Friday, October 14, 2016

Wells Fargo just wants the problems to go away

There was a comment here on September 23rd about the Wells Fargo customer fraud issue.  While recognizing the seriousness of the charges and the appalling longevity of the problem, the comment here was that the firm's overall good reputation and low key management team would mean they get through this without major disruption and that the stock price probably already reflected the damage. In fact, the question raised was whether the stock should be bought at time, after its fall.

That is still a legitimate question, but maybe for later.  The "low key" style of management has been far too subdued at present, giving the distinct impression that they wanted to say as little as possible and let the problem disappear out of the news cycle.  It has not.  Tim Sloane, the ultimate insider, has now been named CEO.  This could almost be compared to the situation of one of their acquired companies eight years ago.  That was when, after as series of ridiculous acquisitions, Ken Thompson was fired at Wachovia, and corporate insiders were assigned the CEO and Chairman tasks, on an interim basis.

Tim Sloane could very well be an interim CEO for all practical purposes if he continues speaking in platitudes with the usual clich├ęs, that do not acknowledge the significance of the punishing cross selling culture that management had put in place, and bragged about for many years.  If, it was mainly for investor's ears, that all turns out to have been largely a charade, it will lead to a languishing stock price for the foreseeable future.

With the existing customer base in retail that is their primary target for growth, no nationally focused card seeking non deposit customers for example, Wells is in a bind.  It was surprising to read that they have far more far more branches than Bank of America. They are expensive*.  In corporate and international banking, Sloane's expertise, they are no powerhouse.  They get their deals by being the most accommodating, not by being among the most innovative.  To realize real growth there while up against JPMorgan, Goldman, and Citi is unlikely.

This debacle has pulled back the curtain on some issues at the firm that had not been focused on by many.  Management needs to project a more serious and urgent approach to these problems if it is to be effective.  They need to detail some truly disruptive and creative change, which they clearly do not want to do.

*There is a Wells Fargo branch in our small town.  It opened around 8 or 9 years ago, and rarely is there any sign of significant foot traffic in or out of the building.  It took the place of a long established family hardware store that apparently could not develop a way of continuity for the store within a large family, and, of course, its business had over time been affected by Home Depot and Lowe's outlets in nearby towns.  It's in a large space with a large parking lot in a town that is always tight for cars.  The Wells lot stays empty most of the time as it is monitored.  We have an account of some consequence there due to one need  years ago, and go in from time to time.  It is always empty. There is only one banker on the relatively vast floor plus usually one or two tellers.  The branch seems to have limited ties to the community.  As it stands, it is unlikely that it is profitable.

There are five other banks in the four blocks of downtown, more banks than pizza parlors, but not nail salons.  Two of the banks are long established Chase and Citi locations that are fully staffed with mostly local people.  They thrive.  One wonders, why does Wells persist here.  Is there more going on than a customer scam.  Could it be kickbacks to senior managers?  Highly unlikely, but everything about Wells Fargo will be questioned in the near term, with thoughts possibly similar to that. 


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