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02 May 2018

Wells Fargo: Overview and Analysis

Wells Fargo & Company is an American multinational, specializing in financial services. Wells Fargo was the world’s largest bank by market cap from July 2015 to September 2016. Founded by Henry Wells and William G. Fargo in 1852, Wells Fargo owned and operated the largest stagecoach fleet in the world and retains the iconic stage coach as a corporate symbol.

The stock chart of WFC (Wells Fargo & Co.) is much more volatile than other companies in its sector in the U.S. This is due in part to the scandals that Wells Fargo has been embroiled in. WFC began 2016 in a sideways channel. In September, a scandal became national news wherein employees were called upon to order credit cards for customers without their consent. They filled out the requests using their own contact information so as not to alert the customer to the activity. The company agreed to pay $185 million to settle with the Consumer Financial Protection Bureau (CFPB).

The November 2017 rally that followed the election of Donald Trump shocked the stock out of complacency and it began a multi-month uptrend. But then in March, the unauthorized accounts scandal reared its head again as Wells Fargo settled with members of a class action lawsuit for $110 million. The stock then began ranging, culminating in a July in which Fed chairwoman Janet Yellen said that she could remove Wells Fargo directors for the scandal, and an earnings report where profits beat expectations, but revenues failed to meet the consensus, sending the stock lower. In August, the company announced that about 3.5 million accounts were potentially unauthorized, up from the 2.1 million that had previously been estimated. The downward slide continued.

Once September came, the stock began a rally that lasted through January 2018. In January, failure to beat profit and revenue expectations, in addition to a $3.25 billion pre-tax litigation charge, began to weigh the stock down and a downswing commenced that lasted through April 2018.

Stock Performance in the Future

The volatility of WFC over the past 12-18 months is suggestive of a stock that would have achieved great things if not weighed down by scandal. With the unauthorized accounts scandal beginning to find resolution through the various settlements that have been reached, there is reason for hope. But the egregious actions of Wells Fargo leadership in violating the privacy and trust of millions of consumers will not be an easy thing to overcome. If the financial deregulation promised by President Trump does happen, expect Wells Fargo to benefit, but at a slower clip than its peers in the financial industry.