After getting a huge boost from Donald Trump's winning the Presidential election, Wells Fargo (NYSE:WFC) has been milling around the $53 a share range. I still find the stock overly expensive, especially when compared to the likes of JPMorgan (NYSE:JPM). Nonetheless, the phony-account scandal and apparent fraud that WFC was committing created a buying opportunity, with shares hitting multi-year lows in the low $40s.
Catalysts to get WFC investable
Regulators might finally be willing to step up their 'regulation' of WFC, noting that they might claw back executive pay. The other big news is that WFC must now get approval before shaking up its leadership. But ideally, regulators will be able to scrape back some of the pay that executives raked in while pressuring employees to open fake accounts. The less than $200 million fee that WFC was hit with was a proverbial drop in the bucket for WFC's cash. Meanwhile, big executives, including former CEO John Stumpf and head for retail banking Carrie Tolstedt still took home more than $350 million on their extis.
However, even with this, investors didn't blink an eye at the fact that WFC growth could be slowing. And slowing fast. Yet, that could catch up to the bank in the next few quarters. To start, WFC saw its customers open 44% less accounts in Oct. versus the same month in 2015. The number of new accounts in Oct. was also a 27% fall from Sept. That's a big drop.
The rate hike is still in play for Dec., which will be a boon for banks - notably the underrated regional banks. However, WFC will surely benefit. But then there's less financial regulation, which could become a Trump Presidency staple.That's where the big banks will benefit the most, leading to potential more capital returns and M&A activity. However, the bad still outweighs the good here. The bank isn't allowing the customers it wronged to sue, but it's forcing them into arbitration.
But the Office of the Comptroller of the Currency is at least stepping up and putting the pressure on WFC. This includes restrictions on hiring executives, golden parachutes and even extends to branch openings and closings. This could be an underrated catalyst against WFC that much of the market is missing. The OCC can reject WFC hiring based on anything along the lines of integrity, experience or even competence.
In the end, will WFC get down toward my ideal range of $40 a share, that might be a pipe dream; however, the fact remains that WFC hasn't 'paid' enough. Nonetheless, customers are making WFC pay by pulling their accounts. Ideally this is just the beginning, coupled with a possible slowdown in the mortgage business (it's key business) we can at least get WFC back down in the $40s.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.