🏦 Wells Fargo: Moving Past The Scandal?
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🏦 Wells Fargo: Moving Past The Scandal?
Wells Fargo & Co. (WFC) stock surged after reporting Q1 earnings - a sigh of relief to its scandal-weary investors who have been looking to move on from the dark days of the past. (Tweet This)
In 2016, one of the world's biggest financial scandals erupted when Wells Fargo was caught for creating 3.5M fraudulent bank accounts to increase revenue. In order to meet the unrealistic quarterly targets set by Wells' executives, savings and checking accounts for customers were set up without their knowledge or approval. The bank employees would then move money from existing accounts into new ones, resulting in extra fees. The contact information on these accounts was of the bank employees preventing the customers from discovering the fraud.
Eventually, customers who were wondering about additional fees that showed up on their bank statements began to question them. In the face of incessant complaints, regulatory bodies got involved. Concomitant investigations resulted in a $185M fine to Wells Fargo. CEO John Stumpf was forced to resign and paid a $17.5M fine in addition to a lifetime ban from working in banks. Legal trouble continued through early 2021. Over the years, Wells Fargo has paid over $3B in restitution.
New CEO Charles Scharf joined in late 2019, right before the pandemic hit, aiming to resolve a plate full of problems. Scharf was now responsible for turning the wheels back up for one of the largest financial institutions in the US, founded in 1852.
With Scharf's entry, Wells seems to be turning a corner. He has pledged to reduce $10B in annual expenses and focus on the company's infrastructure. The company recently released earnings for Q1, forecasting a positive outlook for the remainder of 2021.
Earnings: $1.05 in EPS Vs. 70 cents EPS expected
Revenue: $18.06B Vs. $17.5B expected.
The Q1 earnings greatly benefitted from $1.05B in reserve releases, which banks bulked up last year due to Covid-19. Wells expects growth in the commercial and middle-market loan portfolio as the economy recovers faster. The stock surged more than 5% after the earnings announcement.
Wells Fargo is still under restrictions imposed by the Federal Reserve, with the company requiring to undergo independent reviews and be on a tight leash for maybe a year or more.
It’s a long road for Wells Fargo as it works to regain the lost trust and credibility with all of its stakeholders. Even so, Scharf is focused on doing things right and that itself is a welcome change in outlook. As they say, it’s one step at a time.
WFC closed the day at $41.99, up 5.53%. The stock is up 0.4% in pre-market trading.
Company Snapshot 📈
WFC $41.99 +2.20 (+5.53%)
Analyst Ratings (27 Analysts) BUY 63% HOLD 37% SELL 0%
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6:00 PM IST: Initial jobless claims
6:00 PM IST: Retail sales
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