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Wells Fargo: Investors Aren’t Banking on Growth
Stock Analysis & Ideas

Wells Fargo: Investors Aren’t Banking on Growth

The improvement in the broader economy, net reserve releases, and strong credit quality significantly boosted the earnings of top American banks, including Wells Fargo (WFC). 

Thanks to the improved operating environment and expected recovery in interest rates and loan volumes, Wells Fargo stock has more than doubled in one year. Meanwhile, it has gained 59% this year. (See Wells Fargo stock charts on TipRanks)

Despite its strong performance, TipRanks’ Stock Investors tool indicates that investors currently have a Very Negative outlook on Wells Fargo stock, with 1.8% of investors who hold portfolios on TipRanks decreasing their exposure over the past month.

Investors’ pessimism on Wells Fargo stock could be due to legacy issues that continue to haunt. For example, Reuters recently reported that Federal Reserve Chair Jerome Powell stated that Wells Fargo’s asset cap would remain until its problems are fixed. 

Specifically, the Federal Reserve mandated that Wells Fargo keep its assets below $1.95 trillion until it fixes its governance and risk control measures. 

Earlier, the OCC (Office of the Comptroller of the Currency) announced a $250 million fine on Wells Fargo as it failed to meet “requirements of the OCC’s 2018 action against the bank.” 

Acting Comptroller of the Currency, Michael J. Hsu, said, “In addition to the $250 million civil money penalty that we are assessing against Wells Fargo, today’s action puts limits on the bank’s future activities until existing problems in mortgage servicing are adequately addressed.”

Vivek Juneja of J.P. Morgan termed OCC’s fine as “moderate and manageable” for Wells Fargo. However, he expects the asset cap to remain for a longer time. Juneja has a Hold rating on Wells Fargo stock.

A few years ago, Wells Fargo’s infamous fraudulent sales practices had led the bank to pay billions of dollars in penalties. While the bank stated that it continues to strengthen its governance and risk control measures, the litigation and regulatory issues add uncertainty. I maintain a Neutral Outlook on WFC stock. 

Besides for investors, TipRanks’ Hedge Fund Trading Activity tool shows that hedge fund managers reduced their cumulative holdings in WFC by 18.5 million shares in the last quarter.

On TipRanks, WFC stock has an analyst rating consensus of Moderate Buy, based on 7 Buys and 7 Holds. The average Wells Fargo price target of $49.90 implies 6.0% downside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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