According to Reuters, Wells Fargo & Co. (NYSE: WFC) fell over 8% on Monday after the Federal Reserve imposed restrictions on the bank which forced it to improve its leadership and controls due to the sales scandal.
“Banks generally respond well to higher rates/inflation but I do think the WFC news is taking down the entire large cap bank tape this morning,” said RJ Grant head of trading at Keefe, Bruyette & Woods in New York.
The U.S. Fed has previously informed Wells Fargo that it is not permitted to grow beyond $1.95 trillion in assets “until it sufficiently improves its governance and controls”. “...we have long said that regulator-imposed restrictions on growth (M&A, branch openings, capital return) is not a good thing,” said Barclays analyst Jason Goldberg. “This action (against Wells Fargo) is severe and unprecedented for a large, sound bank. Though we believe this situation will be manageable, it will clearly keep WFC in the penalty box for a bit longer,” he added.
“I think some concerns might be creeping into the group given this enforcement from the regulators. The Fed is definitely messaging that the industry shouldn’t take regulators lightly and that enforcement is going to be harsh if you cross the line,” KBW’s Grant said.