In what is both a delicious bit of irony and an indication of the seriousness of the situation Wells Fargo is facing, none other than JPMorgan is dinging Wells Fargo over the fake account scandal that landed the bank’s CEO on the Senate hot seat this week.
According to various reports, including a Seeking Alpha note, which itself cited a tweet from CNBC’s Carl Quintanilla, as well as a report from Forbes, the performance of Wells Fargo CEO John Stumpf before the Senate Banking Committee did little to quiet the storm surrounding the megabank.
In fact, according to Quintanilla, some members of Wells Fargo’s board were “stunned” by Stumpf’s testimony, and not in a good way.
Stumpf’s appearance on Capitol Hill, which included a grilling from Sen. Elizabeth Warren, D-Mass, as well as basically every other member of the Committee in a rare display of bipartisan unity, apparently shook the confidence of JPMorgan’s analysts in Wells Fargo.
And that led to the analysts downgrading Wells Fargo from a “buy” to a “neutral,” per the Seeking Alpha note.
Here’s more on why from Forbes:
“What is particularly disappointing to us is that we and investors have long held Wells Fargo management in very high regard – they have been smart contrarian thinkers and made thoughtful decisions,” JPMorgan analyst Vivek Juneja writes. “We expect management to turn this around but it will likely take some time and expense – hence the downgrade.”
During his testimony, Stumpf appeared unsure of the full fallout of the 2 million fake accounts opened by more than 5,000 former employees of the bank, including whether some mortgage borrowers could have received a higher mortgage interest rate than they should have due to the presence of a fake account on their record or on their credit.
Stumpf was also questioned Stumpf about Wells Fargo customers whose credit may have been negatively affected by a fake account who then took out a mortgage loan at another bank. Could those borrowers have a higher interest rate as well?, Stumpf was asked.
Again from Forbes:
“I know you feel bad about it. But there are real world implications here on young families that will be put in a poverty situation because of that, even though you think it’s a few hundred bucks in fees,” Senator Jon Tester (D-Montana) told Stumpf. ”What about the folks that got a higher interest rate, how do you find that?”
And, as Quintanilla noted, JPMorgan’s analysts suggested the worst may be far from over for Wells Fargo and its executives.
From JPMorgan’s note, via Seeking Alpha:
“It is unclear whether this will lead to criminal prosecution and lawsuits will expand … Uncertainty around these issues could drive more investors to exit.” Other issues include, 1) how to compensate customers whose credit scores were dinged, 2) how to compensate employees who were fired for not meeting sales targets, 3) how far back in time the bank will have to go to scrutinize sales.
Warren went so far as to call for Stumpf to resign and suggest that he face criminal prosecution by the Department of Justice and/or the Securities and Exchange Commission for his role.