Wells Fargo's Credit Challenges Are Manageable, But Slow The Recovery Story

Wells Fargo (WFC) had enough challenges on its plate already, most of which were due to its own past actions, and the Covid-19 outbreak and recession certainly won’t help the situation. While I see no meaningful threat to Wells Fargo’s capital from the coming increase in bad debts, nor much threat to its ability to return capital to shareholders, it will push out meaningful improvements in pre-provision profit growth.

Wells Fargo has looked undervalued for a while, and today is no exception. While some investors may believe that the company’s retail banking scandals have permanently impaired the bank’s competitiveness, I see little evidence of that and this Covid-19 outbreak may well accelerate digital banking adoption – putting large banks like Bank of America (BAC), JPMorgan (JPM), and Wells Fargo even further ahead of smaller banks. Investors are still spoiled for choice among undervalued banks, and Wells Fargo isn’t my favorite, but the valuation is nevertheless appealing for long-term investors.

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Wells Fargo's Credit Challenges Are Manageable, But Slow The Recovery Story