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- Wells Fargo announced Thursday that CEO Tim Sloan would leave his post effective immediately, and retire at the end of June. The announcement was met with mixed reactions on Wall Street.
- Wells Fargo's board said it elected former general counsel Allen Parker as interim CEO and president, and would begin searching externally for a new leader.
- Deutsche Bank was the only bank to downgrade Wells Fargo shares, saying management-related uncertainty could impact the bank's bottom line.
- Watch Wells Fargo trade live.
Wall Street analysts weren't all that shocked on Thursday to learn Wells Fargo's embattled CEO, Tim Sloan, was leaving his post.
"We are not surprised by Thursday's announcement as ongoing Congressional opprobrium and heightened regulatory scrutiny had made Sloan's position at the company increasingly tenuous, in our view," RBC Capital Markets analysts wrote in a note to clients on Thursday.
They believed a change in leadership was a likely due to the bank's ongoing regulatory scrutiny — and its Federal Reserve-ordered limit on growth— stemming from its fake accounts scandal that erupted in 2016.
Read more: Wells Fargo CEO Tim Sloan is retiring
The 31-year Wells Fargo veteran, Sloan, was chosen in the scandal's wake that year to lead the bank after then CEO John Stumpf, himself a three-decade Wells Fargo employee, announced his own retirement.
A little over two years later, Wall Street analysts are wary of what's to come as Wells Fargo searches for an external candidate. Some said Sloan's stepping aside means the bank can now better handle a variety of regulatory issues, while others were concerned about a fresh element of uncertainty.
"In a way, his reign was doomed to start given he was an internal candidate tasked with upending WFC business practices and culture," Piper Jaffray analysts led by Kevin Barker wrote in a note to clients on Thursday.
Earlier this month, Sloan testified before the House Committee on Financial Services about the bank's response to a string of scandals. He was the first bank executive to address the committee since it was taken over by the Democrats.
"Wells Fargo is a better bank than it was three years ago, and we are working every day to become even better,"he said at the time.
Morgan Stanley analysts told clients after the Thursday announcement that Sloan was "proactively stepping aside to enable the company to move forward."
Here's a look at what some analysts are saying about Wells Fargo's announcement, and what might come next:
Oppenheimer: 'CEO Sloan Steps Down; Not a Resolution But the Start of a Process'
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Rating: Perform
Price target: N/A
While Wells Fargo's initial announcement pushed the stock higher in after-hours trading Thursday, the management's decision itself "is not the stuff that great intermediate-term (say 18-24 months) stock performance is made of," analysts led by Chris Kotowski wrote in a note to clients on Thursday.
"The fact that there is an immediate stepping down and an interim CEO suggests that the events leading up to Sloan's departure were relatively sudden and unexpected. This is not the normal, desirable process where a successor is first identified and then there is some orderly transition process."
The analysts also speculated on Sloan's successor. They think it's unlikely that Harvey Schwartz, the former president and co-chief operating officer at Goldman Sachs, who was rumored to have been in talks for the role, would be picked.
"While we do not think it will be Mr. Schwartz, we would expect the board to find someone like Credit Suisse CEO Tidjane Thian, who comes across as the living, breathing, walking, platonic form of restraint, probity and correctness and also was an outsider both from the company and the industry."
Deutsche Bank: 'Downgrading to HOLD Given Mgmt and EPS Uncertainty'
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Rating: Hold (from buy)
Price target: $54 (from $56)
The firm's downgrade and lowered price target were the result of several factors related to the uncertainty that comes with bringing in a new chief executive.
A new CEO would likely reevaluate cost-saving targets, Deutsche Bank analysts led by Matt O'Connor wrote in a note distributed Thursday.
"While we still see opportunity for meaningful reductions over time, the timing may be pushed out and there may be offsets (such as higher investment spend in technology, for example)," they said.
"Changes to the business model could reduce revenue (and earnings). For example, a new CEO may choose to exit or reduce some areas in an attempt to simplify the company (as we've seen other large banks do post crisis). Note that WFC has already done some of this and one could argue there was less need to simplify/de-risk given strong relative performance during the 2008/09 financial crisis."
Morgan Stanley: 'Stepping Aside'
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Rating: Equal-weight
Price target: $55
"Tim Sloan's resignation removes a distraction, but the stock's performance will ultimately depend on who replaces him and how quickly," analysts led by Betsy Graseck wrote. "Anything longer than 6 months could weigh on the stock."
The firm said Wells Fargo would need to find someone who has "banking experience and is very tech-savvy."
See the rest of the story at Business Insider