Since the Great Recession, the price of Wells Fargo’s shares has fluctuated wildly. Wells Fargo, a significant American bank, has had a turbulent recent couple of years (WFC -2.25%).
Since 2016, the bank has been grappling with the aftermath of the fake-accounts crisis, in which bank staff opened millions of credit card and bank accounts without the consumers’ permission.
Wells Fargo, like all other banks, has had to deal with the pandemic’s beginning, which put most banks through the wringer. Prior to the fake-accounts controversy, however, Wells Fargo had a very strong track record, and it has since improved as well. Let’s examine how much money you would have today if you had invested in Wells Fargo in 2007, just before the Great Recession began.
The nation was gripped by the Great Recession, which brought many of the crisis-related banks to their knees. The contagion caused problems for most banks in one way or another, but overall, Wells Fargo outperformed most of its competitors between 2007 and 2011.
WFC Return
The bank consistently outperformed Bank of America and Citigroup throughout this difficult time and had the highest internal return on equity of any of its competitors.
The bank fared significantly better in avoiding exposure to subprime mortgages, which in the end resulted in the demise of almost 500 banks between 2007 and 2015.
Wells Fargo decided to buy the struggling Wachovia in 2008 after regulators had instructed it to locate a buyer. Close to 15% of Wachovia’s loan book had to be charged off by the bank. However, the action also doubled Wells Fargo’s size, elevating it to the fourth-largest bank in the nation.
Following the Great Recession, Wells Fargo was doing very well, as its stock price increased from the mid-$30s to the high $50s in 2015.
Then, in 2016, the fake-accounts scandal struck, rocking the entire sector, grabbing the attention of all the major news outlets, and leaving Wells Fargo at the mercy of banking regulators.
The authorities cracked down hard and levied billion-dollar fines on Wells Fargo. Wells Fargo was the target of multiple lawsuits and is still making payments for damages.
Additionally, in 2018, the Federal Reserve made the extraordinary decision to impose an asset constraint on Wells Fargo, thereby limiting the bank’s ability to increase its balance sheet until it could improve its internal controls and risk management procedures. Now, over five years later, the asset cap is still in place and, by virtue of preventing Wells Fargo from increasing its interest-earning assets, has lost the bank billions in revenues.
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Wells Fargo $5,000 Investment
The Wells Fargo board of directors and executive team underwent a great deal of change throughout this time, and the majority of them are now made up of new people.
Charlie Scharf, a veteran of Wall Street, was appointed by Wells Fargo in 2019 to lead the bank’s turnaround. There were rumors that the decision had not been well received by longtime shareholder Berkshire Hathaway, the big corporation owned by famed investor Warren Buffett.
When the pandemic struck in 2020, the Federal Reserve quickly slashed lending rates to nearly zero, which notably hurt Wells Fargo.
Due in significant part to Fed regulations on capital distributions, the bank was one of the few to have to reduce its dividend in 2020. By the end of 2020, the stock had fallen to under $22, and Berkshire Hathaway had spent the previous few years selling off its long-standing stake in the bank.
Scharf appears to have done a fantastic job of turning the bank around since the pandemic began, though. He has also hired a new management team, revised regulatory procedures, increased the dividend, made incremental progress toward raising the asset cap, sold off a number of bank divisions that were not essential to the bank’s core U.S. franchise, and cut billions of dollars in costs as part of a larger ongoing efficiency initiative. The bank is now more lucrative thanks to rising rates, and the stock has recovered to about $47 per share.
At the beginning of 2007, you could have bought the stock for about $36 per share if you had put $5,000 into it. Since then, shares have fluctuated greatly, dropping to as low as $11 during the worst of the Great Recession, recovering to around $66 in 2018, tumbling all the way back to less than $22 in 2020, and then increasing once again to about $47 right now.
From shares that have increased by around 33% since the beginning of 2007, your $5,000 investment is now worth about $6,650.
You would have approximately $10,200 if you had reinvested your dividends along the way. Even if there is a profit, it is nothing particularly noteworthy when you realize that, with dividend reinvestments, a $5,000 investment in the S&P 500 in 2007 would be worth more than $18,000 today.
