Wells Fargo (WFC) has been dealt a fresh blow as the fake-account scandal is apparently worse than initially thought, according to lawyers for the bank’s alleged victims. A legal filing for a class-action lawsuit states that the number of unauthorized accounts for the period 2002-2017 is approximately 3.5 million whereas the previous estimate was closer to 2 million.
Wells Fargo created ‘ghost accounts’ for existing customers without their knowledge or consent and charged these customers extra fees in order to meet aggressive sales targets, according to federal regulators.
Lawyers, who are now fighting for a $142 million settlement, said the 3.5 million account number “may well be over-inclusive, but provides a reasonable basis on which to estimate a maximum recovery.”
Wells Fargo has responded by pointing out that this is just an estimate: “The unauthorized account numbers reported in the filing are estimates made by plaintiffs’ attorneys based on a hypothetical scenario and have not been verified.”
Following the scandal late last year, 5,300 Wells Fargo employees were fired, CEO John Stumpf resigned and the bank was slapped with a $185 million regulatory fine.
Current CEO Tim Sloan says “There is no question that 2016 was among the toughest in our 165-year history”.
Top analysts bullish on the stock
Nonetheless the last three analyst ratings on Wells Fargo have all been buy ratings. TipRanks’ No. 1 analyst (out of 4,563 tracked analysts), RBC Capital’s Gerard Cassidy, reiterated his buy rating on the stock on May 12 with a bullish $60 price target. This translates into an upside of 13.16% from the current share price. TipRanks shows that Cassidy has a very impressive overall success rate of 82% and average return of 28.6% per recommendation.
Meanwhile Robert W Baird analyst David George– who has a $58 price target on the stock- says that the bank is slowly turning the corner. Estimates are conservative says George, who added that he continues to like WFC’s longer-term risk/reward. The current discounted valuation limits the potential downside, says George, who reiterated his WFC buy rating on May 12.
Buffett slams mishandling of scandal, but maintains support
And the stock’s largest shareholder, hedge fund guru Warren Buffett has consistently maintained his support for Wells Fargo. He called the troubled bank an “incredible institution” that made a “terrible mistake” by “incentivizing the wrong type of behavior”.
The ‘Oracle of Omaha’ told shareholders earlier this month: “At some point if there’s a major problem, the CEO gets wind of it, and the CEO has to act. They didn’t act when they learned about it.”
In April, the $148 billion Berkshire Hathaway fund disclosed that it was forced to sell Wells Fargo shares to bring its holding of the stock back below 10%. The holding was so large that it was attracting increased scrutiny from the Fed into the fund’s commercial dealings with the bank. Berkshire Hathaway told investors not to read into the sale of 7.1 million Wells Fargo shares for $384 million, and its plans to sell a further 1.7 million.
Consensus is more cautious
If we turn to Wells Fargo’s stock analysis page on TipRanks, we can see that the best-performing analyst consensus rating is Hold with 4 buy, 5 hold and 3 sell ratings published on the stock in the last three months. The average top analyst price target meanwhile represents an upside of 7.11% from the current share price which has fallen slightly in recent days from $54.7 to $53.