Wells Fargo & Co. Stock Slammed After Federal Reserve Imposes Stiff Penalty

Wells Fargo & Co. (NYSE:WFC) stock was down 7% in late morning trading on February 5. Wells Fargo saw its rating cut by a number of analysts in the wake of a punitive move by the Federal Reserve. The Fed banned Wells Fargo from future expansion until it addresses internal issues. Early estimates say the move could cost Wells Fargo as much as $400 million in profits in 2018.

This is the first time in history that the Federal Reserve has placed such a limit on a major U.S. bank. For the duration of this ban, Wells Fargo will be unable to write new loans. In response, Wells Fargo said it would be working quickly to improve its risk management and compliance. The regulatory crackdown comes in the wake of a scandal in late 2016 that revealed Wells Fargo employees had opened up to 3.5 million fake accounts in order to meet goals.

The bank announced that it would replace four board members in 2018. Wells Fargo must also submit a new risk management plan within 60 days and then will be subject to a third party review on September 30.

Wells Fargo beat estimates when it released its fourth quarter results in January. The bank reported $1.16 earnings per share compared to $1.07 expected, and revenue grew to $22.05 billion. This setback will weigh heavily on the outlook at Wells Fargo and there is little doubt leadership will be working quickly to alleviate the concerns of regulators.