Wells Fargo coming to town to face angry shareholders


  • By Mark Basch
  • | 12:00 p.m. April 17, 2017
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Wells Fargo & Co. on Thursday reported higher-than-expected first-quarter earnings, but that’s not likely to make shareholders feel any better when they meet next week in Ponte Vedra Beach.

The banking giant is still reeling from last year’s scandal, where it was learned employees were pressured to open multiple accounts for customers without their consent.

While Wells Fargo tries to put that issue behind it, first-quarter results showed some lingering effects.

Earnings of $1 a share were a penny higher than last year’s first quarter and 3 cents higher than the average analyst’s forecast, according to Yahoo Finance.

However, revenue of $22 billion was lower than last year’s $22.2 billion and also lower than the average forecast of $22.3 billion. Analysts said the lower revenue shows the company is having trouble generating new business from customers after the scandal.

Bloomberg News said the improved earnings were helped by lower-than-expected provisions for loan losses in the quarter.

Wells Fargo’s stock fell $1.77 to $51.35 Thursday after the earnings report.

San Francisco-based Wells Fargo will hold its annual shareholders meeting 10 a.m. Tuesday, April 25 at the Sawgrass Marriott.

The company was expected to hear questions from shareholders about the account scandal. Wells Fargo last week issued a preemptive report on the causes of its sales practice issues and the steps it’s taken to correct them, but it remains to be seen if that will assuage stockholders.

Proxy advisory firm Institutional Shareholder Services Inc. issued a report recommending stockholders vote against 12 of the 15 nominees up for election to the board of directors, in light of the issue.

“The Audit and Examination, Risk, and Human Resources Committees, tasked with risk oversight, failed over a number of years to provide a timely and sufficient risk oversight process that should have mitigated the harmful impact of the unsound retail banking sales practices that occurred from 2011-2016,” ISS said in its report.

“Votes against 12 directors and members of the committees are warranted for the committees’ failures in this regard,” it said.

One of those 12 directors is Jacksonville businessman John Baker, chairman and CEO of FRP Holdings Inc. Baker has served on Wells Fargo’s board since 2009.

Baker said last week he couldn’t comment on the shareholders meeting.

Wells Fargo issued a news release reiterating support for the board members after the ISS report two weeks ago.

“The extreme and unprecedented ISS voting recommendation on directors fails to recognize the active engagement of the Board and the substantial actions it has already taken to strengthen oversight and increase accountability at all levels of Wells Fargo, including important improvements to corporate governance. The Board and management are working tirelessly to rebuild the trust of customers, employees and investors, and are making substantial progress in strengthening Wells Fargo,” the company said.

Wells Fargo’s largest shareholder is Warren Buffett’s Berkshire Hathaway Inc., which owns about 500 million shares, or nearly 10 percent of the stock.

Buffett has remained supportive of Wells Fargo but last week, Berkshire Hathaway disclosed it sold 7.1 million Wells Fargo shares to ensure its stake remains below 10 percent and avoid some bank regulatory issues.

“These sales are not being made because of investment or valuation considerations. Rather they are solely motivated by the desire to return to a percentage ownership below the 10 percent notification threshold,” Berkshire Hathaway said in a news release.

The firm said repurchases of stock by Wells Fargo had reduced the total number of shares outstanding and caused Berkshire Hathaway’s ownership stake to rise above 10 percent.

Harrison’s CSX compensation deal gets opposition

None of the major shareholders of CSX Corp. has indicated any opposition to new CEO Hunter Harrison’s compensation package, but one prominent stockholder is urging large shareholders to vote against it.

At CSX’s annual meeting on June 5 in Richmond, Va., shareholders will be voting on an $84 million payment to compensate Harrison for money he forfeited when he left his previous position as CEO of Canadian Pacific Railway Ltd.

Harrison left Canadian Pacific in January to pursue the CSX job, and he was named chief executive of Jacksonville-based CSX on March 6.

Wall Street has been supportive of Harrison’s appointment, with the market value of CSX’s stock soaring by about $10 billion since the news of Harrison’s interest in the railroad company first leaked out in January.

As several analysts have pointed out, the $84 million payment would be a fraction of the increase in market value, so they expect large institutional investors to support it.

However, shareholder John Fishwick Jr. has started a campaign to convince the institutions to oppose it.

Fishwick was the U.S. Attorney for the Western District of Virginia before resigning that position in January to return to private practice.

He has some insight into the railroad industry. His late father, John Sr., was CEO of Norfolk and Western Railway.

Fishwick sent a letter to the chief executive of CSX’s largest shareholder, The Vanguard Group, to outline his reasons for voting against the $84 million payment. Vanguard controls 7.18 percent of CSX’s outstanding shares.

“A corporation such as CSX should be a much tougher negotiator and not surrender to the demands of an executive to pay his salary for a job which he left voluntarily,” Fishwick’s letter said.

“This money is not compensation for work Mr. Harrison performed at CSX but for work which he performed for a competitor of CSX.”

Fishwick said the payment would be “demoralizing” for CSX employees, who recently watched the company cut 800 managerial-level jobs, including 500 in Jacksonville.

Harrison has said he will quit if he doesn’t get the $84 million, but it may not matter how the shareholder vote goes. The proposition is only an advisory vote for the board of directors, and the board could go ahead and award the payment even if a majority of stockholders oppose it.

Hedge fund Mantle Ridge, which supported Harrison’s bid to become CEO, was given four seats on the board in addition to Harrison when he got the job. So the pay package will very likely have the support of the board.

CSX earnings coming this week

We should be hearing more from Harrison about his plans at CSX as the company releases its first-quarter earnings report this week.

Unlike his predecessor Michael Ward, who would spend hours in interviews with the media after releasing the quarterly reports, Harrison will be more limited in his post-earnings interviews.

But we should hear more from him in the company’s Thursday morning conference call with analysts.

Although the first-quarter results won’t reflect an impact from Harrison, most analysts are expecting continued cost-cutting from Harrison to improve CSX’s results in the future.

But in a research report last week as he raised his rating on CSX from “hold” to “buy,” CFRA analyst Jim Corridore also cited improving revenue trends for his upgrade.

“After a 6 percent decline in revenues in 2016, we see revenues rising 13 percent in 2017, and 19 percent in 2018,” Corridore said in his report.

He said the strongest gains will come from intermodal containers, grain and — perhaps most significantly — coal. Coal had historically been CSX’s biggest business before a drop in demand in recent years.

“Coal has rebounded after several down years due to low stockpiles at power producers, improved export demand, and on somewhat higher natural gas prices,” he said.

Corridore projects earnings of $2.06 a share this year, up from adjusted earnings of $1.81 last year.

Analysts’ forecasts range from $1.99 to $2.18, according to Yahoo Finance.

Punch TV hits the air in Jacksonville

An upstart television production company is raising money with an initial public offering as it also launches a TV network, with Jacksonville as one of its early markets.

California-based Punch TV Studios Inc. is trying to sell 50 million shares of stock at $1 each, with the intent of using the capital to produce movies and television programs.

The company also is operating the Punch TV Network to air its productions and, according to its annual report filed last week with the Securities and Exchange Commission, Jacksonville is one of six markets broadcasting the network.

The station is difficult to find but in response to an inquiry about it, the company pointed to a video showing CEO Joseph Collins launching the Jacksonville station in October on Channel 18.2.

Punch also has stations in Pensacola, Houston, Beaumont, Tex., Mobile, Ala., and Columbus, Ohio, according to the annual report.

“Our goal is to create a melting pot of fresh content and exclusive family-oriented shows, including dramas, comedies, talk shows, documentaries, reality shows, business and sports news, and other genres of television and film. Although the appeal of our content will be universal, it will have an urban slant, providing multi-ethnic to America’s urban — as well as non-urban — dwellers,” the annual report said.

The report shows no revenue for the fiscal year ended Aug. 31, 2016, since it hadn’t begun operations, but the company expects to have revenue to report in the current fiscal year.

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