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What the Wells Fargo Lawsuit Means for Investors

By Anand Chokkavelu, CFA - Updated Apr 7, 2017 at 12:27PM

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Wells Fargo was sued by the U.S. government earlier this week for not taking care in ensuring government-backed FHA loans for over a decade. As a U.S. attorney put it, Wells is accused of engaging "in a longstanding and reckless trifecta of deficient training, deficient underwriting, and deficient disclosure, all while relying on the convenient backstop of government insurance."
Wells isn't alone in garnering government attention. After similar charges, Citigroup and Michigan bank Flagstar (FBC 3.92%)settled for a total of $290 million. Meanwhile, Bank of America settled for $1 billion.
Anand notes that this settlement amount won't be crippling to Wells Fargo, although it adds to the litigation Wells and other big banks have been facing. It should also be noted that Wells disputes the claims and points to a better-than-average record on delinquencies.
Overall, Anand doesn't think the new litigation changes the Wells Fargo thesis. He's still bullish over the long term.

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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
Citigroup Inc. Stock Quote
Citigroup Inc.
$47.86 (3.26%) $1.51
Flagstar Bancorp, Inc. Stock Quote
Flagstar Bancorp, Inc.
$35.27 (3.92%) $1.33

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

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