Crediblock.com LLC – Second Sight Markets Analysis 7/8/2020 — The global banking system is ripe for disruption.  As we have explained in Splitting Pennies the book – the Fedwire system currently in use today in the United States to make wire payments was made in 1937.  Banks are in need of a technology upgrade and strangely have been resistant to it.  While the banking system has financed technology revolutions in other fields, they have resisted their own evolution.  This can be seen most vividly with the large US banks, such as Wells Fargo and Bank of America.  We have singled out these 2 big banks as being particularly terrible.  We wrote about this issue in October 2019 and called $BAC short, for a 27% return.  $BAC was trading at 28.90 when the article was written.

$WFC is trading at yearly lows so it seems easy to kick a dog when it’s down, so we need to provide some context.  We know that the big banks are suffering a demographic crisis.  Yesterday, this author was refused a cash deposit at a physical branch because of new money laundering rules.  Actually the ATM couldn’t automatically read $200 worth of $20 bills.  So after spending an hour fiddling with the ATM and arguing with the tellers, the $200 that was supposed to be sent to someone only got $180.  Perhaps the cash rules are part of the plan to make currency completely digital, but that’s not the point.  What kind of bank refuses cash?  The idea is absurd.  Money laundering $20 ?  That sounds like *real* money laundering (you know, when you forget cash in your pocket and it goes through the washing machine).

$WFC has heaps of problems.  It’s being sued for unfairly distributing PPP loans:

On April 19, 2020, after at least one lawsuit was filed against the Company, reports surfaced that Wells Fargo may have unfairly distributed government-backed loans under the Paycheck Protection Program (“PPP”). On this news the Company’s share price fell $1.54, or over 5%, over two consecutive trading sessions to close at $26.84 per share on April 21, 2020, thereby injuring investors.  Finally, on May 5, 2020, the Company revealed that “it has . . . received formal and informal inquiries from federal and state governmental agencies regarding its offering of PPP loans.”  On this news, the Company’s share price fell $1.74, or over 6%, over two consecutive trading sessions to close at $25.61 per share on May 6, 2020, thereby injuring investors further.

And that’s just one issue.  Their ‘fake account’ scandal has already racked up $3 Billion in fees.

Wells Fargo has so many scandals, Yahoo Finance put a timeline together so you can understand the history of them.

But are there any alternatives?  You bet there are, tons of them.  One bank is Chime, a no-fee startup.  Signup for Chime bank – the FinTech bank with no fees and no branches, and get $50 for signing up!

That’s not all.  There’s MoneyLion, and there is the new concept of ‘banking as a service’ from companies like Aspiration.  Most of these banks can be invested in the private equity (Pre IPO) market.

$WFC has a market cap of $100 Billion + so it’s not going to fall like a knife, and can rebound.  The suggestion here is to sell the rallies, as these underlying issues seem to be part of a pattern.  Management has created an environment where fraud breeds and goes unpunished.  In the FX scandal, they allowed greedy traders to overcharge customers for simple transactions (converting one currency into another) sometimes in the wholesale markets.

Ultimately, when you are the victim of such practices, you find another solution.  Customers will flock away from $WFC and $BAC for new alternatives like Chime, MoneyLion, and who knows what is next to come in banking.

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