UPDATE: JPMorgan Cuts Wells Fargo (WFC) to Neutral on Concerns About Timing and Expense of Additional Investigations
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(Updated - September 21, 2016 8:46 AM EDT)
JPMorgan downgraded Wells Fargo (NYSE: WFC) from Overweight to Neutral with a price target of $48.00 (from $53.50). Following its difficult Senate hearings and mounting public scrutiny over opening of fraudulent accounts, analyst Vivek Juneja expressed concerns about the cost and length of additional investigations.
Juneja explained, "In our view: 1) Wells will need to spend a lot more on litigation, examining past violationsin additional areas, and responding to requirements from more hearings, investigations and lawsuits; 2) revenues will likely face some slowdown in growth including potentially impact on cross-sell in Retail brokerage, a key focus in that area; 3) this is a material reputational hit given the large number of unauthorized accounts (2 million) and how long it went on; and 4) this will likely result in a shift to greater earnings growth from areas such as investment banking which carrylower multiple. Impact on earnings is hard to determine because of uncertainty about likely total expenses – no comparable lawsuit as this matter is very different from the mortgage crisis."
The analyst added, "The stock has fallen recently but the uncertain timeframe and earnings impact is likely to keep the stock under pressure. $1-2 bil increase in costs would lower EPS by $0.20-0.40 and imply 11.7x-12.3 P/E multiple respectively(if not tax deductible), which is within the range of regional banks - unclear if these penalties would be tax deductible. What is particularly disappointing to us is that we and investors have long held Wells Fargo management in very high regard – they have been smart contrarian thinkers and made thoughtful decisions. We expect management to turn this around but it will likely take some time and expense –hence the downgrade."
Shares of Wells Fargo closed at $46.56 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS View, Analyst PT Change, Downgrades, Hot Comments
Related EntitiesJPMorgan, Earnings, Wells Fargo
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