Odeon Capital analyst Dick Bove downgraded Wells Fargo (NYSE:WFC) to Hold from Buy as the bank, as well as the banking industry, faces a number of headwinds, and it will take time to adjust.
He notes that Wells Fargo (WFC) may be losing share within an industry that’s losing share. The company is also shifting focus to deal with the proposed Basel III endgame rules. The industry, overall, has too many fixed-rate assets and too many deposits requiring higher rates. On top of that a new loan loss cycle is underway.
Wells Fargo (WFC) is restructuring to adjust to the issues, including reducing its labor-intensive lending businesses such as home and auto lending and business lending. Instead, it’s shifting toward credit card and capital markets businesses.
“The margin problem created in recent quarters is significant and unlikely to be eliminated for some time or until CD rates come down,” Bove wrote in a note to clients. “A growing loan loss problem is an additional irritant.”
“This is a ‘wait until next year’ story,” he noted. “The bank is well managed and taking the right steps to position itself for the intermediate and longer term. It is not well structured to deal with the industry’s current challenges.”
Wells Fargo (WFC) stock slipped 0.3% in premarket trading.
Bove’s Hold rating contrasts with the SA Quant rating of Strong Buy as well as the average SA Analyst rating and the average Wall Street rating, both at Buy.