investigation.”
WFC Stock Is in Serious Trouble
Sure, $20 million might seem like a drop in the bucket for what it means for WFC stock, but the damage to the brand could take years to repair.
Once considered the “cleanest shirt in the dirty hamper,” the Wells Fargo name and reputation has been muddied for weeks. Most recently, WFC employees were accused of opening more than 2 million fake accounts with the aim of meeting internal sales targets.
Wells Fargo ultimately settled these charges by paying $185 million, but that pales in comparison to the punishment WFC stock has taken.
Wells CEO John Stumpf has taken a pair of grillings in Congress over the past few days, and agreed to give up $41 million in salary, bonus and stock awards amid the increasing heat his company is taking.
A big item up in the air is what Warren Buffett, whose Berkshire Hathaway Inc. (NYSE:BRK.B) owns about 9.5% of Wells’ shares, plans to do about his current stake. Buffett had indicated he wouldn’t make any statements on WFC until November, though he did deny a post by Seabreeze Partners Management’s Douglas Kass that said Buffett wanted “radical transformation” at the bank.
WFC stock has fallen almost 20% year-to-date, compared to a 5% rise for the S&P 500 and 4% decline for the KBW Nasdaq Bank Index.
And with the company’s patriotism now in question, WFC stock might not have hit rock bottom yet. I wouldn’t touch it with a 10-foot pole.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
