Wells Fargo, worst 2016 bank stock, 'will continue' to lose value: report

Wells Fargo & Co., the worst-performing major-bank stock so far this year, "will continue" to underperform the 24-stock KBW Bank index, and its profits will fall, bank analysts David J. Long, Daniel Tamayo and Josh Goldberg predicted in a report today to clients of investment brokerage Raymond James & Associates Inc.

California and Illinois have said they will "suspend doing business with the bank for the next year," and "additional investigations, lawsuits," fines and withdrawals are likely, in protest of Wells Fargo's Sept. 8 admission that it fired 5,300 branch workers over a five-year period for overselling its products but failed to fix an incentive system that rewarded employees for unauthorized accounts.

Federal officials slapped what was formerly the nation's most valuable bank with $185 million in fines and penalties on Sept. 8, and CEO John Stumpf has been personally tongue-lashed and ridiculed for paying himself and top consumer bankers tens of millions of dollars as they fired lower-level workers for opening phony accounts, by both Republicans and Democrats at hearings in Congress.

Wells Fargo sales closed at $43.75 Tuesday, down 0.2% for the day. The stock has lost 17% of its value since Jan. 1, the worst performance among the two dozen banks in the KBW index (which also includes JPMorgan, Bank of America, Citi, PNC and other major banks). So far this year, the KBW has been flat and the S&P 500 is up 7%.

Wells Fargo is down 12% since its Sept. 8 disclosures, vs. 1% drops for the S&P and KBW, Long noted in his report.

The financial protests against Wells Fargo "are material to Wells Fargo's financial performance" and will likely provoke "additional fallou tfor the bank," Long added.

He downgraded the bank from Outperform (Buy) to Market Perform on July 7, citing slower growth and low interest rates, which squeeze bank profits. "Downside risk outweighs upside potential at this time," as the bank faces more "reglatory inquiries and investigations," plus "revised sales practices," and "lost business," and "the potential for additional losses," they wrote in this week's report.

JPMorgan has passed Wells Fargo to become again the nation's most-valuable bank, worth $240 billion on the stock market, vs. $224 billion for Wells Fargo.

Wells Fargo's largest shareholder, billionaire Warren Buffett's Berkshire Hathaway Corp., has lost $50 million on Wells Fargo since Jan 1. Shareholders of Vanguard Group, the bank's second-largest owner, has lost nearly $30 million.