Following Friday’s stunning announcement by the Fed penalizing Wells Fargo, and effectively quasi-nationalizing America’s largest mortgage lender (or maybe not largest any more), ordering it to “stop growing” until its gets its criminal house in order, on Monday Wells stock is reeling, tumbling as much as 9%, its biggest intraday drop since the August 2015 ETFlash Crash.
Not helping Wells was a batter of downgrades as analysts from Citi, JPMorgan, Morgan Stanley and RBC cut their ratings, using language like “Fed doesn’t pull any punches,” Fed “pounces,” and noting Wells Fargo “will have to be defensive” as summarized by Bloomberg.
Not everyone was gloomy, however: the Fed’s enforcement effort may create “political capital” it can use to justify regulatory relief for big banks and that Congress can use to enact legislation easing regulations, Cowen’s Jaret Seiberg writes in a note.
According to Siebert, the Fed’s enforcement action is positive for new Fed Chairman Jerome Powell, as he can start his tenure touting the action instead of answering questions about why the Fed hasn’t done anything about the fake account controversy. “Creating the perception that regulators are willing to take harsh actions against mega banks for misdeeds is critical in building and maintaining political support for bank deregulation,” Seiberg wrote.
Meanwhile, Nomura’s Bill Carcache concurs in a note that the Fed’s order “offers a healthy progress sign,” as the “unprecedented penalty may allow political pressure to ease.” He also writes that the “financial impact is manageable.”
He’s among the analysts keeping a buy rating on the bank, for now, however, he has an uphill climb to convince traders to stop selling.
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