Fed Rebuke Costs Wells Fargo About $27 Billion in Lost Market Value
By Emily Glazer
Wells Fargo & Co. struggled Monday to retain the confidence of investors who dumped the stock after the Federal Reserve cast it into a regulatory purgatory and limited the bank's ability to grow its business.
Shares slumped more than 8% as analysts ratcheted down earnings estimates for the third largest U.S. bank by assets. The selloff -- which cut around $27 billion from Wells Fargo's market value -- was especially painful given the outlook for banks has brightened over the past year thanks to stronger economic growth, rising rates and lighter regulation.
Since the start of the year, Wells Fargo's shares have lost nearly 4%, while its biggest peers have gained between 1% and 6%. Meanwhile, the bank's price/earnings multiple has fallen below that of JPMorgan Chase & Co. and Bank of America Corp.
The challenge now facing Wells Fargo was on display Friday night in an analyst call held less than two hours after the Fed announced an unprecedented enforcement action and said the bank would replace four board directors by year-end. CEO Timothy Sloan said five times on the call that the bank is "open for business."
His insistence underscored for investors how hobbled the bank is and the fact that Wells Fargo has yet to move past the sales-practices scandal that engulfed it nearly 18 months ago. Under the Fed's Friday order, Wells Fargo is barred from growing past the roughly $1.95 trillion in assets it had at the end of 2017.
Wells Fargo in its presentation to analysts Friday night said that it expected the Fed action to reduce 2018 after-tax profit by between $300 million and $400 million.
Such a reduction comes at an inopportune time for Wells Fargo. Over the past three quarters, the bank's net interest income has fallen. At the same time, the bank has been in the midst of an effort to cut $4 billion in annual costs by 2019.
Write to Emily Glazer at email@example.com
(END) Dow Jones Newswires
February 05, 2018 14:39 ET (19:39 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.