Making headlines for the wrong reasons
In the last few weeks, Wells Fargo & Company (WFC) has made several headlines, but unfortunately, most have been for the wrong reasons.
The Wall Street Journal reported last week that the US Department of Justice was investigating potential employee fraud in the company’s Wholesale Banking division. Citing anonymous sources, the news agency revealed that the probe related to claims that the division’s staff had improperly added or altered customers’ information without their consent.
Prior to this, the company was reportedly investigating complaints about gender bias in its Wealth Management division. On August 31, the Wall Street Journal reported that 12 female executive employees had alleged that qualified female staff members had been turned down for senior positions in the division.
Year-to-date, Wells Fargo stock has significantly underperformed the Financial Select Sector SPDR ETF (XLF). The stock has fallen 5.3% in the period, while the ETF has risen 1.5%.
Wells Fargo has been going through tough times due to these multiple scandals, which have cost it in the form of client losses and deflated investor confidence. In 2016, the company was found guilty of opening millions of fake retail banking accounts without customers’ knowledge to meet strict sales quotas.
The company has also been accused of fraudulently signing thousands of its customers up for its products and services without their knowledge. For this, it’s been fined $1 billion. In August, Wells Fargo had to pay a penalty of $2.9 billion for intentionally distorting the quality of the loans it was providing to its customers.
Continuous investigations and litigations are hurting Wells Fargo’s bottom line results. The company’s second-quarter EPS of $0.98 fell 9% year-over-year and missed analysts’ consensus estimate of $1.12. On the contrary, its top peers Morgan Stanley (MS), Bank of America (BAC), and JPMorgan Chase (JPM) reported YoY rises of ~44%, 39%, and 34%, respectively, in their second-quarter EPS.