Wells Fargo ready to write a new chapter in its history

Published: 2025-07-17 05:38:39 ET WFC

The asset cap imposed seven years ago by the Federal Reserve was lifted last month.

Kevin Smith

Published on 07/17/2025 at 05:38

This sanction, which came on top of $5bn in fines and penalties imposed for multiple cases of fraud and false accounting, is now a thing of the past. In theory, at least, this lifting should allow the bank to return to growth.

The bill has been steep for the San Francisco-based group. Its 2024 revenues ($78bn) remain below those of ten years earlier ($86bn in 2015). Rigorous cost control and restraint on operating expense inflation did not prevent net income from declining over the period: $20 billion in 2024 compared to $23bn in 2015.

In the meantime, Wells has bought back a large number of its own shares, reducing the number of shares in circulation by a third. Mechanically, EPS rose from $4.1 to $5.4 over the cycle. This performance, while remarkable, is shared by all other major US banks, with the notable exception of US Bancorp. This is no cause for celebration, especially since all of them have increased their dividends while Wells's have stagnated.

Appointed in 2019 to clean up the mistakes of the past, Charlie Scharf's main mandate was to expand the investment banking business, which has historically been much less developed at Wells than at its competitors. The mission is only half accomplished: revenues in this segment grew by $14bn in 2020 and are expected to reach $20bn in 2025. However, they represent only one-sixth of consolidated revenues, which explains why Wells' return on equity is much lower than that of a comparable company such as JPMorgan.

Against this backdrop, yesterday's half-year results were closely scrutinized. Unsurprisingly, loan volumes and deposits remain virtually unchanged from the same period last year. The good news comes from asset quality, with stable loan default rates and a sharp year-on-year decline in provisions. This proves, as in the case of JPMorgan, that the tariffs imposed by the federal government have not yet hurt the US economy.

It is precisely this reduction in provisions – and, it should be noted, the continued admirable control of operating expenses – that has enabled Wells to post a 10% increase in net income despite flat revenue growth and a significant decline in net interest margin, which was impacted by lower interest rates in the US. The number of shares outstanding has fallen by a further 7% since June 2024, while earnings per share jumped 18% and dividends rose 14%.

Despite its ethical missteps and subsequent regulatory troubles, Wells has never completely lost investor confidence. The bank traded below its book value for only a very brief period during the Covid crisis. Like the rest of the US banking sector, its valuation has returned to its historic high of 1.6x book value.

The market had clearly anticipated the imminent lifting of the asset cap: over three years, Wells shares have posted the second-best performance among the major banks, just behind the unbeatable JPMorgan.