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Tim Sloan's departure as Wells Fargo CEO gives the bank an opportunity to break from its troubled past, but analyst Dick Bove thinks the problems are likely to remain.
While saying the outgoing CEO "did a phenomenally good job," Wells still faces a mountain of problems relating to a stagnant business that hasn't gained any footing in the years since the financial crisis, said Bove, of Odeon Capital Group.
"He changed the corporate culture, he got rid of the problems as he unearthed them in one place after another," Bove said in a phone interview. "He really did a phenomenally good job. I think everybody on our side of the business would agree to that."
Yet Sloan wasn't able to change the view — particularly in Congress — that the bank had bilked the public during a scandal that saw employees create millions of accounts without customers' knowledge, along with a variety of other infractions. Congressional leaders including presidential candidate Sen. Elizabeth Warren, D-Mass., and powerful Rep. Maxine Waters, D-Calif., had clamored for more accountability.
Warren went as far as to suggest that Sloan might deserve jail time.
In stepping aside, Sloan said his presence had become a distraction. His decision to step down initially sent shares higher Friday, but that quickly changed and the stock was off nearly 2 percent in morning trade.
"I'd be selling into this rally," Bove said when shares rose in premarket activity. "Until we know that this company has fixed its 10-year-old problem, I don't think this stock is worth buying."
Wells Fargo shares are up nearly 5 percent this year, but are badly behind the S&P 500, which is up more than 12 percent.
Bove thinks the problem is that the bank has not been able to expand its central business lines while cleaning up after the mess made when it pushed employees to sell at all costs. He recommends the bank expand into overseas markets and grow its investment banking operation.
He would not speculate on who should replace Sloan, though he said the C-suite ranks at J.P. Morgan Chase would be a good place to look.
"If the company is going to grow at this point, the guy or lady who comes in is going to have to be able to do the things Wells was never willing to do," Bove said. "I have no idea who it's going to be. It's going to have to be someone who's truly innovative and out of the box."