Wells Fargo (WFC) Retail Banking Fee Income Seen Stagnating as Product Sales Goals Eliminated, Piper Jaffray Says

Wells Fargo (NYSE: WFC) has found itself the poster child for bad bank behavior after being fined $185 million for the widespread illegal practice of secretly opening more than 2 million unauthorized deposit and credit card accounts. In addition to firing 5,300 employees related to the scheme, today the company announced it will eliminate all product sales goals in retail banking, effective January 1, 2017.

Wells Fargo CEO John Stumpf said they are eliminating product sales goals "because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers."

While the elimination of product sales goals may be good for PR, it could "materially change how the company's Retail Banking segment operates and the fee revenue it generates," Piper Jaffray analyst Kevin Baker said in a note to clients Tuesday.

Baker said while they do not expert a dramatic impact to fee revenue near-term, over a longer period of time, it is possible fee income from the retail banking segment could stagnate. The analyst notes that retail banking segment accounted for 57% of total revenue, 49% of fee revenue and 59% of pretax income during the 2015 fiscal year.

While Wells Fargo's stock is trading in-line with its historical multiple, the analyst said forecasts appear high. "... we believe street estimates are roughly 8% too high ($4.18 street vs. $3.83 PJC Est.) primarily due to elevated fee revenue and interest income growth," Baker said. The firm reiterated an Underweight rating and $45 price target on WFC.

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