Banking leader Wells Fargo (WFC) hasn’t exactly had an easy time of things lately. Scandals emerged from multiple corners and left the company reeling.
This year has proven a lot better for the bank, though. Some fresh positive news has arrived and given this beleaguered bank a whole new edge. Despite some truly impressive performance, I’m slightly bearish on Wells Fargo. Mostly, that’s because the company has already had quite a bit of success.
Looking at Wells Fargo’s stock charts for the year so far is a success story like few others. (See Analysts’ Top Stocks on TipRanks)
The latest news only improves on the situation for Wells Fargo. First, the company landed a win with regulators. That win came from its status as a global systemically important bank (G-SIB). The Financial Stability Board, working with the Basel Committee on Banking Supervision, recommended Wells Fargo maintain an additional buffer of 1% in addition to its normal common equity tier 1 ratio.
Most banks are required to keep a 4.5% ratio, along with an additional buffer called the “stress capital buffer.” Recent regulatory changes require Wells Fargo to maintain the smallest of buffers. This means it can put more of its capital to work in lending or the like.
Second, Wells Fargo got a benefit in Washington as well. The Biden Administration brought back Jerome Powell to serve as Federal Reserve chairman. Powell has been a bit rough on Wells Fargo in the past.
He previously noted that the Fed would be willing to act if Wells Fargo fails to meet its asset cap requirements. However, reports suggest that Powell is also the most likely candidate to lift Wells Fargo’s asset cap. Such a move would give the bank more to work with.
Wall Street’s Take
Turning to Wall Street, Wells Fargo has a Moderate Buy consensus rating. That’s based on seven Buys and four Holds assigned in the past three months. The average Wells Fargo price target of $53.13 implies 6.6% upside potential.
Analyst price targets range from a low of $45 per share to a high of $61 per share.
As Good as it Gets?
Things are looking surprisingly good for Wells Fargo right now. It’s got a regulatory environment that seems to be pretty positive. Better yet, it has had a great year of steadily upward movement. Wells Fargo is even trading slightly under its average price target and its high price target doesn’t seem outlandish.
So why is almost half of the analyst pool suggesting that you merely hold your position in Wells Fargo? Well, it’s pretty simple: things are almost going too well for Wells Fargo right now.
Buying in on Wells Fargo right now looks a lot like buying in at the top. Wells Fargo’s winning streak lasted most of 2021. Several excellent measures contributed to that win.
First, Wells Fargo recently gifted the National Museum of the American Latino with $2 million, which should buy the company substantial community goodwill. Second, it’s taking advantage of slumping office prices in New York City to expand its operations therein. That will work great if the telecommuting concept that marked most of 2020 into 2021 starts to falter. That’s a growing concern among workers.
Finally, Wells Fargo even recently tapped Ford (F) alumnus Hunter Patton to serve as managing director of North American corporate and investment banking. Patton will have a particular focus on industrial operations. As part of Ford’s corporate development team, that puts him in a good position to understand industrial banking needs.
Yet, with all of this in mind, it’s easy to ask, “What does Wells Fargo do for an encore?” All of these points contributed to Wells Fargo’s impressive run in 2021. To expect a similar run in 2022 might be asking too much of a company that only recently crawled out from under the weight of its own scandal.
Concluding Views
There’s no denying that Wells Fargo had a great year. Those looking for a second good year in a row may be in for disappointment. Certainly, Wells Fargo is looking to build on its successes. Yet how far can those successes reasonably go?
Essentially, now may not be a good time to put investment in Wells Fargo. Pull back to the sidelines, wait for a while, and maybe let a good hard dip kick in before coming back and reconsidering. Wells Fargo has already shown what it can do. Now, let it rest up a bit before expecting it to do it again.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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