Wells Fargo & Company (WFC) is a valuable and diversified major bank with extensive retail and commercial banking, mortgage lending, credit card and investment management operations, asserts Bruce Kaser, editor of Cabot Turnaround Letter.

Under its previous and weak leadership, the company never fully recovered from the 2009 financial crisis. Its loose compliance culture led to a fake accounts scandal and other reputation-tarnishing problems.

Also, like all banks, it is currently struggling with low interest rates and the potential for high credit losses from the pandemic-weakened economy. An additional constraint is a regulator-imposed cap on Wells Fargo’s asset size.

Yet, now led by highly credible CEO Charles Scharf — the former head of Bank of New York Mellon (BK) and a former protégé of JPMorgan’s Jamie Dimon — the bank’s operations and leadership are undergoing a complete overhaul.

We are starting to see early indications of a tighter compliance culture, better strategic focus and more efficient operations. Scharf has indicated that cost-cutting could reach $10 billion.

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Combined, these improvements should produce significantly higher earnings. Meanwhile, Wells Fargo’s capital level and credit reserves are robust.

Wells Fargo’s unusually low valuation, at only one times tangible book value and 9.9x estimated 2022 earnings, combined with its turnaround progress, make this a worthy stock and a speculative favorite for 2021.

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