2017 was a good year for banking... at least, for banks that weren't Wells Fargo (NYSE:WFC). Plagued by a string of scandals, the California-based lender posted relatively anemic growth and missed analyst profitability estimates as often as it met them. The stock rose 10%, but that lagged behind most of its peers.
So last year won't go down as a historic one for the company. Perhaps the situation will be different in 2018.
If Wells Fargo is remembered for anything in 2017, it's going to be those scandals.
The original and most damaging one, the so-called "fake-accounts" controversy, originally came to light in 2016. But during this year it was discovered that the apparent malfeasance actually hit roughly 3.5 million customers, rather than the originally advertised 2 million.
As if that wasn't ugly enough, the bank became embroiled in other controversies regarding such activities as auto insurance, and its most crucial segment, mortgages.
We can't be 100% certain how badly these controversies affected Wells Fargo's results, but it seems clear they took their toll. During the year, the company's revenue and profitability development was lackluster -- and this, in an environment that was quite favorable to banks.
As an example, let's eyeball the Q3 results of all "big four" incumbent banks -- Wells Fargo, JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C). We'll also take a glance at anticipated year-over-year growth from fiscal 2017 to fiscal 2018 too.
|Stock||Net rev. growth YoY||Net profit growth YoY||Loans growth YoY||Efficiency ratio||1y fwd. EPS growth||1y fwd. rev. growth|
Wells Fargo doesn't stack up particularly well against its three rivals. In fact, let's take off the gloves -- it's dead last in every one of those figures.
That said, we should bear in mind that Wells Fargo is still a very profitable bank, and still has a commanding lead in the all-important mortgages segment. Its home lending activity brought in slightly over $1 billion in fees during Q3.
The customer is king
So are the recent financials only a fluke? Can this habitual profit-maker and top mortgage player lift itself up and have a banner year in 2018?
I wouldn't put my money on "yes" to the latter question.
Any consumer-facing business depends on the trust customers have in it. This is doubly true for banks; after all, they are where we store our money. Once confidence erodes in a particular lender, customers can shift their financial business elsewhere. It's not hard to open a checking account at Bank of America, score a credit card from Citigroup, or enlist JPMorgan Chase for a mortgage loan.
All three are perceived to be cleaner than Wells Fargo at the moment. I think that's going to last well into 2018, at the very least -- scandals, particularly when they're stacked on top of each other as in Wells Fargo's case, have a way of staining reputations for a long time.
The bank needs a dramatic overhaul of the corporate culture that has produced these rolling scandals. It's never easy or quick to effect that level of change, and it's not going to happen over the next year, even with a concentrated effort.
To understate the case, then, I feel that 2018 won't be Wells Fargo's best year yet. Not by a longshot.