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
$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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