The Ratings Game: Wall Street is okay with Well Fargo’s $250 million ‘speed bump’ fine


Analysts remained mostly positive about Wells Fargo Corp.’s

prospects with regulators after the bank was hit with a $250 million fine for not correcting practices it engaged in years ago. The bank did manage to satisfy a different regulator, closing a chapter in its retail banking scandal.

Height Capital Markets analyst Benjamin Salisbury said Friday the $250 million fine lodged by the Office of the Currency (OCC) against Wells Fargo amounted to a “speed bump on its road to regulatory recovery.”

The OCC said the megabank did not adhere to the terms of a 2018 consent order and issued a fresh consent order on Wells Fargo’s loss mitigation activities in its mortgage servicing operations. The OCC said the bank failed to establish an effective home lending loss mitigation program and restricted it from buying some third-party residential mortgage servicing until the issue is addressed.

But the order did not apply to WFC’s many other business lines, Salisbury noted.

“We view the limited scope of the new consent order and small fine as positive for WFC,” he said. “In our view, it is indicative that the bank has made progress on the wide range of regulatory concerns.”

Raymond James analyst David Long reiterated an outperform rating on the stock and said despite the setback from the OCC, it “does not change our view that Wells Fargo has the potential to become an ESG leader over time.”

The bank remains “laser-focused” on improving internal processes, and taking actions to eliminate unethical business practices and eliminating product sales goals and incentives, Long said. It’s also replaced most of its board and senior executive team, created new positions and reorganized its operations to better manage risk.

“Wells Fargo’s management has repeatedly indicated that the process to right the ship will not follow a straight line forward,” Long said in a research note published Friday. “The penalty and financial implications on its mortgage servicing business are manageable.”

J.P. Morgan Chase analyst Vivek Juneja was less optimistic on the bank’s regulatory progress. The OCC’s order did not address issues that have been raised around auto insurance remediation, which could also result in additional sanctions, he said.

“This consent order will result in more expenses, likely some delayed foreclosures, increased demands on management time, and greater board involvement,” said Juneja, who has a neutral rating on Wells Fargo stock.

On a second regulatory matter, Wells Fargo said late Thursday a 2016 consent order from the Consumer Financial Protection Bureau (CFPB) regarding its retail sales practices has expired.  The CFPB lodged the order after it ruled the bank opened unauthorized deposit accounts for existing customers, enrolled consumers in online banking services and ordered and activated debit cards using consumers’ information without their knowledge or consent, among other charges.

Wells Fargo CEO Charles Scharf said the bank has since “done substantial work designed to ensure that the conduct at the core of the consent order — which was reprehensible and wholly inconsistent with the values on which this company was built – will not recur.”

Meanwhile, Wells Fargo continues to face a $1.95 trillion asset cap that was imposed by the Federal Reserve in the wake of the bank’s phony accounts scandal.

Wells Fargo’s stock has risen 47% so far in 2021 while the S&P 500

has gained 19.6%. Shares rose fractionally on Friday despite losses in the broad equities market.

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