Peaks and Valleys for Buffett's Favorite Bank

Wells Fargo is basking in the feel-good vibes of the Berkshire annual meeting, but how long will it last?

Jessica Alling
Jessica Alling
May 6, 2013 at 11:18AM

In the past week, Wells Fargo (NYSE:WFC) has had its share of ups and downs. But with the Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) annual shareholder meeting over the weekend, there was sure to be some positive headlines for the bank -- Buffett's top holding at Berkshire. The bank's shares rose heftily on Friday before the meeting and continue to gain this morning. But while the bank may bask in the afterglow of the Berkshire meeting for a little while, don't be surprised if its shares head south before long.

The Buffett boost
As the largest conventional bank in the country, Wells Fargo was largely spared by the financial crisis. Buffett, during the annual meeting, once again touted the bank's traditional business, while criticizing some of the larger banks that have risky investments hanging over their traditional banking operations.

As Buffett noted during the meeting, Wells has "$175 billion at the Fed," which it would like to spread out with new lending. As the leader of the mortgage originators during the latter half of 2012, Wells is well positioned to make new gains with the recovering housing market driving new mortgage business through its doors.

A settlement bust
But it's also the bank's mortgage lending that's getting it in trouble. New York Attorney General Eric Schneiderman is in the midst of starting a suit against Wells and Bank of America (NYSE:BAC) for violations both banks committed against the terms of a $26 billion mortgage settlement agreed upon by five large banks last year. The settlement was meant to help homeowners through the tough foreclosure process, from which many were frustrated because of delays and other setbacks. The settlement had a hefty list of terms that included items like notifying homeowners when the bank received all the necessary documents for the current steps in the process.

According to Mr. Schneiderman's office, Wells has violated the terms of the settlement a total of 210 times since October 2012, while Bank of America has totaled 129 offenses in the same time period. Though some doubted the effectiveness of the settlement in the beginning, it appears that the NYAG office is ready to move forward with suits against the violators -- marking one of the few instances where Wells Fargo is taken to court. There are currently no details on what the state will be seeking from the banks as damages or penalties.

One day at a time
Since the bank is currently riding the Buffett Express, there's no telling right now how investors will react to the oncoming suit from New York. But both events, the Berkshire meeting and the new courtroom case, show how news headlines can push and pull your stocks on any given day. Though Buffett is a big investor in the bank (and a respected investing guru), his comments only highlight what Wells Fargo is already doing right -- they won't change anything for the bank. And the case from New York is centered on a very specific circumstance, which also won't affect the bank's day-to-day operations. So don't be lead astray by a headline on any given day -- focus on the long term.