Wells Fargo (NYSE:WFC), in a regulatory filing, said that the Securities and Exchange Commission, or SEC, is investigating the company. The financial services giant added that the probe concerns the cash sweep options offered to investment advisory clients when they open their accounts. The sweep feature enables clients to generate returns on uninvested account balances by directing their cash into interest-bearing assets or money market funds.
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While Wells Fargo didn’t provide further information regarding the investigation, investors should note that the company is not new to legal and regulatory probes and proceedings. For years, its legacy issues, like the aggressive cross-selling strategy and opening of fraudulent accounts, have led the financial services giant to cough up billions of dollars in penalties.
Moreover, in the recent filing, the company disclosed that it is involved in several proceedings or investigations stemming from the conduct of its business activities. Moreover, these ongoing proceedings and investigations pose a risk of potential financial losses and other unfavorable outcomes for Wells Fargo.
Given this context, let’s delve into the potential financial implications for Wells Fargo if these legal actions result in adverse outcomes.
Potential Outcomes of Investigations
It’s worth noting that Wells Fargo creates provisions for the legal proceedings against it. These provisions are made when the likelihood of losses from legal actions is reasonably certain and their costs can be estimated.
The financial services giant said that the upper end of the range for potential losses stemming from the proceedings against it stood at approximately $1.6 billion as of September 30, 2023. However, the firm added that the legal outcomes are inherently uncertain. Moreover, based on the current information, available insurance coverage, and the advice of its counsel, the company doesn’t expect a significant adverse impact on its overall financial condition due to unfavorable outcomes.
Is Wells Fargo a Good Buy Right Now?
While Wells Fargo faces several legal actions, it benefits from a higher interest rate environment, driving its net interest income and earnings. However, the challenging macro environment is leading to a moderation in growth, which keeps analysts cautiously optimistic about WFC stock.
With nine Buy and nine Hold recommendations, Wells Fargo stock has a Moderate Buy consensus rating. Further, the average WFC stock price target of $48.82 implies 23.25% upside potential from current levels.
