Just a week after CEO Tim Sloan dismissed “sensational headlines” related to Wells Fargo's (WFC) past misdeeds (and a month after another $1 billion settlement with regulators), the company acknowledged that employees of the bank’s wholesale division altered information on customer accounts.
We don’t think the latest reports are too surprising--Wells Fargo has more than a quarter of a million employees, and the firm’s practices are being examined with a fine-toothed comb by regulators and managers. Nor do we believe the latest revelations are material to the firm’s financial prospects, as the alterations do not appear to have generated any additional revenue. Instead, mundane information was being added outside of proper channels.
The bigger question, given management’s comments and the fact that this particular behavior continued into 2018, is whether top management is truly intent on conducting a ruthless transformation of the company’s culture. Former CEO John Stumpf lost his job because he was not taking the bank’s problems seriously enough, and regulators are clearly not happy with the changes that have been made so far. Notably, Sloan was the second in command as the first scandal broke. The company is the subject of a consent order limiting growth, and regulators appear to have influenced the board changes made this year.
We believe the wide-moat bank’s competitive advantages are intact, and that it is undervalued relative to our $65 per share fair value estimate. However, we don’t believe it is out of the woods yet, and further changes may be needed to catalyze the company’s comeback in the eyes of customers and investors.
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Jim Sinegal does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.