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Analyst Dick Bove: Tim Sloan isn't 'the right guy' to lead Wells Fargo

Wells Fargo 'moving forward to make things right'

Tim Sloan is the wrong man to fix the broken corporate culture at Wells Fargo, according to banking analyst Dick Bove.

Sloan, named Wednesday to head the troubled bank following a brutal scandal over illegal sales practices to customers, is an insider who was part of the problem and unlikely to lead Wells Fargo back, said Bove, vice president of equity research at Rafferty Capital Markets.

"I don't think an insider is the right guy to do it," the analyst said in a phone interview. "The culture needs to be adjusted. The fat has got to come out of this company. There's a whole lot of things that need to be done that Mr. Sloan is not going to do."

Bove's comments came the same day Wells Fargo released third-quarter earnings results that beat profit expectations but were otherwise lackluster. Wells is the only one of 35 stocks Bove covers on which he has a sell rating.

Profit declined 3.7 percent from the same period a year ago, though revenue gained 2 percent. The pretax preprovision profit fell 4.2 percent.

Beyond the numbers, the bank faces a major struggle to restore its reputation. The bank for years put millions of customers into various programs without their knowledge, only recently acknowledging the problems publicly as part of a $185 million settlement with multiple agencies.

Bove on Wells Fargo: A sell is a sell

Analysts generally approved of Sloan's appointment, with Bank of America Merrill Lynch calling him "well known, and well-liked, by the Street" and Credit Suisse calling the move "a fresh start." However, investors frowned, sending shares down 1.25 percent Thursday. The stock opened higher Friday after the earnings report but was underperforming the sector and is off more than 17 percent year to date.

Much of the belief that the scandal will not fundamentally harm Wells Fargo is based on hopes that the problems are contained. Bove disputes that characterization, saying that the scandal actually exposes how weak organic profit growth has been at Wells Fargo. He contends that much of the bottom-line improvement has come through reductions in loan-loss provisions and a steady diet of share repurchases.

"You begin to understand that this is not a minor, small impact that they lost money by doing this. This is the core of the company," Bove said. "The core of the company has been adjusted after 20 years of doing business in a certain fashion, and they have to learn how to do business in a new fashion."

For his part, Sloan said Friday that the company is "committing to restoring the trust" of shareholders and the public.

"We know that it will take time and a lot of hard work to earn back our reputation, but I am confident because of the incredible caliber of our team members," he said in a statement that accompanied the earnings announcement. "We will work tirelessly to build a stronger and better Wells Fargo for generations to come."

Company officials did not respond to a CNBC request for further comment.

Looking ahead, Bove said Wells Fargo will struggle to hit its numbers, due at least in some part to litigation costs. He added that he believes Sloan will come under some regulatory fire as well.

"To take Tim Sloan, who was CFO in a good portion of that period, and say he's the salvation is totally incorrect," Bove said. "They need to go outside the company. They need to steal somebody from JPMorgan. I don't think Tim Sloan is the right guy for the job."

Correction: This story was revised to correct Sloan's first name to Tim in one reference.