As per a CNBC report, Well Fargo & Co. (WFC) has decided to stop offering new personal lines of credit and close all existing ones. Customers have received a 60-day notice to close such accounts, after which they will be charged regular minimum payments at fixed interest rates.
Shares of the global financial services company fell as much as 3.3% when the news broke and ended the day down 2.5% at $42.32 on July 8. Over the past year, shares have increased 76%. (See Wells Fargo stock charts on TipRanks)
A personal credit line is a type of revolving credit facility through which customers can withdraw and repay desired amounts, subject to a preset limit.
WFC offered personal loans ranging from $3,000 to $100,000, to be repaid within 12 – 84 months. The loans carried variable interest rates ranging from 5.74% – 24.24%.
Borrowers typically used the product to consolidate higher-interest rate debts, finance purchases of new appliances or furniture, home renovations, or meet unplanned expenses.
The bank stated that the move is aimed at simplifying its product offerings and focusing on credit cards and alternative personal loan products. Additionally, the bank has warned its customers that account closures may impact their credit scores.
With earnings season just around the corner, WFC’s announcement signals a negative sentiment for the company. For Q2 FY21, consensus estimates of the bank’s earnings and revenue are pegged at $0.93 per share and $17.78 billion, respectively.
Under the recent 2021 Comprehensive Capital Analysis and Review (CCAR) stress test process, WFC expects its stress capital buffer (SCB) to be 3.1%. The final results of the SCB will be released on August 31.
The company also stated its intent to hike its quarterly common dividend to $0.20 per share (from $0.10) and expects to commence share buybacks of approximately $18 billion from Q3 of FY21 through Q2 of FY22, subject to the Board’s approval.
In the latest Industry Update, Oppenheimer analyst Chris Kotowski noted considerable headwinds in the form of slack credit card volumes, low interest rates, and normalizing trading revenues.
However, Kotowski said, “One suspects that in future quarters (i.e., when card balances build and rates rise), one might get a tailwind that offsets today’s loss, but either way, it’s not a big deal.” The analyst has a Hold rating on WFC.
Overall, the stock has a Moderate Buy consensus rating based on 11 Buys and 7 Holds. The average Wells Fargo price target of $49.29 implies 16.5% upside potential to current levels.
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