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Stumpf Out, Sloan In at Wells Fargo

Jim Sinegal

Shortly after Wells Fargo (WFC) CEO John Stumpf gave an underwhelming defense in front of Congress of the bank's sales practices, the bank announced that he will be retiring immediately, to be replaced by Chief Operating Officer Tim Sloan. We are maintaining our fair value estimate of $62 and wide-moat rating.

The announcement brings a quick and ignominious end to Stumpf's otherwise admirable tenure as CEO. Since Stumpf took over in mid-2007, Wells Fargo's stock price rose by 29%, excluding dividends, while the XLF financial sector ETF fell by 46% over the same period. The company also doubled in size with the risky acquisition of troubled Wachovia early in his term, successfully integrating the firm and expanding its footprint into the Southeastern United States. Wells Fargo's relationship with regulators prior to the account scandal had also been relatively painless, with the company receiving approval to pay out nearly 30% of earnings in the form of dividends as early as mid-2012.

However, these successes were largely erased in the minds of investors, regulators, politicians, the public, and the company's board of directors when the scale of the bank's high-pressure sales tactics was revealed. It remains to be seen if customers will defect en masse, but we believe the company's convenient branch network and otherwise healthy customer satisfaction--JD Power scores the bank average or better in all but one region of the country--will result in business stability. We expect Sloan to bring more detail-oriented oversight to the top job while not straying too far from the culture that led to Wells Fargo's relative success over the past several decades. We remind investors that the fraudulent practices did not contribute to the company's financial success.

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