Friday, December 21, 2018

Wells Fargo Still Discounting A Host Of Challenges

Wells Fargo (WFC) has done a little better than I'd expected since my last update, but that's solely on a relative basis, as these shares are still down about 15% since then (versus a roughly 20% drop for banks in general). Wells Fargo is still operating under several clouds; the regulatory and remediation issues are well-known, but the core operating performance of the bank is looking fairly run of the mill as well.

I will not defend the various fraudulent activities that the bank committed in recent years (activities the bank has acknowledged), but whether or not the regulatory consequences have been appropriate is really beyond the scope of the merits of Wells Fargo as an investment idea. Retail and commercial clients are voting with their wallets and choosing to stay with Wells Fargo (for the most part), and although I believe there is a risk that the total bill for the settlements/fines, restitution, and remediation could exceed what management has already reserved for, I do not believe they threaten the bank as a going concern. With a relatively low valuation, Wells Fargo seems to be discounting a sharper decline in the economy than I think is likely, and while there are banks I like better, I do believe these shares are undervalued.

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Wells Fargo Still Discounting A Host Of Challenges

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