Wells Fargo has been getting pummeled lately amid a California lawsuit that revealed major fraudulent activity by the employees at the large bank. As for the performance of the stock, which is what were all really interested in, Wells Fargo
The decline caused by this scandal has now pushed the stock to a new 52 week low in an aggressive way. Option volume continues to be heavy as well as traders rush to put on some kind of protection from the recent "falling knife". Analysts haven't completely jumped ship yet though. Deutsche Bank
Here's the main issue that investors have to deal with. For a period of 3 years (that we know of), Wells' employees were paid bonuses on the number of accounts they opened. This could have been credit card accounts, new loans, or new banking accounts. At some point it was decided by over 5000 employees that it was ok to open extra accounts for existing customers without their consent. The employees took their information and opened new accounts to meet bonus goals.
The CEO is claiming that he didn't know and is working to resolve the issue. Now, as a CEO, I would assume that he gets reports on certain metrics which everyone on the street knows includes "new business". We know that at least 5000 employees were involved in the scandal so think this through. The company says 5 million people have been affected with at least 1 fraudulent account. That's over 4500 new accounts a day if the employees were up to this everyday of the week for the last 3 years. How does the CEO not wonder about the escalation of these numbers, especially when he would know the historical performance vs. current?
Back to the stock. Wells Fargo has agreed to many things to make this right. It has fired all 5000 employees, it has taken back bonuses and potential bonuses from the CEO, and has agreed to make it right by the customer. All of this hasnt yet brought back investors into the stock, but it will. As it always does, they will work through this and soon it will all be behind us.
