Banking & Finance

Why Sloan's Departure as Wells Fargo CEO May Not Be So Great for the Bank's Recovery

Some people might wonder how bad it looks when a chief executive officer resigns and the company’s stock rises. Generally it’s a case of distress-relief when that occurs. And that is the case for Wells Fargo & Co. (NYSE: WFC) on the heels of the news that Tim Sloan has stepped down as CEO.

Sloan had been under increasing pressure in recent weeks, and testimony to Congress did not help his prospects. In the end, Sloan’s decision was that Wells Fargo would benefit from a leadership change. The bank had a very diminished reputation and even last week was reportedly looking at outside leadership for the bank.

Despite Sloan being high in the ranks during the 2016 fake account scandal, and having been with the bank for 31 years, he was unsuccessful in convincing politicians and the public that he was the one that should lead the banking giant and did not have any involvement or knowledge about the bad practices that took place.

There were also recent reports that Wells Fargo employees still have been under immense pressure on performance goals and to bring in as much money as they could from customers. And Wells Fargo ended up finding itself under a “do not grow assets” position as a consent order by the Federal Reserve in early 2018 from regulators.

Sloan’s official retirement date will be June 30, and C. Allen Parker, who served as general counsel for Wells Fargo, will serve as interim CEO.

Warren Buffett had offered full support to Sloan in a CNBC interview as well, and his Berkshire Hathaway is the largest shareholder of the bank. And Sloan just recently was given a pay raise by the board, around the same time that Representative Maxine Waters and Senator Elizabeth Warren were rather vocal against Sloan.

Some analysts on Wall Street do have the universal view that getting Sloan out of the top spot is the best move for Wells Fargo. The current expectation is that a person from outside Wells Fargo will come run the bank as CEO, which means a potentially lengthy transition and “getting to know the bank” period that can be bumpy for shareholders. There is also a fear that as Sloan leaves, that may also wipe out the knowledge of how best to steer the existing team.

Raymond James raised its rating on Wells Fargo, but only to Market Perform from an Underperform rating.

Deutsche Bank actually downgraded its rating to Hold from Buy on the news, and it lowered its price target to $54 from $56.

Credit Suisse only maintained its Neutral rating on Wells Fargo, noting that it will be critical that the new CEO can lead the bank forward and out of the Fed consent order (sooner rather than later).

Merrill Lynch maintained its Buy rating and a $57 target price, noting that Wells Fargo’s shareholders should still expect significant capital returns but should also expect to see a blurrier line of sight on expenses beyond 2019.

Shares of Wells Fargo were last seen trading up 1% at $49.65 in early trading on Friday, in a 52-week range of $43.02 to $59.53. The consensus analyst target price from Refinitiv was $57.08.

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