Is there any bank stock as unappealing as Wells Fargo (NYSE:WFC)? For my money, Wells Fargo stock is the worst of a weak bunch.
Wells Fargo has been the black sheep of bank stocks for a few years now, and nothing that it’s accomplished lately is making people forget that.
After all, it wasn’t that long ago that Wells Fargo got in serious trouble for an accounting scandal that cost it billions of dollars. You surely remember when Wells Fargo employees, pressured to hit aggressive sales goals, created millions of fake savings and checking accounts in customers’ names, without their consent.
The scandal came to light in 2016 and Wells Fargo stock really never recovered. It shattered the trust of its customers, regulators and members of Congress, who seem to revel in bringing WFC executives to Capitol Hill every now and then to be berated in front of TV cameras.
Fast-forward to today and you’ll see that things aren’t that much better for WFC stock.
Wells Fargo Stock at a Glance
It’s no surprise that bank stocks are having a tough 2020. The novel coronavirus forced millions of people out of work, which means millions of people don’t know if they’ll be able to make their mortgage, car or credit card payments in the long term.
That cuts right to the bottom line of bank stocks like Wells Fargo, but some banks are handling the crisis better than others. And you can put Wells Fargo near the bottom of the list.
Look at the major bank stocks right now and their year-to-date performances:
- Bank of America (NYSE:BAC) is down 25%.
- JPMorgan Chase (NYSE:JPM) is down 26.2%.
- Citigroup (NYSE:C) is down 33.5%.
- Wells Fargo is down 53%.
The numbers don’t lie. Wells Fargo is doing far worse in today’s economic climate than its major competitors.
A New Scandal
It’s not as if Wells Fargo is doing a good job in recovering. In fact, the bank is pretty much shooting itself in the proverbial foot when it really needs to be regaining public trust.
The latest trouble spot comes in the current economic crisis. Wells Fargo customers in at least 14 states are now on the record complaining that the bank put their accounts into forbearance plans without their consent or knowledge.
Can you imagine how infuriating that would be? You’re making your mortgage payments like clockwork for months, just to find out that your money isn’t being credited toward your account.
An unwanted forbearance means that customers can’t even refinance their mortgages or get favorable interest rates. Wells Fargo calls the problem errors made “in the spirit of providing assistance.”
Under New Management
One thing that Wells Fargo bulls point out is that the company is under new management to help it turn things around. And true, Charlie Scharf did a nice job as CEO of Visa (NYSE:V).
But he took over Wells Fargo in 2019, so he has been around long enough to own the company’s earnings reports. And at least in the last quarter, the numbers weren’t kind.
Second-quarter earnings came in at $17.84 billion, which was lower than Wall Street’s expectations of $18.4 billion. Adjusted losses per share were 66 cents, while analysts had expected a loss of 20 cents per share.
For the quarter, the company posted a net loss of $2.4 billion, compared to net income of $6.21 billion in the same quarter a year ago.
Wells Fargo was forced to slash its dividend, from 51 cents per share to a meager 10 cents per share.
Scharf used uncommonly frank language to talk about the company’s performance:
“While the negative impact of the pandemic is unprecedented and many of our business drivers were negatively impacted, our franchise should perform better, and we will make changes to improve our performance regardless of the operating environment.”
He’s right. Wells Fargo should perform better. Investors should demand it.
The Bottom Line on WFC Stock
As an investor, I love grabbing shares of wounded companies if I truly believe in the business model and the long-term prospects of the company. That’s one reason why I scooped up Delta Air Lines (NYSE:DAL) instead of an airline like American Airlines (NASDAQ:AAL).
But I can’t make the same move on WFC stock. There are too many headwinds for bank stocks in general, particularly as fintech companies give customers more tools to manage their own money.
And don’t forget Amazon’s (NASDAQ:AMZN) flirtation with the banking business. I don’t expect Jeff Bezos to slow down on the idea of managing people’s money before he has a chance to snap it up with the convenience of two-day delivery.
Avoid buying the dip on Wells Fargo stock. The rewards just aren’t worth the risk.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he was long DAL and AMZN.