Shares of Wells Fargo (NYSE:WFC) traded nearly 5% lower as of 11:20 a.m. EDT today, compared to most bank stocks, which were closer to flat as long-term Treasury yields bounced. Wells Fargo continues to deal with regulatory issues, and an analyst recently downgraded the stock.
The yield on the 10-year U.S. Treasury note, which bank stocks tend to move in tandem with, surged to nearly 1.53% this morning, the highest it's been in months.
That should in theory push bank stocks up, but Wells Fargo continues to deal with pressure on the regulatory front. Yesterday, media outlets reported that the bank settled a long-standing investigation by the U.S. Justice Department into its foreign exchange services and whether it charged customers too much. The bank will pay a $37 million fine.
Additionally, Reuters last week reported that Federal Reserve Chairman Jerome Powell said that the Fed is keeping a close eye on Wells Fargo's efforts to correct its regulatory infrastructure. Powell added that more penalties could come should Wells Fargo fail to make adequate progress. The market tends to pull back when hearing any kind of talk like this regarding Wells Fargo.
Then this morning, Betsy Graseck, an analyst at Morgan Stanley, cut Wells Fargo's rating from overweight to equal weight, meaning she is more or less neutral on the stock. Her main reasoning is that the bank's $1.95 trillion asset cap, which has cost the bank dearly and essentially prevents it from growing its balance sheet, won't be removed until the end of 2023. Previously, Graseck thought it could be removed in late 2022.
All of this news, particularly Graseck's view on the asset cap, is certainly disappointing and concerning, but I remain bullish on Wells Fargo's long-term outlook.
At this point, I have no idea when the asset cap will be removed, but in the near term, management can make the bank more profitable with its current efficiency initiatives and by ramping up investment banking and credit card lending.