Wells Fargo Agrees to Pay $110 mln in Accounts Scandal

Wells Fargo Agrees to Pay $110 mln in Accounts Scandal
April 3, 2017

Despite the efforts taken by Tim Sloan, CEO of Wells Fargo & Company (NYSE: WFC), to soothe investors, we forecasted a decline in the stock on March 21st. In this regard, we had also recommended traders to establish a short position in the counter by purchasing a low or below contract. The stock, which was trading at about 57.70 on the day of recommendation, closed at $55.80 a week later, and the trade finished in profit. Now, the bank has issued a statement regarding the settlement of lawsuits related to the fake accounts scandal. We anticipate the news to trigger a short-term rally in the stock as described below.

The San Francisco-based company announced that it had agreed to pay $110 million to settle a lawsuit filed by its customers for opening accounts without their authorisation. Wells Fargo also hopes that the settlement would resolve 11 other class action suits related to the fake accounts scandal. The settlement amount is intended to cover claims from January 1, 2009 to the execution date of the agreement. It should be noted that the amount set aside covers attorney’s fees and other administrative costs. In this regard, Wells Fargo clarified that after deducting those legal charges, the remaining amount would be distributed to the claimants.

The lawsuit dates back to May 2015 – six months before Wells Fargo was hit with a penalty of $185 million by regulatory authorities (U.S. Consumer Financial Protection Bureau and Los Angeles City Attorney Mike Feuer) for opening as many as 2 million accounts without permission from clients. Following a national outrage, the bank’s long-time CEO John Stumpf resigned.

The bank has already set aside $110 million for the settlement. However, the agreement is yet to be approved by the judicial authorities. Wells Fargo’s new CEO Tim Sloan has recently elaborated the steps taken by the bank to gain the trust of customers and investors. Following the announcement Sloan stated that the agreement is yet another step in the right direction. The settlement is definitely welcome news for investors. Thus, an uptrend in the stock of Wells Fargo can be expected in the days to come.

The chart indicates that sellers had failed multiple times in their attempt to break the support level of 55. On the upside, resistance exists at 57.30. The rising stochastic oscillator confirms the possibility of a bullish reversal. So, a trader can expect an upswing in the stock.

Wells Fargo - Technical Analysis - 3rd April 2017

To gain from the probable uptrend, an investment can be made in a high or above option, provided the contract is valid for a period of one week. Furthermore, it is better to invest when the stock of Wells Fargo trades near $55 in the NYSE.


Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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