Wells Fargo Is Still in the Penalty Box. The Stock Is Dropping.


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It has been about five years since it emerged that Wells Fargo staff had been opening accounts for customers without their permission.


Justin Sullivan/Getty Images


Wells Fargo

‘s regulatory trouble aren’t yet in the rearview mirror. The stock is tumbling because of it.

On Tuesday, Bloomberg reported that the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau were disappointed in Wells Fargo’s (ticker: WFC) progress in remunerating victims from its fake- accounts scandal and beefing up its internal controls. The slower-than-hoped-for pace could mean that the bank will face additional sanctions, according to the report.

Wells Fargo shares fell 5.6% Tuesday and were down nearly 4% in Wednesday’s trading. Representatives from Wells Fargo declined to comment, as did the CFPB and the OCC.

Wells Fargo’s recent trading is a blip for a stock that had been soaring both on hopes of a recovering economy and expectations that the bank would soon get out of the regulatory penalty box. Just three weeks ago, Wells Fargo shares were up nearly 70% on the year, outpacing the

SPDR S&P Bank ETF

(KBE), which is up nearly 25%.

Wall Street had been giving credit to Chief Executive Charlie Scharf, who took the helm nearly two years ago. Under Scharf, the bank made changes to its leadership ranks and worked on cost-cutting and other measures to improve its operations. While Scharf has warned that the path to recovery may be uneven, Wall Street wasn’t anticipating Tuesday’s negative news.

“This marks an unfortunate and unexpected turn,” Scott Siefers, managing director at Piper Sandler, wrote in a note Tuesday, reiterating his Neutral rating on the shares. “We believe the market had hoped that any incremental news would be good, rather than akin to what we learned [on Tuesday].”

Other analysts were similarly cautious, calling the report a near-term negative for shares. John Pancari, analyst at Evercore ISI, noted that the Bloomberg report didn’t appear to reveal regulatory concerns about additional wrongdoing by the bank, but that the prolonged recovery could mean higher expenses.

“[The] risk of incremental regulatory action is a negative given implications for the timing of resolution, as well as impact to operating costs,” he wrote. “Additionally, we cannot rule out that these issues could impact investors’ perception of management’s ability to address the various concerns,”

Pancari maintained his Outperform rating on the shares.

The negative news comes almost exactly five years after it emerged that Wells Fargo employees—anxious to hit aggressive sales targets—were opening accounts for clients without their permission. The unauthorized accounts led to extra fees and dings to clients’ credit scores. Quantifying the impact and compensating victims accordingly has proven to be a challenge.

Write to Carleton English at carleton.english@dowjones.com

William Murphy

William Murphy

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