Wells Fargo has struggled to regain the general public’s trust in recent years, and after a string of less-than-flattering headlines, the bank is not faring far better with investors, either.
The controversial corporate bank can’t appear to stop making headings for all the wrong reasons. The chain of bad news began with its “fake accounts” disgrace of 2016 and has continued with a fresh set of controversies, causing the bank’s income to fall by 4 percent last year, and its stock price to follow.
Those mistakes are regular and infuriating for customers. And as investors, we hate to see our holdings making what appear like consistent stumbles. In the decade since the 2008 financial crisis, JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC), and Citigroup (NYSE: C) have actually all operated in a tidy, give or take a few minor trip-ups. It can’t be that tough to remain out of the spotlight.
The Fed’s 2018 decision to bar Wells Fargo from growing its assets came at an extremely inconvenient time. Wells Fargo is missing out on the growth party that many of its competitors are enjoying.
Corporate clients are more difficult to win, in part because commercial banking relations are more complex. Consumers seek money management services, support with importing and exporting transactions, and various forms of credit such as asset-backed loans or revolving lines of credit. These services are generally secured with multi-year contracts; locking them in for more extended periods of time.
Wells Fargo executives say they are playing the long game, having their teams connect to potential clients to build relationships that they hope will pay off down the roadway.
The Fed’s asset cap
Last year, Wells Fargo racked up billions in fines after revealing that staff members had incorrectly modified client info on particular files. This move forced the Fed’s hand, adding asset caps which forbade the company from pursuing some of its most profitable businesses.
The Fed has yet to lift the restriction, and there’s no indication it’s going to anytime soon. And worse still, some pundits speculate that the bullish marketplace will cool off before long. If it does while Wells Fargo is still stuck under an asset cap, the bank is in for more discomfort and struggle.
Is Wells Fargo worth it for investors?
Some investors turned more hopeful when Wells Fargo reported decent returns in its 3rd quarter last year, though that enthusiasm was short-lived.
While the temporary perk was promising, a number of the business’s essential line products and appraisals went in the opposite direction in the 4th quarter– so the enhancements were minimal and did not appear to be irreversible. This tells investors that the bank isn’t doing a sufficient job regaining the confidence of American clients. This is a huge problem with the decay of credibility: Such destruction can take a long time to fix.
Though not all is bad. Wells Fargo identified recent transactions it helped recommend like Berry Global’s $4.39 billion takeover quote for RPC Group Plc, a tiny step in the right direction, at least.
Earlier this month, Wells Fargo also advised its very first ever USD international benchmark for the World Bank.
It still hasn’t been able to benefit from the economy’s growth spurt, and unlike some of its competitors, it most likely won’t get a chance to before the party is over.