The number of banking analysts projecting a financial under-performance from Wells Fargo & Co. in fiscal 2020 has doubled to four in the past week.

CFRA analyst Kenneth Leon lowered both his 52-week share-price target by $4 to $48, and his fiscal 2020 diluted earnings forecast by 25 cents to $4.35.

The bank’s share price closed down 30 cents Monday to $53.11. The 52-week share-price range is $43.34 to $54.75.

Meanwhile, Baird analyst David George lowered his rating for Wells Fargo to “underperform.”

The analysts’ outlooks follow those of Dick Bove with Odeon Capital, who lowered on Dec. 19 his ranking on Wells Fargo from “hold” to “sell,” saying it “appears to be directionless at the moment.”

The changes also follow criticism from Rep. Maxine Waters, D-Calif. who told Politico last month that Wells Fargo may need to be broken up because she believes it has become too big for CEO Charlie Scharf and the board to effectively manage.

Cowen analyst Jaret Seiberg said it’s very unlikely Congress would actually agree to break up Wells Fargo, but he noted that Waters’ comments “are limited to Wells Fargo,” and not the other three so-called too-big-to-fail national banks: JPMorgan Chase & Co., Bank of America and Citigroup.

The common denominator in the analysts’ dour forecasts for Wells Fargo is the Federal Reserve’s order, issued Feb. 3, 2018, that does not allow the bank to increase its total assets beyond the $1.93 trillion it had on Dec. 31, 2017.

Since the fall of 2016, Wells Fargo has agreed to pay more than $4 billion to settle various regulatory disputes, including $2.09 billion announced in August 2018, $1 billion announced in April and $575 million in December 2018.

Leon said that even though Wells Fargo’s share price rose 13% in 2019, “we think the current year will be challenging in realizing higher revenue and earnings per share, as new management will take longer to reorganize the bank.”

Scharf took over as chief executive Oct. 21, coming over from Bank of New York Mellon as the fourth executive to serve in that Wells Fargo role since September 2016.

“Operating costs continue to be well above peers as measured by efficiency ratios, given (the bank’s) burden of higher compliance and regulatory costs to comply with the Federal Reserve’s consent decree and asset freeze,” Leon said. “We expect a delay in any reorganization until Wells Fargo is lifted from the Fed’s decree.”

“The company itself, obviously, has a series of extraordinary businesses and there is no difference now,” Scharf told analysts Sept. 27. “There are challenges and the company is clearly focused on putting them behind us. I won’t come in with any preconceived notions.

“My job is to ensure that work continues to get done while we build upon the strengths of the business.”

George said that while “we like new CEO Charlie Scharf, but new leadership may initially lower expectations and provide an extended timetable for improving operating leverage.”

George said his downgrade of Wells Fargo was part of being overall “more cautious from a tactical perspective” on the banking sector.

“With sentiment more bullish and valuations higher despite the later-cycle risks, we believe investors should avoid chasing stocks as earnings growth and fundamental improvement may disappoint rising expectations.

“We prefer to use the likely return of volatility to increase bank exposure as the year unfolds, and look to trim exposure to the extent the market melt-up continues.”

Along with the U.S. Justice Department, the Securities and Exchange Commission, Comptroller of the Currency, the Consumer Bureau of Financial Protection, U.S. Labor Department, various state attorneys general and Congress have investigated the bank’s overall sales practices.

On Sept. 1, 2017, the bank confirmed that at least 3.53 million checking and credit-card accounts were affected by the scandal. The bank has said it cannot rule out that 38,722 unauthorized customer accounts were established in North Carolina and 23,327 in South Carolina.

On Oct. 16, Wells Fargo executives told analysts the scandal did not appear to have a short-term ending in sight related to quarterly accruals that have reached at least $3.9 billion as of June 30.

Seiberg said “the worse outcome is for Wells Fargo to become part of the 2020 presidential election,” particularly if raised by Sen. Elizabeth Warren, D-Mass., and a leading Democratic presidential candidate.

“Wells Fargo is likely to remain in this spotlight until at least after the election. And if Democrats win, the bank will be even more exposed to onerous policy developments,” Seiberg said.

“Given this political environment, it is hard to see how the Federal Reserve could vote to lift the asset cap on the bank next year.

“We also question if it would matter if the Federal Reserve lifted the asset cap, as we continue to believe that the Comptroller of the Currency has separate enforcement actions in effect.”

Bove said Wells Fargo “is formulating its new business model so its future direction is unclear ... moreover, in the meantime, a series of events are likely to push earnings lower.”

Bove, who has a well-earned reputation for pulling no punches with his analysis, had raised Wells Fargo from “hold” to “buy” in August.

rcraver@wsjournal.com

336-727-7376

@rcraverWSJ

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