Wells Fargo & Co (NYSE: WFC) stock fell 7 percent on Monday after a handful of Wall Street analysts downgraded the stock in the aftermath of a recent crackdown by the Federal Reserve.
Analysts say new federal restrictions placed Friday on Wells Fargo will restrict the company’s growth and hurt its financial performance.
As one of her last official moves, outgoing Fed Chair Janet Yellen said that Wells Fargo will not be allowed to grow beyond its current $2 trillion in assets until it can prove it has sufficiently addressed “widespread consumer abuses” and improves its internal controls and risk management.
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The most widely reported incident involving Wells Fargo was the creation of millions of fraudulent accounts for real customers by bank employees attempting to hit aggressive sales targets. Wells Fargo also reportedly sold as many as 570,000 customers unneeded auto insurance.
“We cannot tolerate pervasive and persistent misconduct at any bank,” Yellen says.
Wells Fargo has assured investors that it is taking its punishment seriously. Wall Street clearly is.
On Monday, at least five Wall Street analysts downgraded Wells Fargo stock, including J.P. Morgan analyst Vivek Juneja. Juneja lowered his rating for Wells Fargo from “neutral” to “underweight” and said consensus 2018 earnings estimates are now at risk.
“Management is extremely focused on near-term earnings — we would hope management would focus more on regaining regulators’ confidence, delivering on both the letter and spirit of these sanctions, as well as continuing to invest for the long term,” Juneja says. “The key question is what other changes may occur given the multitude of investigations underway.”
Wells Fargo is being investigated by the Departments of Justice and Labor, multiple state attorneys general, the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Small Business Administration.
[See: 7 of the Best Blue-Chip Stocks to Buy for 2018.]
Keefe, Bruyette & Woods analyst Brian Kleinhanzl also downgraded Wells Fargo from “outperform” to “market perform.” Kleinhanzl says it’s never good for investors to see a company shift from offense to defense.
“The major takeaway is that we believe WFC will have to be defensive until the [cease and desist order] is lifted, and that is negative relative to our previous earnings forecast, which reflected the company being offensive,” Kleinhanzl says.
He expects it will be at least another year before investors get a clear picture of Wells Fargo’s long-term earnings outlook.
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Wall Street Has Had Enough of Wells Fargo & Co (WFC) Stock originally appeared on usnews.com
