Wells Fargo (NYSE:WFC) chair Elizabeth Duke and board member James Quigley resigned March 8 under pressure from both the House Financial Services Committee and within the bank itself. WFC stock fell more than 12% on the news.
The resignations came just hours before CEO Charlie Scharf appeared in front of Congress Tuesday to explain how he was working to regain the trust of customers across the country. He was the third Wells Fargo CEO to appear before Congress over the past four years.
If this continues, the government’s going to have to start charging the bank appearance fees for taking up so much of its time. Oh, wait, it just did that, agreeing to pay $3 billion to the Justice Department and the Securities and Exchange Commission for all the fake accounts it opened between 2002 and 2016. That was on top of $1.2 billion in previous fines.
In the case of Scharf, WFC shareholders can be happy he’s an outsider, having served as CEO of Visa (NYSE:V) between November 2012 and December 2016, and Bank of New York Mellon (NYSE:BNY) from July 2017 to October 2019.
If anyone can change the corporate culture at Wells Fargo, it would be an outsider like Scharf. To Scharf’s credit, he testified that he doesn’t expect the changes to be completed until 2021.
“I am confident we can move this company in a significantly improved direction,” Scharf said.
I guess we’ll find out.
There’s No Denying 6.2% Yield Makes It Attractive
“Last week, the bank came one step closer to putting the ordeal firmly in the rear-view mirror after agreeing to pay $3 billion in damages. On top of that the firm has replaced its CEO and several board members and completely overhauled its employee compensation structure,” Hoy wrote on March 2.
“As the bank emerges from this scandal, it could become a great value play. Not only that, but Wells Fargo offers a dividend yield just shy of 5%.”
Of course, since Hoy’s article, the coronavirus correction kicked in, sending WFC’s share down and its yield up.
I get where my colleague’s coming from.
At 20, even if an investment in Wells Fargo goes south, a young investor has plenty of time to recover those losses. And, yes, Scharf may be the person to right the ship, recouping a big chunk of Warren Buffett’s recent paper losses.
At the end of December, Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.B) 345.7 million shares of the company were worth $18.6 billion, 2.7 times Berkshire’s cost basis of $7.0 billion. However, as I write this, those holdings are worth only $11.4 billion, or just 1.6 times higher than what it paid for the bank’s shares.
Last May, I wrote an article about Buffett’s ongoing support for Wells Fargo.
“Buffett’s support is excellent news if you own WFC stock, but terrible news if you own stock in Berkshire Hathaway, whose position in WFC stock is its third-largest equity holding,” I wrote May 8.
Oh, how the mighty have fallen.
The Bottom Line on WFC Stock
While Buffett’s other top bank holdings all yield between 3-5%, Wells Fargo is currently yielding 6.2%, making it an income investor’s dream stock. For this reason, it’s easy to see how some people could be enticed to own it.
If you’re one of these people, down almost 34% year to date (including dividends) through March 10, I say buy it.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.