Is Wells Fargo & Co (NYSE:WFC) Headed For A Major Decline?
Wells Fargo & Co (NYSE:WFC) has been on the receiving end of public backlash for over a year now due to a series of revelations highlighting fraudulent activities at the bank. The company has taken measures to reform its operating culture including making changes to its pay structures in order to stem the aggressive sales practices that led to the opening of fake accounts.
However, the changes made at the bank might have minimal effect on the bank in terms of redeeming its public image, which seems to have been tainted for the foreseeable future. It might take several years for the public to forget the many scandals that have been uncovered at the bank over the past year.
The changes to its sales processes in favor of less aggressive selling tactics puts Well Fargo at a disadvantage as compared to its biggest competitors, which are Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM). Wells Fargo is likely to lose current and potential clients to its two main competitors even as it adopts a less aggressive marketing strategy.
Despite the many scandals facing Wells Fargo, the company’s stock price has not tanked, which is quite surprising given the negative publicity that the company has received in the past year. This might be likely because the company had accumulated a lot of goodwill from major shareholders such as Warren Buffett and Vanguard, who have not offloaded their shares.
The Wells Fargo brand has been tainted, which among other negative factors point to an uncertain future for the bank. Firstly, the banks operating margins and return on equity have been trending downwards since 2015, which is not likely to change.
The company also has a wide physical branch network, which is turning into a liability as the adoption of online banking is on the rise. The many branches increase the bank’s operating costs, which could contribute to lower profitability in future.
Regardless of all these headwinds, Wells Fargo is still priced at a premium, which is much higher than that of JPMorgan and Bank of America. The question remains whether Wells Fargo is a good long-term investment, or whether investors should short the stock.
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