There is no denying that Wells Fargo & Co (NYSE: WFC) is one of the great banking success stories of our time. Wells Fargo stock has done extraordinarily well over the long term, and it has one of the most robust set of offerings as far as broad-based consumer and institutional banking products go.
However, Wells Fargo stock has been hammered by some short-sighted moves within the company. It was determined that between 2011 and 2016, and possibly going back to 2009, employees at Wells Fargo & Co created more than 1.5 million bank accounts that had not been authorized by consumers. It also created half a million unauthorized credit card applications.
This resulted in $2.6 million in additional fees to Wells Fargo. It also resulted in a $185 million fine. It seems certain top executives must have known what was going on. The idea that a multibillion-dollar corporation felt the need to manufacture all of these fake accounts, simply to generate $2.6 million in fees, is indicative of an internal company culture that is in crisis.
But it was more than just stupid mistakes. As a crisis communications expert, I was appalled at the company’s public relations response. Wells Fargo CEO John Stumpf publicly apologized. But truly, he should have resigned.
More Bad PR for Wells Fargo Stock
The scandal damaged Wells Fargo’s image and fueled the ire of people who already hate the big banks enough as it is. It cost a lot more than $185 million in fines.
Now we hear that WFC’s wealth management division is under apparent federal investigation. We don’t know details, but the wealth management division is a $2.5 billion annual revenue business for Wells Fargo. The very fact that there is bad PR surrounding the division damages its reputation, and consequently will likely result in a loss of client accounts and cause potential new clients to run for the hills.
This, by the way, is one of the reasons I distrust 95% of wealth managers, especially the ones at the big firms. The vast majority of these “wealth managers” are actually failed brokers. They don’t know what they don’t know. They’re just given general investment guidelines by the investment advisory committee at their firm, but never tailor a portfolio to each individual client’s specific needs.
Specifically, these wealth managers are unlikely to know that the cost of living adjustment every year is closer to 8% to 10% rather than 3%. Therefore, it means they are not likely targeting a high enough return for your portfolio, nor do they have any idea how to measure portfolio risk. That’s why guys like me created their own investment advisory newsletter — to help you achieve your investment goals while keeping risk very much in mind.
Bottom Line on Well Fargo Stock
Right now, as we say in the crisis communications industry, Wells Fargo is radioactive. Therefore, to me, Wells Fargo stock is also radioactive — it’s down about 20% from its all-time high.
Currently, Wells Fargo stock has fallen below its 50-day and 200- day exponential moving averages. The 200-week exponential moving averages is at $50 per share. Below that, there is support for the stock in the mid-40s. I would not go anywhere near Wells Fargo stock until it is in the mid-40s or lower — and all of this bad PR goes away.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. Meyers is the manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
