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It’s been about five years since it emerged that Wells Fargo staff had opened accounts for customers without their permission.
Justin Sullivan / Getty Images
Wells Fargo
Regulation issues are not yet in the rearview mirror. Because of this, stocks are falling.
On Tuesday, Bloomberg reported that the Office of the Comptroller of the Currency and the Office of Consumer Financial Protection were disappointed by the progress of Wells Fargo (ticker: WFC) in remunerating the victims of its counterfeiting scandal and the consolidation of its internal controls. The slower-than-expected pace could mean the bank will face additional sanctions, according to the report.
Shares of Wells Fargo fell 5.6% on Tuesday and fell nearly 4% in trading on Wednesday. Wells Fargo representatives declined to comment, as did the CFPB. The OCC did not immediately respond to a request for comment.
Wells Fargo’s recent operations are a mistake for an action that had skyrocketed both with hopes of a recovering economy and with expectations that the bank would soon come out of the regulatory penalty box. Just three weeks ago, Wells Fargo’s shares rose nearly 70% year-on-year, surpassing those of
ETF from SPDR S&P bank
(KBE), which rises by about 25%.
Wall Street had given credit to chief executive Charlie Scharf, who took the helm nearly two years ago. Under Scharf, the bank made changes to its leadership ranks and worked on reducing costs and other measures to improve its operations. While Scharf has warned that the road to recovery may be uneven, Wall Street did not anticipate Tuesday’s negative news.
“This is an unfortunate and unexpected turnaround,” Scott Siefers, CEO of Piper Sandler, wrote in a note on Tuesday, reiterating his neutral rating of the shares. “We believe that the market expected any incremental news to be good, instead of resembling what we learned [on Tuesday]”.
Other analysts took the same caution, considering the report a short-term negative for stocks. John Pancari, an analyst at Evercore ISI, noted that the Bloomberg report did not appear to reveal regulatory concerns about the bank’s additional illicit default, but that the prolonged recovery could mean higher spending.
“[The] the risk of incremental regulatory action is a negative implication given at the time of the resolution, as well as the impact on operating costs, ”he wrote. “Furthermore, we cannot rule out that these issues may affect investors’ perception of management’s ability to address the various concerns,” he said.
Pancari maintained its Outperform rating of the shares.
The negative news comes almost exactly five years after it became known that Wells Fargo employees, eager to achieve aggressive sales goals, were opening accounts for customers without their permission. Unauthorized accounts involved additional commissions and credit card credit scores. Quantifying the impact and compensating the victims accordingly has proven to be a challenge.
Write to Carleton English at [email protected]