Evercore ISI affirms Wells Fargo & Co. (NYSE: WFC) at Buy with a price target of $51 following Q3 results released earlier.

Analyst John Pancari and his team noted today:

• 3Q results overshadowed by sales practice issue; results mixed. WFC reported 3Q16 EPS of $1.03. Ex sec gains, we peg core EPS at $1.02, which compares to our est of $0.98 and cons of $1.01. Upside to our est was mainly driven by lower LLP (+0.06) and lower share count (+$0.01), partly offset by higher expenses (-$0.02) and lower non-II (-$0.01). Overall, mixed 3Q results marked by somewhat muted loan growth, NIM compression, and higher expenses, albeit solid credit trends. That said, the sales practice issue continues to overshadow underlying trends. Mgmt provided select incremental detail re: scrubbing of retail and small biz accounts, but no material developments at this point - but the impact is beginning to be evident in expenses via legal accruals.
• Sales practice details. Mgmt indicated that at no single time were all of WFC's identified accounts included in its reported x-sell ratio - implying limited distortion of such metrics. WFC is also developing a plan for submission to the regulators addressing potential impact on FICO scores. Mgmt indicated that 58K un-activated small business credit cards were identified as part of the review process. Mgmt indicated that mortgage referrals from Retail Banking were down 24% in September from August (such referrals accounted for 10% of 2016 YTD mortgage origination); although, not clear how much of the decline was seasonal or related to the cross-sale issue. Re: wealth mgmt, mgmt indicated that client transaction activity was muted in September, but this largely reflects the market environment. Re: wholesale banking, mgmt noted that loan pipeline is in-line with prior quarter. Mgmt acknowledged the discontinuation of muni biz in select states/cities, but did not flag a material impact at this point. Mgmt did not comment on efforts to mitigate the financial impact but WFC alluded to potential branch consolidation opportunities in the press release.

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