Evercore Positive on Wells Fargo (WFC) CEO Transition; Says Sales Practice Issue Seems 'Manageable'
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Evercore ISI affirms Wells Fargo (NYSE: WFC) at Buy with a price target of $51 after the company announced the retirement of CEO John Stumpf late Wednesday.
The firm noted the following:
- Positive for the stock, and the bank. The announcement, in our view, is a positive in that it signals the Board's acknowledgment of the severity of the sales practice issue and its commitment to addressing the required changes, while preserving Wells' still-solid culture and formidable banking presence throughout other areas of the company. Tim Sloan has a hands-on approach to Wells businesses, and in our view is highly capable of seeing the bank through the forthcoming sales practice/incentive changes, while leading the company through a still-uncertain macro backdrop and highly competitive landscape. Tim Sloan is also well-respected amid investors and analysts.
- Headline risk still exists…While the CEO change and Chairman/CEO role split are major steps in clearing a degree of the overhang on the stock, headline noise will likely persist for some time. Specifically, the DOJ and DOL investigations are still underway, employee and securities class action lawsuits are being filed, an independent investigation prompted by the Board is underway, and uncertainty remains around Warren Buffet's 10% stake (does not expect to comment publicly until November).
- ...but, financial impact of sales practice issue appears manageable. In our view, while still difficult to quantify (and we expect added color on Wells' 3Q earnings call this Friday), upfront and go-forward financial impacts will be materializing - including fines, litigation accruals, remediation costs, forgone deposit/card revenue, forgone revenue from impacted municipal govt's, higher systems/compliance costs, and potentially lower buybacks. That said, helped by Wells' well-diversified business mix and solid earnings power (>$20B annual net income), the financial impact of the sales practice issue should be manageable. Our initial take, the impact on go-forward earnings is likely to be 5-10% annual EPS.
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