The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency announced a $1 billion penalty against Wells Fargo (WFC) for violations of the Consumer Financial Protection Act related to a mandatory auto loan insurance program and unscrupulous practices related to mortgage interest rate-lock extension. Importantly, these practices were previously identified, reported, and discontinued by Wells Fargo. Furthermore, the monetary penalty is essentially immaterial to shareholders given the company’s $256 billion market capitalization. We think the primary financial impact will come from reputational damage, as negative headlines continue to damage the bank’s brand. That said, customer memories appear to be short--Bank of America gained new customers even as it recovered from the brink of failure, paid out multi-billion dollar settlements, and was accused of mortgage fraud. We believe Wells Fargo is capable of cleaning up its act and becoming more efficient over time, and we are maintaining our $65 per share fair value estimate and wide moat rating.
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Jim Sinegal does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.