Wells Fargo (NYSE:WFC) is no stranger to crises. The world’s fourth-largest bank has weathered events like the 2008 financial crisis and a fake accounts scandal that saw it severely punished by the Federal Reserve in 2018. Those two notable affairs cost WFC stock a 73% loss in value over the course of six months, and 20% over six weeks, respectively. It has always bounced back and returned to growth.
The latest challenge is the coronavirus from China, which has decimated financial markets. As if that weren’t enough, an oil price war between Saudi Arabia and Russia is causing more turmoil.
The story gets even worse from the perspective of Wells Fargo.
On March 9, the chair and one director of the company’s board of directors resigned. They were facing a congressional hearing over accusations the bank was failing to clean up quickly enough from its 2018 scandal.
The result of this convergence of events has been a 44% drop for WFC stock over the past month.
How Bad Could It Get for Wells Fargo?
The current financial crisis is still worsening, and the economic fallout from the coronavirus is going to get much worse. Last week, the CEOs of America’s largest banks were summoned to the White House. There, they assured reporters that banks and financial institutions were in much better shape than in 2008, and that this was “not a financial crisis.”
Mind you, that was before restaurants and stores began closing. Wells Fargo’s loan mix includes a heavy reliance on residential mortgages. It also has significant exposure to consumer loans, including car loans. If people are out of work for an extended length of time because of coronavirus-related closures, that will put stress on their ability to make their payments. That, in turn, will hit the bank’s bottom line.
In addition, a recent estimate put 1.4% of Wells Fargo’s outstanding loans in the oil and gas sector, which is feeling the brutal impact of a price war.
The White House is considering bailout and aid packages, but the current focus appears to be on industries that were hit hard by the initial coronavirus onset — airlines, cruise lines and the hospitality industry. Without direct relief for consumers, the fallout of an extended coronavirus disruption could be significant.
Banks like Wells Fargo are not be immune from the effects.
Of course, Wells Fargo isn’t alone in feeling the impact of the market implosion. JPMorgan (NYSE:JPM) has taken a 36% hit since mid-February. Bank of America (NYSE:BAC) is down roughly 42% and Citibank’s (NYSE:C) losses are approaching 49%.
Bottom Line on WFC Stock
Investment analysts have very mixed feelings about WFC’s prospects. Those polled by CNN Business have a 12-month price target of $48.75, which indicates some optimism for recovery this year. That would take Wells Fargo stock back to pre-coronavirus, pre-oil war and pre-board chair resignation territory. However, they have a strong consensus (17 of 24) “hold” rating for the stock. This reflects the fact that there are simply too many unknowns right now to recommend anyone buy the stock, despite it being at a nine-year low.
If you’re in it for the long term, WFC stock could still be an attractive option. InvestorPlace’s Will Ashworth notes that Wells Fargo currently yields 6.2%, making it “an income investor’s dream stock.”
WFC has bounced back from plenty of serious hits before, even if it might take a year or two to recover. Earlier this year, Wells Fargo paid $3 billion in fines to the Justice Department and the Securities and Exchange Commission. With the board resignations earlier this month, and a new CEO at the helm, the company is finally ready to put the fake accounts scandal in the rear view mirror.
However, the really big questions are all centered around the coronavirus pandemic. How bad will it get? How long will it last? Will the Federal government offer bailout packages? What exposure does Wells Fargo have to the financial damage?
That’s a lot of uncertainty. No wonder most analysts are waiting to see what happens next.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, he did not hold a position in any of the aforementioned securities.
