As Wells Fargo (WFC) closes the books on another year to forget, and the fifth year in a row where the shares underperformed its comp group, it’s fair to wonder just how long it’s going to take for this bank to turn around. The consent decree (and the related asset cap) has clearly damaged the business, leading to noticeable share loss in the corporate lending business, and the expense structure is out of whack in comparison to its peer group, but it may well prove challenging to meaningfully cut expenses without undermining revenue generation even more in the short term.
While I said that Wells Fargo wasn’t “my favorite name” back in May of 2020, I nevertheless underestimated some of the challenges that the bank would still be facing heading into 2021 and overestimated the extent to which sentiment would shift more towards the recovery prospects (which it has for many of Wells Fargo’s peers). Trading below tangible book, there’s more upside here than with most other large banks now, but there are valid reasons for that discount and I still can’t call this a favored name, even though I do believe the appreciation potential is better than average.
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