When the Federal Reserve "shocked" and "surprised" the market with a 50-basis-point cut, markets viewed the policy as desperate. The Fed signaled that it expected a drop in economic activity. The rate cut accelerated stock selling and fundamentally hurt the financial services industry.
Wells Fargo (NYSE:WFC) is among the bank stocks that fell to the $37 level. Just as the company settled on a fine in the billions for the credit card scam, the rate cut will hurt its revenue. Falling interest rate spreads will pressure the bank to grow deposits while finding more business deals to fund. Both are difficult at a time when the economy faces an immediate demand shock.
At 8.5 times forward earnings and a dividend of over 5%, Wells Fargo stock is more compelling than Citi or Bank of America (NYSE:BAC) stock. In the worst case where WFC stock continues to fall, investors may collect a bigger dividend yield than in holding either Citi or BAC stock.
Customer Friendly
Wells Fargo added a few features to its products to help its customers, a positive development. It raised the minimum pay for its workers, suggesting that happier staff will provide better services. It also eliminated or capped overdraft fees.
WFC is in deep value territory. The stock may find more buyers at these levels, ending the selloff in its shares.
