The last time we spoke about Wells Fargo & Co (NYSE:WFC), it was making headlines for a major banking scandal. According to reports, employees had secretly created 1.5 million unauthorized accounts since 2011. They had also submitted phony applications for more than 565,000 credit card accounts.
The company was hit with a whopping $185 million fine by the Consumer Financial Protection Bureau (CFPB). A full $100 million of that would go toward the CFPB’s Civil Penalty Fund, $35 million to the Office of Comptroller of the Currency and $50 million to the City and County of Los Angeles.
And of course, Wells Fargo had to adjust its sales practices and internal oversight. WFC stock took a 12.5% hit as a result, but it’s already regained those losses, and then some.
I think a lot of that has to do with strength in the financials, which rallied in the aftermath of the election. But, at the same time, I have to applaud the company’s board for clawing back an additional $75 million in compensation from the former CEO and former head of community banking — the two people who were, apparently, the most to blame. The clawbacks are the largest in banking history.
In the end, it looks like there may not be long-term implications.
Wells Fargo reported earnings on Thursday, with earnings of $1 per share besting estimates of $0.97 per share. Revenue fell 1% to $22 billion, just barely missing expectations of $22.32 billion. WFC stock was down as a result, and looking at the chart you can see that it is pulling back from a double-top formation. WFC appears to have support around $50, which is a level the shares must hold. Otherwise, they’ll be vulnerable down to $45.
I’m a bit surprised at how swiftly investors have been generally fleeing the banks recently. I believe this is mostly due to angst over a delay in President Trump’s economic agenda, including reform to Dodd-Frank. I also think it’s unclear whether the Fed will actually hike interest rates three times this year.
As a result of all the above, I wouldn’t be a buyer here. With that having been said, I think under $50 WFC begins to become attractive, particularly in hindsight of doing the right thing.
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