Well Fargo Loses $25 Billion in Market Cap

Banking, finance, and taxes

Published: October 1, 2016 9:10 am

Last Updated: January 13, 2020 2:55 am

Wells Fargo & Co. (NYSE: WFC) has suffering from a scandal concerning the inappropriate opening of accounts, which already has cost the bank $185 million in fines, and it has lost $25 billion in market cap in six days. The stock hit $44.10 per share, a new 52-week low, on Friday.

The trouble at the bank has triggered investigations by the U.S. Senate and the House of Representatives. It has also led to suits by some of the 5,300 people the bank fired and some shareholders, including class action suits. The State of California has severed most of its financial relationships with the bank. There have been reports that the same is true with Illinois. The list of states could grow larger, doing more damage to the bank.

Wells Fargo’s problems forced CEO John Stumpf to give up $41 million in stock options, and he agreed to work through 2016 without pay. The board additionally could decide that his dismissal is the only way to rebuild trust.

During a hearing before Congress, Representative Maxine Waters said, “I’ve come to the conclusion that Wells Fargo should be broken up.” Representative Michael Capuano asked, “Why shouldn’t you be in jail?”

Wells Fargo is being investigated for a number of other transgressions. There are claims that employees who questioned the bank’s aggressive opening of new accounts were fired.

Where does the bank go from here? Stumpf could be fired and perhaps prosecuted. Some members of the board could step down. A new outside CEO may be able to settle charges by the government, and from individuals, and regain the confidence of states that have pulled accounts.

On the other hand, investigations may find a number of other infractions, and the bank could lose many more government relationships, and perhaps some with large corporations. At that point, the problems could spin out of control and a $25 billion market cap would seem small.

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