This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Wells Fargo Remains a Buy Despite Lawsuits

NEW YORK ( TheStreet) -- " Wells Fargo (WFC - Get Report) Is Making Shareholders Rich" is the title of an article I wrote on July 15.

Wells Fargo originally prevailed in federal court against against lawsuits claiming the bank acted in bad faith in a federal district court. But the Ninth Circuit Court of Appeals has reversed the decision, ruling that the case can move forward.

Does this litigation setback change my opinion on Wells Fargo? No.

As a result of falling home prices and a growing number of homeowners faced with mortgage payments they could no longer afford, the federal government created a program called the Home Affordable Modification Program (HAMP) as part of the Emergency Economic Stabilization Act of 2008 and American Recovery and Reinvestment Act of 2009.

The desired goal of HAMP was to give banks incentives to lower the payments of borrowers so that the borrowers could continue making payments and avoid foreclosure.

The plaintiffs allege that Wells Fargo acted in bad faith by giving homeowners hope that they would receive approval for a loan modification in order to entice the homeowners to make additional payments that they otherwise wouldn't have made.

The issue is whether the borrowers qualified for the permanent program after the trial period. In a nutshell, the plaintiffs claim they qualified or were told they did, and the bank states they weren't.

It's hard to handicap such cases when you have incomplete information, but it's reasonable to assume litigation costs alone will have a short-term impact on Wells Fargo. The appeals court ruled the plaintiffs may move forward as a class-action suit.

A class action makes it much easier for additional plaintiffs to join. Class actions allow people who don't necessarily have enough at stake to sue on their own, to join as part of the class action and seek compensation. I think this case is fully baked into the cake and doesn't move me from my $48 price target.

In another case, Blue Cross Blue Shield of Minnesota v. Wells Fargo Bank, Wells Fargo prevailed in a federal jury trial. With housing prices rising again, the number of lawsuits should slow down, but these cases will take years to work through.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
WFC $54.05 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%
TSLA $206.79 0.00%


DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs