For many industries 2020 has been fabulous. For banks it has been a terrible, horrible, no good, and very bad year. None of the banks has fared as poorly as Wells Fargo (NYSE:WFC). WFC stock has fallen 46% in 2020.
Its price to book value is down to .65. In the years right after the Great Recession it was usually 1.5, highest among the big banks.
Then came the scandal. Wells paid out $3 billion just this year to settle criminal charges on stealing customers’ money. Charles Scharf was brought in from Visa (NYSE:V) late last year to end the rot but, since his appointment, the shareholders have only fared worse.
Past Sins and WFC Stock
I want to believe in Charlie Scharf. So do other Investorplace writers. Our Thomas Niel pounded the table for Wells stock in July. Larry Ramer did it again just this month.
But having lost some of my own retirement money in WFC stock, I finally gave up early this year. Since then it has barely budged.
Scharf wants to cut $10 billion from costs. Employees face massive layoffs, with as many as 20% of jobs, 50,000 in all, on the chopping block.
There’s speculation the bank may move out of San Francisco to Charlotte where the former Wachovia unit was located. Wells is also abandoning old-style bank lobbies for storefronts, but it’s still losing share in growing markets.
Customers don’t forgive easily. Neither do regulators. Former CEO John Stumpf was charged just this month by the Securities and Exchange Commission for misleading investors about the bank during the scandal.
Believe in Charlie?
Scharf’s downsizing has won praise from analysts.
Raymond James recently gave it a double-upgrade, to outperform, saying positive catalysts are on the horizon. Ramer liked the bank’s third quarter numbers, a profit of 42 cents per share and a $1.1 billion gain in revenue, to $18.8 billion.
By some measures, like that price to book ratio, WFC stock looks dirt cheap. Wells’ own analysts wrote a note to clients recently, saying buy the stock.
One of its analysts went on TV, right before the latest rally, to say this would be a “scary time” on Wall Street. Banks are a safe place to invest, he said.
The Real Problem
The real problem is that old-style banking, selling money for more than you pay for it, is out of fashion.
Fintechs, the shadow banking system, and apps are making banks obsolete. I haven’t been in a bank for years, except to visit my safety deposit box.
The old community relations gambits, partnering with charities, claiming diversity, even helping feed people in need, no longer get attention. It looks great in a newspaper, but what’s a newspaper?
The question is no longer just whether Wells Fargo is relevant, but whether banks are. Wells has created a startup accelerator and a virtual payments service for business. But Wells increasingly looks like your grandfather dancing at your nephew’s wedding. You want to clap even when you know it’s embarrassing.
The Bottom Line on WFC Stock
William Daley, formerly White House chief of staff under Barack Obama, is now Wells’ vice chairman of public affairs. The bank has done everything it can to do well under the Biden Administration.
But so long as the Federal Reserve is giving money away, and net interest margins continue to fall, it’s hard to see Wells’ fortunes changing.
Still, if I were to speculate on one big bank today, it would be Wells. It’s a defensive play for those who believe that our tomorrows can look something like our yesterdays.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
