Banking, finance, and taxes

Why Wall Street Is Rather Mixed About New CEO of Wells Fargo

Jon C. Ogg

Published: September 30, 2019 11:05 am

Last Updated: January 30, 2020 3:15 pm

Now that Charles Scharf has been named to assume the full-time roles as president and chief executive officer of Wells Fargo & Co. (NYSE: WFC), it is important to consider what changes this may bring, if any, and what the impact will be on Wells Fargo going forward.

Wall Street’s initial reaction took Wells Fargo’s shares up 3.7% on Friday to $50.71, but its shares were in the red on Monday morning, after analysts issued more day-after reactions.

With an effective role-assumption date of October 21, 2019, Scharf will succeed Allen Parker who had held those positions on an interim basis following the resignation of Tim Sloan in the first quarter of 2019. Scharf brings wide industry experience, after having most recently served as CEO of Bank of New York Mellon and as CEO of Visa.

Wall Street analysts have issued multiple analyst calls in the wake of this management change.

Merrill Lynch maintained the stock as Neutral with a $50 target price. The firm noted that Scharf is a strong hire with a broad resume in banks and financial services, but the firm believes a turnaround likely will take time, given its size, a need to resolve outstanding regulatory and compliance issues and to fix its efficiency ratio near peer levels.

CFRA reiterated its Hold rating on Wells Fargo. While positive on Scharf’s appointment, CFRA believes that new leadership will be tested by the ongoing challenges from the Federal Reserve’s asset freeze from the consent order over a year ago and other bank regulators examining compliance issues. CFRA wonders if there will be a move in a new direction with its strategy and thinks the capital markets unit and risk-taking areas of the bank will be downsized as Wells Fargo moves to stronger franchises with high recurring revenue and cash flow — but in incremental changes over the next 12 months.

Morgan Stanley maintained its Equal Weight rating but raised its target price to $50 from $47.

Argus took the bright side of the coin here, upgrading Wells Fargo to Buy from Hold with a $60 target price. The firm noted that Scharf is a former protege of JPMorgan’s Jamie Dimon, and his CEO roles at BNY Mellon and Visa bring an impressive industry background. The report said:

We expect Scharf to initially focus extensively on regulatory issues that have hindered growth, particularly a consent order with the Federal Reserve that has capped assets at $2 trillion, while restoring confidence to the sales culture. We would expect removal of the asset cap to be a strong catalyst for the shares… While the dynamic of lower interest rates remains an industry challenge, we expect valuation of the shares to improve toward peer levels following a period of deep discount given regulatory handicaps.

Robert W. Baird downgraded the shares to Neutral from Outperform with a $50 target price on the heels of the news. While the firm sees Wells Fargo exiting an asset freeze and consent order next year, low interest rates and slow growth may delay an improvement to earnings and its efficiency ratio.

Standard & Poor’s made no ratings change, but it did say it views the CEO appointment positively on top of a strong and diversified business model despite asset cap challenges.

Shares of Wells Fargo were down around 0.5% at $50.47 after about 90 minutes of trading on Monday. Its prior consensus target price from Refinitiv was $48.75, and its 52-week trading range is $43.02 to $55.05.