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Wells Fargo Loses Illinois State Business in Latest Setback
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Wells Fargo & Company (WFC - Free Report) , that once earned admiration for steering well through the onslaughts of the 2008 financial meltdown, seems to face a bigger crisis now, following its sales scandal which cropped last month. In the latest fallout from the scam, the state of Illinois has suspended $30 billion in investment activity with the bank for “predatory and illegal banking practices”.
Apart from the bank’s $190-million settlement to resolve regulators’ claims of illegally opening millions of unauthorized accounts, the suspension also comes on Wells Fargo’s violation of the rights of military personnel by illegally repossessing vehicles.
The Illinois treasurer’s office is suspending investments in all debt securities of Wells Fargo. Further, it is suspending the bank from its broker/dealer role for purchase of investments. Both the suspensions are effective immediately and are valid for a period of one year. Following this period, there will be an evaluation of Wells Fargo’s corporate governance practices.
The office has also authorized an audit to find whether the improper opening of bank accounts conformed with the Illinois law on returning unclaimed property to consumers.
In a statement released on Monday, Illinois State Treasurer– Michael Frerichs – said, “We have a choice where we invest taxpayer money. We will not reward companies that irresponsibly open new bank accounts and improperly repossess vehicles of members of our armed forces.”
Notably, the state treasury engages in banking transactions worth $1 trillion in a year with over 20 financial institutions.
Suspensions to Cost Wells Fargo “$50,000 per year” in Lost Revenue
A spokesperson for Wells Fargo mentioned in a statement, “We certainly understand the concerns that have been raised,” adding further, “We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps, and will continue to do so, to address these issues and rebuild the state’s trust.”
Frerichs had said that Wells Fargo is likely to lose “millions of dollars” in fee income owing to the suspension of activities. However, denying such estimate, the spokesperson for Wells Fargo said, “Respectfully, the actual amount in lost revenue for the company from business conducted with the Illinois Treasurer’s office is approximately $50,000 per year.”
Wells Fargo noted that it has been working with the state of Illinois since 1970. The banking giant’s business activities with the state are associated with its Government & Institutional Banking division, separate from the company’s retail bank.
The latest move follows a similar action taken by California last week. John Chiang, California’s State Treasurer, mentioned in a letter to the bank’s Chairman – John G. Stumpf – that Wells Fargo would be suspended from participating in any banking transactions with the state.These include any investments made in Wells Fargo’s securities by the Treasurer’s office and underwriting of the sale of state bonds by the bank. According to Chiang, Wells Fargo’s sales practice misconduct “cannot go unpunished.”
Bottom-Line
Potential similar moves by other states may hurt the bank’s profitability. It is not clear to what extent troubles will continue to intensify at Wells Fargo as it grapples with public and political outrage. However, the reputation of the once largest bank of the nation has already tarnished.
Since the announcement of the settlement on Sep 8, shares of the San Francisco, CA-based banking giant lost more than 12%. Year-to-date, the company’s shares fell over 19%, compared with around 3% decline in the KBW Nasdaq Bank Index.
Wells Fargo currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the finance sector include Virtus Investment Partners, Inc. (VRTS - Free Report) , Republic Bancorp Inc. (RBCAA - Free Report) and State Street Corporation (STT - Free Report) . While State Street carries a Zacks Rank #2 (Buy), both Virtus Investment and Republic Bancorp sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Virtus Investment has been recording upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 advanced 2.1% to $5.26 per share. Over the past six months, the company’s share price surged nearly 30%.
State Street has been witnessing upward estimate revisions as well. The Zacks Consensus Estimate inched up 1.8% to $5.03 per share for 2016, over the last 60 days. The company gained 18% over the past six months.
Republic Bancorp has been witnessing upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 climbed more than 10% to $2.04 per share. The company’s share price surged over 20% year to date.
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Wells Fargo Loses Illinois State Business in Latest Setback
Wells Fargo & Company (WFC - Free Report) , that once earned admiration for steering well through the onslaughts of the 2008 financial meltdown, seems to face a bigger crisis now, following its sales scandal which cropped last month. In the latest fallout from the scam, the state of Illinois has suspended $30 billion in investment activity with the bank for “predatory and illegal banking practices”.
Apart from the bank’s $190-million settlement to resolve regulators’ claims of illegally opening millions of unauthorized accounts, the suspension also comes on Wells Fargo’s violation of the rights of military personnel by illegally repossessing vehicles.
The Illinois treasurer’s office is suspending investments in all debt securities of Wells Fargo. Further, it is suspending the bank from its broker/dealer role for purchase of investments. Both the suspensions are effective immediately and are valid for a period of one year. Following this period, there will be an evaluation of Wells Fargo’s corporate governance practices.
The office has also authorized an audit to find whether the improper opening of bank accounts conformed with the Illinois law on returning unclaimed property to consumers.
In a statement released on Monday, Illinois State Treasurer– Michael Frerichs – said, “We have a choice where we invest taxpayer money. We will not reward companies that irresponsibly open new bank accounts and improperly repossess vehicles of members of our armed forces.”
Notably, the state treasury engages in banking transactions worth $1 trillion in a year with over 20 financial institutions.
Suspensions to Cost Wells Fargo “$50,000 per year” in Lost Revenue
A spokesperson for Wells Fargo mentioned in a statement, “We certainly understand the concerns that have been raised,” adding further, “We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps, and will continue to do so, to address these issues and rebuild the state’s trust.”
Frerichs had said that Wells Fargo is likely to lose “millions of dollars” in fee income owing to the suspension of activities. However, denying such estimate, the spokesperson for Wells Fargo said, “Respectfully, the actual amount in lost revenue for the company from business conducted with the Illinois Treasurer’s office is approximately $50,000 per year.”
Wells Fargo noted that it has been working with the state of Illinois since 1970. The banking giant’s business activities with the state are associated with its Government & Institutional Banking division, separate from the company’s retail bank.
The latest move follows a similar action taken by California last week. John Chiang, California’s State Treasurer, mentioned in a letter to the bank’s Chairman – John G. Stumpf – that Wells Fargo would be suspended from participating in any banking transactions with the state.These include any investments made in Wells Fargo’s securities by the Treasurer’s office and underwriting of the sale of state bonds by the bank. According to Chiang, Wells Fargo’s sales practice misconduct “cannot go unpunished.”
Bottom-Line
Potential similar moves by other states may hurt the bank’s profitability. It is not clear to what extent troubles will continue to intensify at Wells Fargo as it grapples with public and political outrage. However, the reputation of the once largest bank of the nation has already tarnished.
Since the announcement of the settlement on Sep 8, shares of the San Francisco, CA-based banking giant lost more than 12%. Year-to-date, the company’s shares fell over 19%, compared with around 3% decline in the KBW Nasdaq Bank Index.
WELLS FARGO-NEW Price
WELLS FARGO-NEW Price | WELLS FARGO-NEW Quote
Wells Fargo currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the finance sector include Virtus Investment Partners, Inc. (VRTS - Free Report) , Republic Bancorp Inc. (RBCAA - Free Report) and State Street Corporation (STT - Free Report) . While State Street carries a Zacks Rank #2 (Buy), both Virtus Investment and Republic Bancorp sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Virtus Investment has been recording upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 advanced 2.1% to $5.26 per share. Over the past six months, the company’s share price surged nearly 30%.
State Street has been witnessing upward estimate revisions as well. The Zacks Consensus Estimate inched up 1.8% to $5.03 per share for 2016, over the last 60 days. The company gained 18% over the past six months.
Republic Bancorp has been witnessing upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 climbed more than 10% to $2.04 per share. The company’s share price surged over 20% year to date.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>