Wells Fargo's Path to Prosperity: Can Lifting the Asset Cap Spark Growth?

A Barron's article this weekend discussed the future growth prospects for Wells Fargo. Read this post for a quick summary.

Financial Performance and Outlook

Wells Fargo has demonstrated solid financial performance:

• The company consistently beat its EPS estimates over the past 12 months.

• Next quarter's earnings estimate is $1.28 per share, with sales forecast at $20.36 billion.

• WFC outperformed its overall industry in the last calendar year.

Analyst Consensus and Price Targets

The current analyst consensus for WFC is a "Moderate Buy" rating, with 7 Buy ratings and 7 Hold ratings. The average 12-month price target is $63.56, representing a 10.10% upside from the current price of $57.73

Asset Cap Impact and Potential Lifting

A significant factor affecting Wells Fargo's growth is the $1.95 trillion asset cap imposed by the Federal Reserve in 2018:

• The cap has restricted WFC's growth since 2018, forcing it to maintain assets at end-2017 levels

  
  

• This restriction has limited WFC's ability to expand its loan portfolio and pursue aggressive deposit growth

  
  

• Wells Fargo has submitted a third-party review of its risk and control overhauls to the Fed, a crucial step towards potentially lifting the cap

  
  

Timeline and Expectations

• Wells Fargo executives expect the asset cap to extend into 2025, with the earliest potential lifting in Q1 2025

  
  

• CEO Charlie Scharf has been cautious about specifying dates for the cap's removal, emphasizing ongoing work to satisfy regulatory requirements

  
  

Growth Potential Post-Cap Removal

If the asset cap is lifted:

1. Expanded Lending Capacity: WFC could grow its loan portfolio beyond current constraints

   
   

2. Aggressive Deposit Pursuit: The bank could more actively seek deposits, potentially lowering funding costs

   
   

3. Reputational Improvement: Removal of the cap could enhance investor and customer confidence

   
   

4. Competitive Position: WFC could better compete with other major U.S. banks not under similar restrictions

   
   

Risks and Challenges

1. Regulatory Scrutiny: Wells Fargo continues to face regulatory challenges, including recent OCC enforcement actions

2. Market Sensitivity: The bank's performance remains tied to overall market conditions and interest rate environments.

3. Competitive Pressure: WFC must regain ground lost to competitors who have grown significantly during the cap period

   
   

   

   
   

Conclusion

Wells Fargo shows moderate growth potential over the next 12 months, with a possible upside of 10.10% based on analyst targets. The potential lifting of the asset cap represents a significant opportunity for enhanced growth. However, the timeline remains uncertain, with management expecting the cap to extend into 2025. Investors should monitor the regulatory situation closely, as the removal of the asset cap could be a major catalyst for WFC's stock performance and overall business growth in the coming years.

As always, this is NOT financial advice.