Hopefully this leads to asset cap removal soon.
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Wells had a stealth rally of 50% from the October low’s. The results are good, significant beat vs expectation primarily driven by lower provisions. More importantly, they have significant capital buffer and they are putting it to work by aggressively buying back shares. They did $6 billion in the first quarter vs $12 B for the year !!! WFC’s compliance and legal issues are mostly behind and expect the asset cap to be removed in the next 6 to 12 months, giving them another boost to grow the business.
If WFC gets below $50, buy it for long-term. All big banks are getting really strong. Any weakness one should buy them for long-term.
The stock is hitting 5 year high and all time high is just 10% more. Added more. When the asset cap is removed it is going blast off is my expectation. It is just a matter of time now…
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WFC is busy buying back shares of late…
The last year share count is
The last quarter they bought back 113 million shares that is 3% of outstanding shares. WFC has 13% excess capital wrt their market cap. I can see they can do immediately 200 million share buyback and in the next few years reduce their share count to 3 billion from 3.5 Billion, and can reduce their expenses by $3 Billion (mostly associated with various consent orders), and when asset cap is removed it allows the bank to earn additional income, all can easily push the EPS to $7.
Assuming 13 PE they can get $90 by 2027, that is 15% CAGR and 2.5% dividend yield; If they can get there early, your returns goes higher. I have pushed out my expectation by a year to accommodate any recession.
In an industry presentation WFC disclosed in the 2Q, until May, they have bought back $5 B of shares, assuming $60 price that is 80 million shares
The stress result will limit the buyback for the rest of the year to $4B or so. Compared to that so far in the 1H they have bought back $11 B. They can still buyback 65+ million shares, which is not bad. But have to wait for the 2025 for the meaningful buyback to resume. At this time, the expectation is WFC can buyback 250 million shares at today’s price in 2025.
With asset cap in place, WFC’s main driver to increase EPS is through buyback, or reducing # of shares. So, the shares may be just range bound until 2025.
The stress test predicts $13.4 billion loss in CRE. We can assume this to be a worst case and expect probably $5 B or so loss under normal operating conditions.
Post stress test results, WFC increased quarterly dividend by 14% to $0.4 from $0.35. In 2020, WFC cut the dividend to $0.1 from $0.51 and slowly increasing it. WFC also announced
over the four-quarter period beginning third quarter 2024 through second quarter 2025, the Company has capacity to repurchase common stock, which will be routinely assessed
The buybacks will certainly slowdown from the 1H but should continue at $2 B +.
Here is the investment thesis behind WFC:
- WFC has $28 B excess capital which they will use to do buyback; Between now and Dec 2026, WFC will do $40 ~ $50 B in buyback; Let it sink; That’s is 20 ~ 25% of current market cap
- Increase ROTCE from 12.3% to 15%
- Expense reduction
- Asset cap regulatory order lifting
It is very hard to over emphasis how strong the big banks, and gobs of money they are making and can deploy on buybacks.
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in 2Q they have bought back 100.5 million shares for $6.1 billion
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$WFC | Wells Fargo Q2’24 Earnings Highlights:
EPS: $1.33 (Est. $1.29) 
Revenue: $20.69B (Est. $20.28B)
Net Interest Income: $11.92B (Est. $12.12B) 
Total Avg Deposits: $1.35T (Est. $1.36T)
FY’24 Outlook:
Net Interest Income: Expected to be in the range of down ~7-9% from 2023 levels, with a likely outcome in the upper half of the range.
Noninterest Expense: Expected to be ~$54.0B, UP from prior guidance of ~$52.6B. 
Other Metrics:
Noninterest Income: $8.77B
Provision for Credit Losses: $1.236B
Net Charge-Offs: $1.3B
Efficiency Ratio: 64%
Return on Assets: 1.03%
Return on Equity: 11.5%
Common Equity Tier 1 Ratio: 11%
Net Income: $4.9B
Segment Performance:
Commercial Banking:
Revenue: $3.12B (Est. $3.15B) ; Down 7% YoY
Corporate and Investment Banking:
Total Revenue: Up 4% YoY, Down 3% QoQ
Banking Revenue: Up 3% YoY, Down 2% QoQ
Commercial Real Estate Revenue: Down 4% YoY, Up 5% QoQ
Markets Revenue: Up 16% YoY, Down 2% QoQ
Wealth and Investment Management:
Total Revenue: Up 6% YoY, Up 3% QoQ
Net Interest Income: Down 10% YoY
Noninterest Income: Up 12% YoY, Up 3% QoQ
Noninterest Expense: Up 7% YoY
Operational Metrics:
Net Interest Margin: 2.75%
Total Average Loans: $917.0B, Down 3% YoY
Allowance for Credit Losses for Loans: $14.8B
Liquidity Coverage Ratio (LCR): 124%
CEO Charlie Scharf’s Commentary:
“Our efforts to transform Wells Fargo were reflected in our second-quarter financial performance as diluted earnings per common share grew from both the first quarter and a year ago.”
“Credit performance was consistent with our expectations, commercial loan demand remained tepid, we saw growth in deposit balances in all of our businesses, and the pace of customers reallocating cash into higher-yielding alternatives slowed.”
Strategic Developments:
Expected increase in Q3 common stock dividend by 14%.
Higher revenue-related compensation expense in 2024 due to equity markets outperforming expectations.
Higher operating losses and customer remediation expenses impacting noninterest expenses.
Capital Return:
$6.1B in gross common stock repurchases in Q2’24.
$1.2B in common stock dividends paid in Q2’24, with a dividend of $0.35 per share.
Expect to increase Q3’24 common stock dividend to $0.40 per share, subject to board approval.
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On friday, Bloomberg reported the bank has submitted 3rd party review for the asset cap removal. This is now 6~7 years in place. Janet Yellen did this as the last act before she left FED. Hopefully this is removed.
If this is removed this is a big positive and will drive next 2, 3, 5 years growth. WFC can increase the deposits now. Even though they call it asset cap, what it really did is restrict the bank from taking deposits. The below table shows deposits for the last 5 years,
Now compare that with BAC deposits…
What the extra $500 B deposits with NII of 2% will do to earnings? That will raise the earnings by $10 B or $3 per share, should roughly translate to $30 to $45 in share price.
A word of caution is the asset cap took much longer to be removed and still FED may require some time to review and may ask for additional changes, will require FED board of governors to vote, and will require one more review, etc. So it could easily slip into 2026.
WFC has recently gone down due to some regulatory compliance news. Setting up immediate bounce to $60’s. Let us say, it takes 2029~ 2030 to get the share price to $100, including dividends you are looking at 15%, and more realistically 20% CAGR. Yeap, that big is the asset cap.
WFC is great banking franchise and all the recent regulatory issues means the banks books, operations are cleaned up and setup for solid growth. I currently have 4% allocation, I might trim or add on the margin, but eventual goal is to raise it to 5% and keep a core position for multiple years.
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With the earnings WFC has bounced to 63… Along with that it is attempting to beak out from a big base… the below from BAC technician,
WFC is a diversified banks stock that is breaking out from an early 2022 into late 2024 bullish cup and handle and an early 2018 into late 2024 big base. Holding the 60-56 area (breakout zone and rising weekly MAs) would keep the technical setup for WFC firmly bullish with upside potential beyond the early 2018 peak at 66.31 toward pattern counts near 85 (cup and handle target) and 100 (big base target). WFC is firming up and showing bottoming signs relative to the SPX.
This may happen much earlier than my timeline. The risk is to the upside here.
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The market is banana’s… My Aug 06 purchase of $WFC is up 46.5%, that is over 100 days… unbelievable move… if only I have closed some of those covered calls… which I was tempted to but somehow restrained myself… Oh Well…
They have purchased 57.8 million shares for $4 B, for the entire year 310 million for $20 B
Average common shares outstanding decreased 21% since the fourth quarter of 2019
The bank will continue to buyback using all of their profits excluding dividends!!!
IF and when asset caps are removed we are looking at WFC can get to ROTCE 16% to 18%, that will slow down buyback and invest in the business and the increment dollars will drive higher profitability.
Here is the BAC deposits vs loans
here is WFC’s
How that excess deposits will help? Again BAC provides answer to that question…
Even if WFC can earn only 1% on that extra $500 B deposits… at the minimum the EPS will go up by $1.
The stock price already moved up to reflect most of the gains I expected. I am wondering, when it is eventually announced will it become a sell the news event?
The top U.S. consumer watchdog has terminated a 2022 order punishing Wells Fargo for allegedly mishandling auto loans and mortgages, the bank said on Tuesday, bringing it a step closer to having the $1.95 trillion asset cap imposed on the lender removed.
WFC stock price gained almost 100% since Oct-23 low’s. Pretty impressive.
On 2/4 two long standing consent orders from 2011 are terminated. WFC is moving steadily towards asset cap removal. Still 5 order are pending. The biggest risk for the stock now is the asset cap removal is not making meaningful traction in 2015. Initially I was wondering whether asset cap removal will be sell the news event, but that should be short-term. Removal will truly unlock WFC’s ability to do loan growth, deposit growth and setup $WFC for next 3 ~ 5 years of above average growth.
One more got resolved on 2/13. This one is a join action between OCC and CFPB. However, because no one is working CFPB, 
that consent order cannot be removed!!! 
Technically 4 more to go, but in reality 3 more to go. Separately in $BAC conference, management talked about recent hirings!!! $WFC is getting ready for the asset cap removal and thus started hiring on various divisions. They had to scale back those division as they were constrained by asset cap. Now they are getting ready.
Hopefully we get the sell the news and get another buying opportunity.