As Wells Fargo seeks CEO, toll on stock hits $24B

At Wells Fargo’s town hall meetings, executives have fielded countless questions from employees about efforts to resolve scandals that erupted almost three years ago.

One looming topic hasn’t come up recently: Who will run the bank?

While the abrupt exit of chief executive officer Tim Sloan in March kicked off a succession hunt that’s captivated the industry, an unexpected calm has taken hold inside Wells Fargo, according to people close to the firm. The rumor mill — once abuzz with talk of potential candidates — has quieted. Privately, some executives say the continuing search is giving them room to focus on their businesses and work through regulators’ remaining concerns.

Yet on Wall Street, the scene is the other kind of sanguine: The stock has slipped into the red for the year. Since its hunt for a leader began, the company has lost almost $24 billion in market value.

That performance puts Wells Fargo behind its largest U.S. competitors this year, signaling frustration in the market over the board’s quiet search. The stock has lost 8% since Sloan stepped down in late March, while top rivals have broken even or posted gains. JPMorgan Chase is up 8% and Citigroup 4%. Bank of America is little changed. The broader KBW Bank Index has slipped almost 1%.

Much of Wells Fargo’s divergence occurred just after Sloan stepped down. The gap later widened, at least briefly, after the lender forecast a bigger drop in interest income than some major rivals as declining interest rates drag on the industry. The firm also faces a regulatory cap on assets imposed last year. Still, those challenges bring some analysts and big investors back to the CEO search: They say they can’t advocate buying more shares until the bank installs a leader with the authority to lay out a plan for the future.

“It’s really hard to own the stock if there’s no long-term strategy being articulated,” said Brian Kleinhanzl at KBW. He downgraded the shares to “market perform” when Sloan announced his retirement.

In March, chair Betsy Duke said the board would act with urgency to recruit an outsider. Still, “we want to be thorough in our search and find the candidate that we think will best fit the objectives for Wells Fargo,” she said at the time.

Since then, the board hasn’t provided updates. In the meantime, a number of potential candidates turned down overtures from recruiters. On a conference call with analysts last month, interim CEO Allen Parker said he isn’t directly involved in the search and doesn’t know when it will end.

The CEO hunt “has been made worse by having it be an opaque process being driven by the board with management unable to communicate to investors,” said Kleinhanzl, the KBW analyst. “The fact that people don’t want this job hurts the reputation of the bank.”

One thing that does weigh on Wells Fargo employees is the uncertainty around what a new CEO might do next. An outside hire is widely expected to review the bank’s strategy, which long focused on selling as many products as possible through a network of branches. That’s left Wells Fargo with the largest workforce among U.S. banks, with almost 263,000 people at the end of June. Yet their productivity has suffered since the scandals came to light.