Whatever credibility Wells Fargo & Co (NYSE:WFC) may have thought it restored with current and potential customers following last year’s embarrassing gaffe may need to be rethought. Likewise for any current or future owners of WFC stock.
The mega-bank clearly hasn’t put the matter in its past, and as if it didn’t have enough of a publicity headache to address already, it’s got a new one this week.
The Office of the Comptroller of the Currency, which oversees the Community Reinvestment Act, said Wells Fargo needs to do better when it comes to servicing lower income markets.
Maybe Wells Fargo stock isn’t one of the best bank stocks in the world after all.
WFC Stock Can’t Shake It Off
The saga isn’t an unknown one. In the middle of last year, it was uncovered that branch employees, largely under pressure to meet sales quotas, opened 2 million fake bank and credit card accounts. Although some shenanigans can be expected anytime it’s possible, the sheer scope of the scandal was stunning.
The bank changed its way, dropping sales requirements for bankers, issuing an apology to affected customers as well as WFC stock holders and most recently agreeing to a $110 million settlement to compensate victims.
One would have thought the apology and change of ways was enough for a mostly-forgive-and-forget public … especially knowing some sort of major settlement was in the works. One would be wrong in coming to such a conclusion, however.
Last month, Wells Fargo opened 43% fewer accounts than it did in the same month a year earlier. It wasn’t a fluke either. In January, it opened 30% less accounts than it opened in January of 2016. The bank is clearly struggling to attract new customers, who may be wary of even stepping foot in bank branch that has proven it’s capable of crossing a key line.
Of course, perhaps the year-ago numbers were artificially high, and the numbers for the last couple of months are the new norm. There’s the rub with WFC stock … we don’t really know. Either way, it’s difficult to deny consumers aren’t forgiving and forgetting the way they have in the past.
The bank isn’t doing anything to help itself or Wells Fargo stock in the meantime, however.
The purpose of the Community Reinvestment Act is to ensure that regulated banks treat all their customers fairly, providing adequate service to markets that may not be viewed as a priority profit center to a bank with a major presence in more metropolitan areas.
WFC stock is missing the mark on this front. The Office of the Comptroller of the Currency recently reported the bank “needs to improve” how it serves its smaller markets. The office specifically noted the account-opening scandal with its new rating.
The negative opinion does not have a regulatory or operational impact on Wells Fargo … at least not right away. But, the OCC is a division of the U.S. Department of the Treasury, and as such could play a role in future judgment calls the Treasury may make regarding Wells Fargo.
It’s just another reason WFC is America’s fifth most-hated company.
Bottom Line for Wells Fargo Stock
In the (not so recent) past, consumers generally forgot about even the most egregious and outrageous scandals. Prior to the E. coli outbreak that made Chipotle Mexican Grill, Inc. (NYSE:CMG) the center of unwanted attention a little over a year ago, the company had been pegged as the source of a handful of other food poisoning scares that have since been long forgotten.
Most people had forgotten that Philip Morris International Inc. (NYSE:PM) commissioned a study that essentially concluded “Smoking Cuts Elderly Costs, and Elderly“… by killing the elderly. The average shopper forgot shortly after it happened that in 2014, Wal-Mart Stores Inc (NYSE:WMT) was collecting Thanksgiving food donations for some of its mostly-underpaid store workers.
For the last couple of years though, consumers have been less forgiving, and less able to forget. Chipotle Mexican Grill is still struggling to get back to its pre-E. coli earnings glory, and that was a year ago.
It’s not a degree of bitterness WFC stock holders want to see consumers capable of holding onto.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.