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The SEC Lets Wells Fargo Off The Hook Over Mortgage Securities
11/30/2012 10:16:00 AM
In what comes as a welcome relief for Wells Fargo ( WFC ) and its investors, the U.S. Securities & Exchange Commission (SEC) has decided to drop its inquiry into the bank's alleged misrepresentation of facts while selling mortgage-backed securities worth around $60 billion. The SEC had announced the investigation early this year, and had also involved the federal court in procuring requisite information from the bank in March (see Wells Fargo Takes Heat From SEC in $60 Billion RMBS Investigation ). Unlike its peers Bank of America ( BAC ) and JPMorgan Chase ( JPM ) who are jousting with a long list of mortgage-backed securities (MBS) related lawsuits, Wells Fargo has no similar lawsuit filed against it. And with the SEC's investigation being closed, the bank has essentially been given a clean sheet about its conduct in securitizing mortgages before 2008.
We maintain a $37 price estimate for Wells Fargo's stock , which is at a premium of under 10% to current market prices.
See our complete analysis of Wells Fargo here
The SEC's investigation into Wells Fargo's mortgage securitization practices between September 2006 to early 2008 was a major source of worry because of the bank's significant focus on the mortgage business over recent years. This is because of two reasons:
Wells Fargo is the second bank which saw the mortgage-related inquiry against it dropped by the SEC, after Goldman Sachs ( GS ). JPMorgan Chase and Credit Suisse ( CS ) were not so lucky, though, with the two banks entering into settlements totaling $417 million with the SEC this month.
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