🏦 Wells Fargo: Moving Past The Scandal?

Coinbase has a $86Bn debut. JNJ trouble continues!


Hey Global Investor, here’s what you need to know before the US markets open.

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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)

Background
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.

What Happened?
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.

Key Stats:

  • 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.

Market Reaction
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%

 


Newsworthy 📰

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Later Today 🕒

  • Before Markets Open: Delta Air Lines Inc Earnings (DAL)
  • Before Markets Open: Bank of America Corp Earnings (BAC)
  • Before Markets Open: BlackRock Inc Earnings (BLK)
  • Before Markets Open: Citigroup Inc Earnings (C)
  • Before Markets Open: UnitedHealth Group Inc Earnings (UNH)
  • Before Markets Open: PepsiCo Inc Earnings (PEP)
  • 6:00 PM IST: Initial jobless claims
  • 6:00 PM IST: Retail sales
  • 6:00 PM IST: Empire state manufacturing index

Fun Fact of The Day 🌞

The severed head of a sea slug can grow a whole new body


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