It's Harder To Defend Wells Fargo Absent Meaningful Progress

It was never reasonable to assume the Wells Fargo (WFC) was going to fix itself quickly, but not unlike Citigroup (C), these shares have suffered as the management has failed to make the hoped-for progress in areas like operating cost reductions. Add in an ongoing regulatory/legal headwind, an ongoing CEO search, weak lending, and the prospect of more intense spread compression, and it’s harder to stay positive in the absence of better progress on operating efficiency.

I do think Wells Fargo will get itself sorted out eventually, and the core of the business is still strong – it is still one of the largest branch banks in the country, the #1 or #2 deposit-holder in about half of the country, one of the largest CRE lenders, the largest asset-backed lender, and a leader in consumer areas like auto and mortgage, with room to grow in areas like card and payments. The problem is how long it takes to get ROEs moving toward the mid-teens and generate real profit growth. The valuation here is hard to ignore, but this is going to be a frustrating hold until a new CEO is in place, and even then there will be risks tied to whatever restructuring plan that person puts into place.

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It's Harder To Defend Wells Fargo Absent Meaningful Progress