Wells Fargo shares keep sliding on ‘dead money’

NEW YORK • Wells Fargo & Co shares are extending last Friday’s declines in yesterday’s pre-market trading, as analyst downgrades pile on after the bank lowered its net interest income (NII) forecast.

Firms cutting their rating on Wells Fargo stock to ‘Neutral’ include Goldman Sachs Group Inc, Bank of America Merrill Lynch (BofAML) and Buckingham Research Group Inc.

Shares are falling about 1.6% after closing down 2.6% last Friday, at the lowest since Dec 31.

Wells Fargo is “likely to remain ‘dead money’ and lag peers until there’s greater clarity around revenue inflecting”, Buckingham’s James Mitchell wrote in a note.

The bank’s “surprisingly weak NII outlook is a clear outlier versus peers and seemingly reflects further run-off of higher yielding assets and poor balance sheet positioning”, which likely pushes out its “revenue recovery story” to the second half of 2020 at the earliest.

That’s even as “expense cuts are on target and there are signs of improvement around loan/deposit growth and other customer activity levels”.

BofAML’s downgrade to ‘Neutral’ comes as Wells Fargo’s “revenue base keeps eroding”, analyst Erika Najarian wrote in a note. It’s also “predicated on a lack of upside catalysts until a new CEO is announced”.

Other banks had gained on Friday after JPMorgan Chase & Co’s first-quarter results beat and it maintained its outlook for NII. — Bloomberg