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Why Analysts Have a Negative Outlook for Wells Fargo in 2017

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Gloomy outlook for Wells Fargo in 2017

The CFPB (Consumer Financial Protection Bureau) ordered Wells Fargo (WFC) to pay a $185 million fine for fraudulent accounts opened by employees to meet sales targets. Also, in an unprecedented move, Wells Fargo stripped CEO John Stumpf of stock awards worth $41 million and compelled him to step down. Tim Sloan replaced Stumpf after the scandal.

Analysts have a gloomy outlook for Wells Fargo after the bank’s reputation was tarnished. Tim Sloan and Mary Mack, head of community banking (JPM) at Wells Fargo, acknowledged that it would not be an easy task to rebuild Wells Fargo’s reputation. Mary Mack stated that “it takes time to rebuild trust,” but ongoing litigations and regulatory action are hindering the process. Several investigations, lawsuits, and fines have been announced and there may be more to come. Several clients have pulled back business from the bank (XLF) and the financial impact could be massive. The states of California and New Jersey recently initiated investigations into Wells Fargo’s practices with respect to the sale of insurance policies with Prudential Financial (PRU). Additionally, the bank’s account openings plunged 44% in October, while credit card applications fell 50%.

To make matters worse, Wells Fargo failed the Fed’s “living will” test. All of these factors are making it tough for the company to rebuild its image.

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