Here’s How Wells Fargo Avoided JPMorgan’s Fate

   on November 29 2012 12:53 PM
A U.S. flag flies above Wells Fargo & Co headquarters in San Francisco
Wells Fargo is among five major bankers that have settled charges over mortgages for $26 billion. Reuters

A regulatory filing made yesterday by Wells Fargo (NYSE:WFC) revealed that the largest U.S. home lender is no longer under investigation by the Securities and Exchange commission. According to Bloomberg, the SEC ultimately decided forgo any action, despite notifying the bank that it might recommend enforcement last February.

Why the Probe?

“Regulators are still examining how banks packaged and sold home loans to investors, more than four years after mounting mortgage defaults prompted government bailouts of the financial system,” reported Bloomberg.

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In its 2011 annual report, Wells Fargo announced that the agency had begun investigating whether the bank had properly described the facts and risks in offering documents for the nearly $60 billion worth of residential mortgage-backed securities it sold to investors.

The SEC made similar allegations against JPMorgan Chase (NYSE:JPM) and Credit Suisse (NYSE:CS) earlier this month, which resulted in a combined $417 million settlement. However, the agency did end its investigation into Goldman Sachs’ (NYSE:GS) role in selling $1.3 billion worth of subprime mortgage securities in August.

CHEAT SHEET Analysis: Has the SEC Given Wells Fargo’s Stock a Positive Catalyst?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. While the SEC’s decision may not have a huge effect on the bank’s stock price, had the regulatory agency found Wells Fargo guilty of fraud the bank would have likely been required to pay a large settlement.

 

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