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Wells Fargo shares rose more than 2 percent Friday as Wall Street analysts largely welcomed the announcement that Tim Sloan would step down as CEO immediately.
Sloan’s exit “is a positive step” for Wells Fargo, analysts at Raymond James said, upgrading the firm’s outlook on the bank’s stock to market perform. Raymond James thinks this “will improve investor sentiment and reduce regulatory scrutiny, as the bank searches outside the company for a successor,” the firm said, although noting that “enthusiasm is tempered by still inferior fundamental performance.”
“While managerial change poses risks at an organization undergoing change, it is possible that a new CEO could help enhance the company’s reputation with multiple stakeholders, including regulators,” UBS said. “Hiring an external candidate without ties to the sales scandal and other missteps could lessen criticism from politicians and allow for a more constructive dialogue with regulators.”
Deutsche Bank took the opposite view, downgrading the firm’s rating on Wells Fargo after the announcement.
“Our downgrade reflects our concern that medium term earnings could be less than expected,” Deutsche Bank said.
Here is what all the major Wall Street analysts were saying about Sloan’s departure.
“We believe the move is a positive step, which will improve investor sentiment and reduce regulatory scrutiny, as the bank searches outside the company for a successor. However, our enthusiasm is tempered by still inferior fundamental performance, as we expect revenue to decline again in 2019 … Non-Wells replacement a start. An external search process has begun to recruit a President/CEO, as an outside executive is the most effective way to move past the events stemming from its account opening fraud.”
“Our downgrade reflects our concern that medium term earnings could be less than expected given the following: Cost saving targets will likely be re-evaluated by a new CEO … Changes to the business model could reduce revenue (and earnings) … Near-term revenue may suffer from uncertainty surrounding new leadership and potential changes coming, in our view.”
“During a conference call to discuss the change, Mr. Sloan noted that the focus on him had become a distraction and hindered the company’s ability to move forward. Mr. Sloan also emphasized that the move was not related 1Q performance or any newly discovered issues … While managerial change poses risks at an organization undergoing change, it is possible that a new CEO could help enhance the company’s reputation with multiple stakeholders, including regulators … hiring an external candidate without ties to the sales scandal and other missteps could lessen criticism from politicians and allow for a more constructive dialogue with regulators.”
“We think the market may find this difficult to digest, based on investor feedback. That said, we still think the market will receive this news positively, though we think the road to a new CEO brings new uncertainties … the new CEO could take one-time restructuring charges to speed along the turnaround, which could impact capital and prolong the gap between reported and “core” EPS. But, we think the market would look upon this more favorably than the new CEO fully scrapping Mr. Sloan’s ongoing operating expense targets.”
“While at this stage, it is difficult to draw any firm conclusions on what this change means, given that the range of potential successors is wide, we believe the key takeaways are as follows … The board is committed to keeping the CEO and Chairman roles separate upon the new CEO taking over … The company noted that they have not yet met with anyone external to WFC regarding hiring the new CEO.”
“We liked Sloan, but a leadership change may facilitate exiting the asset cap and normalizing regulatory relationships … The board is looking externally for the new President & CEO, but we do not expect a reset in strategy for the company (currently improving operating efficiency, returning excess capital). The development does not change our financial outlook, and we believe shares remain attractive … Board looking externally for new leadership, job should attract solid interest.”
“The stock reacted favorably in the aftermarket, and while this may well be an important step in WFC’s recovery and rehabilitation process, we would caution that in our view it is not the stuff that great intermediate-term (say 18-24 months) stock performance is made of. … This is not the normal, desirable process where a successor is first identified and then there is some orderly transition process.”
“We believe this will be among the most coveted roles in banking, though not without challenges; it is absolutely critical that the new CEO can lead Wells Fargo forward and out of the Fed’s Consent Order, sooner rather than later. Management hosted a conference call this evening; several important points are worth highlighting. Our estimates and $60 target price are unchanged.”
