Wells Fargo Gets Back in Business
Wells Fargo isn’t off the naughty step yet, but it has dropped a step.
The bank was caught on the wrong side of the law four years ago. The Securities and Exchange Commission (SEC) accused Wells of pretending to have customers it didn’t have, and opening needless bank accounts for existing clients only to create the impression of more business. Insiders ran with their bonuses, leaving unaware stock market supporters holding the bag.
Wells Fargo’s entire reputation was blown. Shares lost twenty percent of their value, leaving investors and customers alike feeling stolen from. The CEO bailed, and so did his emergency replacement. That led the Federal Reserve to say enough was enough in 2018. The jury was out, the verdict was in, and the bank was told it could no longer grow!
Unsurprisingly, the stock has languished since then. But yesterday, the Federal Reserve got back in touch with Wells. The government is desperate to get financial aid to disadvantaged citizens and to allow small businesses to draw emergency credit. It would be un-American for officials to take away a possible lifeline between bank and customer, so the growth cap was lifted slightly!
Wells Fargo shares jumped 5% on the news, even though this is temporary. The company immediately reopened applications for the Paycheck Protection Program (PPP), and thousands of customers congregated online and outside branches to get their hands on much-needed cash. However, no sooner did Wells rack up 170,000 applications to borrow money, did it hit the growth cap again.
A Twitterstorm erupted overnight. Customers were finding their bank of five, ten, or even twenty years tell them to go elsewhere, despite solid credit ratings. It’s likely that at the market open, investors will undo some of those big stock advances. That or shares will rise on the excitement that another cap lift might be imminent. What would you do if you were the Federal Reserve?