Wells Fargo Serves a Long Sentence
In the first half of last decade, no bank could keep up with Wells Fargo. It was number one. Its stock price more than doubled in 5 years, and it didn’t take much work on the part of investors to notice that its financial results were exemplary but any measure. In the second half of last decade, the reason for Wells’ outstanding performance became clear. It cheated!
Wells Fargo had told investors it had more customers than it really did, as managers were incented to create multiple accounts for the same customers. The guilty parties departed fast like rats leaving a sinking ship, and investors lost a combined 60-billion-dollars.
The Federal Reserve took the sentencing into its own hands and installed a growth cap to Wells’ assets. As a bank, it liked to earn interest on the assets it held, so this growth cap restricted that sum. Bloomberg estimates Wells Fargo has lost $4 billion so far, and counting.
If Wells Fargo gets the cap removed, its stock price will take off like a rocket ship. In truth, few investors expected it to last this long. Wells has learned its lesson. It’s struggled through this pandemic, been through two chief executives, and suffered huge reputational damage.
There’s scuttlebutt going round this morning that perhaps, Wells Fargo has finally done its time. The regulators might stop holding it back from growth, but there’s doubt as to whether customers come rushing back. It’s one to ponder, but a potential lead for the community.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.