Increasing Litigation Costs Make Wells Fargo Turn Weak

Wells FargoWells Fargo and Company (NYSE: WFC) which has been hit by scandal recently has warned in its quarterly filing last Friday that the entire litigation expenses can go up by $2 billion; an increase of $200 million from its earlier estimate that was issued three months ago.

In another development, the world’s second richest person Warren Buffet who holds a significant stake in this company has said that the approach of Wells Fargo to this scandal has been entirely wrong.

We expect the stocks to remain in a bearish situation for a short-term now. The shares closed yesterday at $54.68.

The mixed fiscal 2017 first quarter results were declared by Wells Fargo last week. The total revenue in the present quarter was $22 billion which was less than 0.2 billion as compared to $22.2 billion during the same period in 2016. Thomson Reuters estimated revenue of $22.32 billion.

CNNMoney

The net income during Q1 2017 was nearly flat at $5.457 as compared to a figure of $5.462 billion during the same period last year. On a share basis, the earnings of quarter 1 of $1.0 per share were higher than $0.99 per share as per the reports in Q1 2016. It exceeded the estimates of Wall Street of $0.97 per share.

The fake account scandal continues to haunt the $277 billion Wells Fargo bank. The scandal involved more than 5000 employees of the bank opening more than 2 million checking as well as credit card account without any customer authorisation. Some different lawsuits were filed against the bank, and it keeps on adding with every passing day.

In the annual meeting that was conducted last week in Florida, the directors of Wells Fargo bank along with Chairman Stephan Sanger narrowly escaped from being voted out by the shareholders.

Berkshire that holds 500 million shares that are valued at $25 billion with 10% stakes were voted in favour by the shareholders. But Warren Buffet was worried about the response of the bank to this scandal. According to the bank officials, they have taken all the appropriate measures to rectify the shortcomings.

The bank is not able to speculate some losses that would arise from the lawsuit. The investors are looking forward to clarity to emerge in front of them. Tim Sloan who is the new CEO of the bank has scheduled a meeting with the senior managers at San Francisco next week. The executives will chalk out individual plans to fix the issue. For the time being, it is likely that the bank will remain bearish.

The stocks of the bank are trading below the resistance level of 55.80, and the momentum is declining with every passing day. The outflow of money from the shares is shown because of the decreasing money flow index. Technically, it would be wise to hold a short position in stocks of Wells Fargo.

Wells Fargo Stock Price May 10th 2017

Wells Fargo Stock Price May 10th, 2017

You can capitalise on the impending downtrend by buying a PUT Option contract and choose the expiry period of 1 week. It would increase the chances of winning, and you are recommended that you BUY the stocks when it is trading around $55 on NYSE.

Rich Archer

Rich Archer

Hi, my name is Rich Archer. I am living in London. Welcome to Binary Manual. Reach to Binary Options broker reviews and market news here.


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