There's a lot of froth in the market, seems like relief rally is here, says American Century's Rode
Invesco's Brian Levitt, Wells Fargo's Scott Wren and American Century's Mike Rode, join 'Closing Bell' to discuss U.S.-China trade talks, the market rally and their market outlooks.
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Miami Herald
3 hours ago
- Miami Herald
Wells Fargo analysts reboot stock price targets after Fed action
Pervasive and persistent misconduct. Those were the words that then-Federal Reserve Chairwoman Janet Yellen aimed directly at Wells Fargo (WFC) on Feb. 2, 2018, in light of what the Fed called "widespread consumer abuses and other compliance breakdowns," which included employees routinely opening fake accounts and credit cards. Don't miss the move: Subscribe to TheStreet's free daily newsletter Clients noticed the fraud after being charged unanticipated fees and receiving unexpected credit or debit cards or lines of credit. Initial reports blamed individual Wells Fargo branch workers and managers for the problem, as well as sales incentives associated with selling multiple solutions or financial products. Blame was later shifted to top-down pressure from higher-level management to open as many accounts as possible through cross-selling, which is a bank associate attempting to sell a current customer additional financial products. In response, the Fed restricted the bank's total asset size until it sufficiently improved its governance and controls. PATRICK T. FALLON/Getty Images Wells Fargo, founded in 1852 in response to the California Gold Rush, was required to improve its governance and risk-management program and to complete a third-party review of these improvements. "We cannot tolerate pervasive and persistent misconduct at any bank, and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again," Yellen said in a statement. More Economic Analysis: Hedge-fund manager sees U.S. becoming GreeceA critical industry is slamming the economyReports may show whether the economy is toughing out the tariffs The fake-accounts scandal reportedly continued to cause legal, financial and reputational headaches for Wells Fargo and former bank executives as recently as September 2023. But that came to an end on June 3, 2025, when the Fed said Wells Fargo was no longer subject to the asset-growth restriction from the central bank's 2018 action, removing the roughly $1.95 trillion cap on the bank's assets. Other provisions in the 2018 enforcement action will remain in place until the bank satisfies the requirements to end them, the Fed said. Chief Executive Charlie Scharf said the Fed's decision "marks a pivotal milestone in our journey to transform Wells Fargo. "We have been methodically investing in the company's future while improving our financial results and profile." Scharf praised Wells Fargo employees and said all full-time workers will receive a $2,000 award. "This is why we have been long Wells Fargo all this time," said TheStreet Pro's Stephen Guilfoyle. Scharf, "whom your author is a fan of, took the job in 2019 with the stated mission of resolving the bank's regulatory issues and cleaning up its reputation," the veteran trader said. "Mission accomplished, Charlie. Nice job." Earlier this year Wells Fargo was ranked as the third largest U.S. bank by assets at $1.71 trillion, coming in behind JP Morgan Chase (JPM) and Bank of America (BAC) . In April, Wells Fargo posted lower-than-expected quarterly revenue and a decline in net interest income. Scharf said the bank expected "continued volatility and uncertainty" and is "prepared for a slower economic environment in 2025, but the actual outcome will be dependent on the results and timing of the policy changes." Wells Fargo's stock is up 8.2% in 2025 and has climbed nearly 30% from a year ago. The stock closed June 4 regular trading at $75.38, off 0.4%. Several investment firms issued research reports on Wells Fargo after the Fed decision. TD Cowen said that it did not "dispute that this is good news for Wells" but that much of the optimism around the lifting of the asset cap has already been priced into the stock, according to The Fly. Related: Analyst initiates SoFi coverage, mulls loans, growth prospects The investment firm, which has a hold rating and $83 price target on Wells Fargo shares, said it expected "a modest positive reaction to the news" but was "far more excited on what this action could mean to longer-term revenue growth." Bank of America analyst Ebrahim Poonawala raised the investment firm's price target on Wells Fargo to $90 from $83 and affirmed a buy rating. Removal of the asset cap is a catalyst, both fundamentally and for stock valuation, Poonawala said. He does not think investors should "sell the news"; rather, he said that the focus should now shift to management's ability to deliver high-teens percent return on tangible common equity. And Evercore ISI raised its price target on Wells Fargo to $88 from $72 and maintained an outperform rating. The near-term benefit to the shares is likely a modest positive given that the removal of the asset cap was widely expected. But the firm remains "particularly constructive on the longer-term outlook" for WFC shares, as it expects investors to shift their focus to the removal's implications for earnings going forward. Related: Apple analyst raises alarm about earnings, revenue growth The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
3 hours ago
- Yahoo
Wells shed its asset cap — but it isn't clear why
In 2018, the Federal Reserve Board's total growth restriction on Wells Fargo established a new tool for dealing with large banks with broken compliance cultures. Many in and around the banking space viewed the $1.95 trillion asset cap — imposed in response to Wells Fargo's cross-selling and fake accounts scandals — as a high-water mark for regulatory enforcement, one they believed would inform how regulators administer similar penalties moving forward. But after seven years, billions spent by the bank on reforms and billions more in lost potential growth, it is unclear to the rest of the banking sector and the broader public just what the San Francisco bank did to get out from under the cap. The Fed's 169-word written statement announcing the removal of the asset cap on Tuesday simply stated that the bank made "substantial progress" on addressing its deficiencies and "fulfilled the conditions required" to remove the restriction. Sean Vanatta, a financial historian and author of "Private Finance, Public Power," a book on the history of bank supervision in the U.S., said the minimal disclosure provides little guidance to other banks that might find themselves facing similar penalties and leaves the broader public to reach its own conclusions about why the cap is being lifted now. "The lack of transparency as to what this really means makes it hard for outside observers on either side of the question to have a sense what it is that Wells Fargo did to have this order lifted, and whether, as external observers, we should be satisfied with this," Vanatta said. While growth restrictions are a fairly common tool for bank supervisors to compel institutions to come into compliance, the cap imposed on Wells Fargo was unique in both its size and scope. The penalty has only been used on one other large bank, Toronto Dominion, which had its growth capped last year in response to a sweeping money-laundering scandal. In some ways, the lifting of the asset cap was bound to come with unclear reasons and motives, since correspondence between banks and their regulators are often deemed confidential supervisory information. But it isn't clear how much of the haziness surrounding the lifting of Wells' asset cap can be chalked up to prudent information management. In an appearance on CNBC on Wednesday, Sen. Elizabeth Warren, D-Mass., argued that congressional committees have long been trusted to deal with confidential information and are capable of shielding it from the broader public. Given the scale of Wells Fargo's malpractices — which resulted in the opening of millions of unauthorized credit cards and checking accounts in customers' names — she said the public deserves some insight into whether the bank has sufficiently changed its ways. "I want the Fed to give the Congress, the Banking Committee, five years of bank examination documents. I want to see what it is that Wells Fargo represented to the Fed and what the Fed asked of Wells Fargo," Warren said. "Remember, the oversight job of Congress is both for these giant financial institutions, but it's also oversight over our regulatory agencies, including the Fed, to make sure the Fed is doing its job." Some view the longevity of the penalty as an indictment of the Fed more than the bank. Karen Petrou, co-founder and managing partner of Federal Financial Analytics, said if Wells Fargo was consistently failing to get into compliance, its supervisors should have increased the penalty to force swifter action. On the other hand, she added, if the bank had satisfied the necessary criteria years ago, regulators should not have dragged their feet in removing the cap. "If the supervisors are not just following picky little details and the bank is truly delinquent, then they should move past one enforcement order and slam them with another," Petrou said. "But seven years of limbo speaks to me of supervisory failure, not Wells Fargo recalcitrance." Petrou said regulators are incentivized to keep enforcement actions in place longer than necessary to avoid being held accountable for scandals or bad actions that might arise from a bank after their release. It leaves banks in a state of perpetual limbo, she said, hinders their competitiveness. "We need to have a much more rapid, meaningful, fish-or-cut-bait approach to supervisory orders," Petrou said. The limited disclosure about the end of the asset cap has left other frustrating, albeit predictable, information gaps, including why the underlying enforcement action remains in place despite the removal of the growth restriction. Fed Chair Jerome Powell told the Senate Banking Committee in 2018 that Wells Fargo would not have to fully implement its remediation plans to have the cap lifted, but that it merely needed to be "on track." Mayra Rodriguez-Valladares, a financial risk consultant, said it is not unusual for enforcement actions to be pulled back in phases. She noted that the Fed could have kept the enforcement action in place because of lingering concerns about Wells Fargo's governance and risk management, but added that she would have liked the board to make that distinction clear. "What does this mean? Was there just a lag or are you still finding problems? It does send mixed signals, removing the cap while keeping the enforcement action in place," she said. "They really should have explained what they were thinking." The order imposing the asset cap provides some broad standards for withdrawing the asset cap specifically. The action, which was approved by a 3-0 vote of a depleted Federal Reserve Board on February 2, 2018 — then-Chair Janet Yellen's final day at the central bank — with then-Vice Chair for Supervision Randall Quarles abstaining, identified a four-step process for removal. Wells Fargo would first have to submit written plans for improving its governance and risk management. Then, those plans would have to be approved by officials in Washington and at the Federal Reserve Bank of San Francisco. The bank would then have to implement those plans and have its actions reviewed by a third party. Finally, Wells Fargo would have to get a notification, in writing, from the Fed that the prior three conditions had been met. Since then, Wells Fargo has taken numerous steps to address its shortcomings, including building out comprehensive, firm-wide compliance and oversight programs. The growth restriction has also caused it to wind down products, sell off business lines and avoid certain types of deposits. "We are a different and far stronger company today because of the work we've done," Wells Fargo CEO Charlie Scharf said in a written statement Tuesday after the cap was removed. But when and how those efforts became sufficient to satisfy regulators and why it took the bank so long to reach that point is unclear. Wells Fargo, through a spokesperson, declined to comment on its efforts to get out from under the asset cap. In a 2018 Senate Banking Committee hearing held shortly after the Fed's enforcement action against Wells Fargo, Warren pressured Powell to commit to additional transparency measures related to the cap, including a public vote on its ultimate removal and the disclosure of the third-party review of the bank's reforms. In a follow-up letter, Powell said the confidential supervisory and personal information likely to be included in the third-party report would probably prohibit the Fed from releasing even a redacted version. But, he committed to review the report and "determine whether and to what extent the report can be publicly disclosed without impairing protected interests." The Fed's vote to remove the cap, which took place on May 30, did not have a public component. The Fed also has not indicated whether it will release the third-party review, which was originally supposed to occur by September 30, 2018. The lifting of the asset cap has been largely expected by investors and appears to have been priced into the bank's stock — which closed at $75.38 on Wednesday, slightly below the $75.65 it closed at on Tuesday before the announcement — ahead of the cap's removal. The bank had already been freed from seven other enforcement actions from various regulatory agencies this year. Todd Baker, a financial consultant and adjunct faculty member at Columbia University Law School, said the period of growth restriction and strict oversight has likely made Wells Fargo a stronger bank, forcing it to not only improve its compliance functions but also operate more efficiently. Given how closely lawmakers and the broader public are likely to scrutinize the bank moving forward, Baker said the Fed must have a high level of confidence in Wells Fargo to avoid further scandals, at least for the foreseeable future. "The last thing the regulators want is to announce the removal of this asset cap and then two months later, issue another enforcement action for something serious," he said. "So, it's an indication that they really do feel that, after all those years, Wells has taken enough steps that they're in a relatively confident position as to the likelihood of future blowups." Still, the lack of explanation from the Fed — whatever the reason — leaves an information void that can only be filled by speculation. Vanatta said that is not a desirable outcome, particularly in light of how closely the removal of Wells Fargo's regulatory shackles align with the arrival of the new Trump administration, which has championed lighter regulation in pursuit of greater economic growth. "It leaves a lot of room for questions," Vanatta said. "Personally, I'm content to take the Fed's word that Wells Fargo has met the criteria, but because we don't have any insight into how — into what that means — it makes it look like it could be a political action, or the Fed is trying to preemptively defend itself from criticism by just ending this case and trying to move on." Sign in to access your portfolio
CNBC
5 hours ago
- CNBC
Financial stocks seem to be losing momentum and show signs of weakness
One sector that was seen as a potential winner of the Trump administration is starting to cool, even as some of the projected benefits seem to be materializing. Wolfe Research analyst Rob Ginsberg wrote in a note to clients that financials are showing signs of weakness. The group is still outperforming the S & P 500 year to date, but the gap has been closing in recent weeks. "The sector peaked on a relative basis in April and has been leaking lower since. The most concerning group in our view? Capital Market names," Ginsberg wrote, referring especially to financial exchanges and data companies. The analyst highlighted the SPDR S & P Capital Markets ETF (KCE) , which has fallen in five of the past six sessions and has triggered a sell signal in one of the technical analysis tools Wolfe tracks. KCE 1M mountain This ETF focused on capital markets stocks dipped since the middle of May. Curiously, the struggles for financial stocks come just as the IPO market is showing signs of life and merger activity has started to regain its footing despite tariff uncertainty. And, in addition to Wall Street power players, the KCE also includes brokerage stocks like Robinhood and Coinbase that should, in theory, see a boost from the deregulation of crypto. All those areas were seen as reasons to be bullish on the group after November's election. The recent struggles could be a sign that the upside has been priced in, with some investors now looking to sell in the event of positive news. Wells Fargo is a potential example of this. On Tuesday, the Federal Reserve made the long-awaited move to lift the asset cap on the bank, allowing Wells Fargo to push for growth. However, the stock gave back all of its morning gains to close lower on Wednesday and is well off its highs of the year, reached in February. WFC YTD mountain Wells Fargo is trading below its highs of the year even after the Federal Reserve lifted the bank's asset cap. "With the steady underperformance of Banks in mind as well, Financials just does not look like one of the more appealing sectors currently," Ginsberg wrote.
