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Here's Why Wells Fargo Stock Is Plunging on Friday

By Matthew Frankel, CFP® - Jan 15, 2021 at 10:58AM

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Investors don't seem thrilled with the bank's earnings report.

What happened

The stock market was having a rough day on Friday, with the Dow Jones Industrial Average and S&P 500 both lower by about 1%. But Wells Fargo (WFC 7.55%) was doing much worse, with shares down by nearly 8% as of 10:30 a.m. EST.

So what

Wells Fargo just reported its fourth-quarter 2020 earnings, and it seems that investors are disappointed with results. While the bank's earnings per share beat expectations, revenue fell short, thanks to worse-than-expected net interest income.

Exterior of a Wells Fargo branch.

Image source: Wells Fargo.

Digging a little deeper, Wells Fargo also reported a $781 restructuring charge, as well as a $757 million reserve release. But unlike big-bank peer JPMorgan Chase (JPM 2.98%), which released reserves due to general confidence in the business going forward, this was due to the sale of Wells Fargo's student loan division.

CEO Charlie Scharf expressed disappointment in the bank's results and acknowledged the work necessary to put the bank's "legacy issues" behind it is weighing on earnings. However, Scharf sounds optimistic about the future, stating that "we expect you will see that this franchise is capable of much more."

Now what

To be fair, Wells Fargo has been one of the best performing large-cap stocks in the market in the past few months, fueled by COVID-19 vaccine hopes. Since Pfizer's (PFE 3.00%) initial vaccine data was reported in early November, Wells Fargo is up by 33%, even after today's pullback.

In a nutshell, while today's move is driven by earnings disappointment, it's just a small fraction of the bank's recent gains.

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Stocks Mentioned

Wells Fargo & Company Stock Quote
Wells Fargo & Company
$40.76 (7.55%) $2.86
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$117.32 (2.98%) $3.40
Pfizer Inc. Stock Quote
Pfizer Inc.
$51.59 (3.00%) $1.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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