How investors should play Wells Fargo stock after newly announced regulatory action
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Wells Fargo’s latest regulatory hiccup isn’t a doomsday scenario. Shares of Wells Fargo on Friday clawed back some of the prior session’s decline. The stock lost 4% on Thursday after the Office of the Comptroller of the Currency (OCC) said it had issued an enforcement action against Wells. The OCC cited “deficiencies” in the bank’s financial crimes risk management practices and anti-money laundering (AML) controls. Jim Cramer said Friday, however, that the bank’s fundamentals haven’t changed, and the stock’s decline presents a great time to invest. “This is the bank stock to buy, if you want to buy a bank stock,” Jim offered, arguing that the regulatory snag shouldn’t be a huge surprise to the market either. That’s because Wells previously disclosed the OCC’s probe in its second-quarter filing over the summer. The OCC action did not come with a monetary penalty attached. The agency said in a statement that Wells Fargo has already started to take corrective steps to remedy these issues. To be sure, the agreement does require Wells to obtain written approval from the OCC before expanding certain new offerings. “There’s no slap. There’s no fine,” Jim said. That’s why it’s a great time to get into Wells. Jim also said that the Club would also purchase more of the bank stock if he wasn’t restricted. During Thursday’s September Monthly Meeting, he said he would consider Wells Fargo as an honorary 13 core portfolio holding . WFC YTD mountain Wells Fargo (WFC) year-to-date performance But it makes sense why Wall Street may have been initially spooked by the news, which made Wells among the worst performers in the S & P 500 on Thursday. For years, Wells Fargo has faced increased regulatory scrutiny after a fake accounts scandal in 2016 led to billions of dollars in penalties and numerous lawsuits. As a result, the Federal Reserve imposed a $1.95 trillion cap on the bank’s assets in 2018 until it appeases regulators’ concerns. “I understand when this stuff comes out, you think, ‘Oh my god, Wells is back on the red hot griddle,'” Jim said. “But, they’re not.” We’re still confident Wells Fargo will have its growth cap lifted at some point, which will allow the firm to expand its balance sheet, and rake in more profits down the line. It’s unclear when that will take place, but it pays to wait it because the stock offers a nice 3% annual dividend yield. Wells Fargo CEO Charlie Scharf has made significant progress to improve the firm’s compliance and regulatory standing in his roughly five years at the helm of the bank. Under Scharf’s leadership, Wells Fargo has cleared many key regulatory hurdles. Like us, many Wall Street analysts are not concerned about the new OCC enforcement action either. Investors appear to have brushed off worries as well, with Wells Fargo stock up more than 1% on Friday. Raymond James said although the regulatory news is a “negative development,” it doesn’t “change our view that the company is doing everything in its power to correct the misdeeds of the prior management team and improve the overall governance of the bank.” Analysts at RBC Capital Markets said that AML issues “take time to resolve and are costly to fix, [but] we do not believe the agreement will impact the prospects for lifting the Federal Reserve’s [asset cap].” (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A person walks past the entrance to a Wells Fargo bank branch on Amsterdam Avenue on June 25, 2024, in New York City.
Gary Hershorn | Corbis News | Getty Images
Wells Fargo’s latest regulatory hiccup isn’t a doomsday scenario.
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