Should You Hold Wells Fargo Stock Now for Potential Fed Rate Cuts?

Wells Fargo & Company’s WFC financials have been influenced by the Federal Reserve's rate-cutting trajectory. Following July’s optimistic headline inflation data from the Consumer Price Index (CPI) and cooling job markets, investor sentiment has continued to peak in anticipation that the Fed could cut interest rates during the next FOMC meeting in September.

To that point, Wells Fargo and its peers, including Citigroup C and Bank of America BAC, may be prime beneficiaries of a steepening yield curve, where they can finance their operations at lower short-term rates and boost their margins by lending at higher long-term rates.

Wells Fargo's net interest income (NII) and net interest margin (NIM) have been under pressure given the relatively high-interest-rate environment. In the first half of 2025, NII fell 4% and NIM contracted to 2.67% from 2.78% in the same period a year ago. On the contrary, Bank of America and Citigroup's NII rose in the first half of 2025.

Management expects Wells Fargo’s 2025 NII to be in line with the 2024 NII of $47.7 billion.

With the central bank expected to lower rates, WFC is poised to benefit as funding costs will gradually stabilize. Also, a softer rate environment is expected to boost lending activity as economic growth remains decent, which will further aid NII and NIM expansion.

Given the potential rate cuts, many investors must be wondering how to approach WFC stock now. Let us delve deeper and analyze other factors at play to decide its investment worthiness.

WFC to Benefit From Asset Cap Removal

Wells Fargo reached a pivotal moment in June 2025 as the Fed lifted the $1.95 trillion asset cap imposed in 2018 following its fake account scandal. The asset cap had restricted balance sheet growth, limiting the bank’s full potential. 

The removal of the growth restriction reflects the substantial progress the bank has made in addressing its deficiencies and fulfilling the conditions required for the removal of the growth restriction. 

With the removal of the asset cap, WFC can now boost deposits, grow its loan portfolio, and broaden its securities holdings. This will result in a rise in NII, since the balance sheet may include more interest-earning assets. Furthermore, the bank will have more exposure to expand fee-generating activities like payment services, asset management, and mortgage origination. These fee income growth will enhance profitability.

WFC’s Initiatives to Drive Cost Efficiency

Wells Fargo has been making progress on various initiatives to achieve cost efficiency. The company is actively engaged in cost-cutting measures, including streamlining organizational structure, branch closure, and headcount reductions. Its non-interest expenses witnessed a negative CAGR of 1.3% over the last four years (ended 2024), with the declining trend continuing in the first half of 2025. 

WFC keeps investing in and optimizing its branch network. It is being more deliberate about branch location strategy, as the number of branches declined 2% year over year to 4,135 at the end of the second quarter of 2025. Its headcount reduced by 4.5% year over year in the second quarter of 2025.

Due to its strategic efforts, management expects non-interest expenses to be $54.2 billion in 2025, lower than $54.6 billion in 2024. This sustained decline is expected to enhance profitability, enabling greater investment in strategic growth areas and stronger shareholder returns in the upcoming period.

WFC’s Solid Liquidity Aids Capital Distribution

As of June 30, 2025, Wells Fargo’s long-term debt was $176.2 billion, and short-term borrowings were $187.9 billion. The company has a strong liquidity position, with a liquidity coverage ratio of 121% as of the second quarter of 2025. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $194.5 billion as of the same date.

Hence, WFC rewards shareholders handsomely. The company cleared the 2025 Fed stress test and announced an increase in its third-quarter 2025 common stock dividend by 12.5% to 45 cents per share. In the past five years, it has raised its dividend six times. It currently has a dividend yield of 2.3%.

Similarly, Bank of America has raised its dividends five times in the last five years. It has a dividend yield of 2.2%. Also, Citigroup has raised its dividends three times in the last five years. It has a dividend yield of 3.6%. 

Coming back to WFC, it also has a share repurchase program in place. In April 2025, the company’s board of directors authorized a new common stock repurchase program of up to $40 billion.  In July 2023, its board of directors authorized a share repurchase program worth $30 billion. As of June 30, 2025, the company had remaining board authority to repurchase up to $40.8 billion worth of common stock.

WFC Price Performance & Valuation Analysis

Over the past year, Wells Fargo shares gained 42.2% compared with the industry’s rise of 43.8%. Meanwhile, Citigroup gained 57.1% and Bank of America rose 26% over the same time frame.

Price Performance

From a valuation standpoint, Wells Fargo appears somewhat inexpensive relative to the industry. The company is currently trading at a discount with a forward 12-month price-to-earnings (P/E) multiple of 12.1X, below the industry average of 14.4X.

Price-to-Earnings F12M

C and BAC are trading at a forward P/E multiple of 10.4X and 11.91X, respectively.

WFC Stock: Good to Hold for Now, Not a Buy Yet

Wells Fargo has several positives working in its favor, from the Fed’s likely rate cuts to the lifting of its asset cap and steady expense savings. The bank is also returning significant capital to shareholders through dividends and buybacks, all while trading at a discount to discount to the industry.

For 2025 and 2026, the company’s earnings and sales are expected to increase year over year.

Sales Estimates

Earnings Estimates

However, as the interest rates are less likely to come down substantially in the near term, it is expected to hurt the borrowers’ credit profile. Hence, WFC’s asset quality is likely to remain weak.

WFC’s performance in the near term will be greatly influenced by its capacity to navigate these challenges to maximize financial performance. Investors should keep a close eye on these issues before taking a well-informed investment decision.

Those who already own WFC stock in their portfolio can hold on to it because it is less likely to disappoint over the long term, given its strong fundamentals. It carries a Zacks Rank #3 (Hold) now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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