The firm maintained its "outperform" rating on the San Francisco-based bank, according to the Wall Street Journal.
FBR said it has grown "increasingly more cautious" on Wells Fargo's valuation as regulatory attention generates pressure on the shares.
"Shares will remain range-bound for the time being as the regulatory, legal, and reputational costs associated with its cross-selling initiatives flow through results and weigh on ROEs," the firm said in an analyst note, the Journal reports.
Investors could move capital away from Wells Fargo to other large banks, such as Bank of America (BAC), FBR noted.
Wells Fargo has come under fire by regulators after it was fined $185 million by the Consumer Financial Protection Bureau for illegally opening as many as 2 million customer accounts. The company's CEO John Stumpf testified in front of the Senate Finance Committee last week.
The company's board is considering whether it should claw back executives' pay and could issue a decision on the matter before Thursday.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
TheStreet Ratings team rates Wells Fargo as a Buy with a ratings score of B. This is driven by a few notable strengths, which it believes should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks it covers. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and attractive valuation levels. The team feels its strengths outweigh the fact that the company shows weak operating cash flow.
You can view the full analysis from the report here: WFC