WFC Q3 Deep Dive: Asset Cap Removal Fuels Loan Growth and Strategic Investments

Financial services giant Wells Fargo (NYSE:WFC) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 5.3% year on year to $21.44 billion. Its GAAP profit of $1.66 per share was 7.4% above analysts’ consensus estimates.

Is now the time to buy WFC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Wells Fargo’s third quarter results were met with a positive market reaction, with management crediting the momentum to both broad-based loan growth and renewed strength in fee-based revenues. CEO Charlie Scharf highlighted the impact of investments in core segments, pointing to a 25% increase in investment banking fees and accelerating growth in consumer lending. The lifting of the Federal Reserve’s asset cap played a pivotal role, allowing the company to expand its balance sheet for the first time in years. Scharf emphasized that these changes have made Wells Fargo “a significantly more attractive company,” with scale advantages in consumer banking, wealth management, and corporate banking.

Looking forward, management underscored an ambitious trajectory, targeting higher returns and efficiency as the company leverages its expanded capacity. Scharf outlined goals to achieve a 17% to 18% return on tangible common equity over the medium term, driven by further investments in credit cards, wealth management, and digital banking. CFO Mike Santomassimo noted, “Efficiency work is definitely part of continuing to drive returns up,” while cautioning that progress will depend on execution, macroeconomic factors, and regulatory developments. The company sees opportunities for additional growth through organic initiatives and disciplined expense management, with ongoing technology investments and headcount reductions supporting their outlook.

Key Insights from Management’s Remarks

Management attributed third quarter performance to the removal of regulatory constraints, strategic investments in growth segments, and ongoing cost optimization initiatives.

• Asset cap removal unlocks growth: The lifting of the Federal Reserve’s asset cap enabled Wells Fargo to expand its balance sheet, particularly in commercial and investment banking, with trading-related assets up 50% since 2023 and total assets exceeding $2 trillion for the first time.
• Loan portfolio expansion: Accelerated loan growth was seen across commercial, credit card, and auto portfolios, with credit card new accounts up 9% in the first nine months of the year. Scharf explained that while card growth initially drags on returns, it is expected to become more profitable as accounts mature.
• Efficiency and expense control: Headcount has declined by 24% since 2020, with management citing ongoing reductions in professional services and real estate costs. These savings have funded investments in risk management, technology, and strategic business initiatives.
• Diversification of revenue streams: Fee-based businesses such as investment banking and wealth management showed strong momentum, with investment banking fees rising 25% and wealth management flows up 47% in Premier offerings.
• Capital return and strong credit quality: The company increased its dividend and doubled share repurchases from the prior quarter, while maintaining robust credit performance and stable consumer health. Non-performing assets and net loan charge-offs continued to decline, supporting management's confidence in the loan book.

Drivers of Future Performance

Wells Fargo’s outlook is shaped by its ability to capitalize on expanded balance sheet capacity, further efficiency gains, and targeted growth investments.

• Strategic business investments: Management expects continued investment in credit cards, digital banking, and wealth management to drive future revenue, despite the near-term impact of card portfolio growth on returns. These areas are seen as underpenetrated and sources of long-term profitability.
• Efficiency improvement targets: Ongoing headcount reductions, automation, and technology upgrades are expected to lower expenses and improve the efficiency ratio. Santomassimo emphasized that hundreds of projects are underway to rationalize third-party spend and real estate costs.
• Macroeconomic and regulatory factors: The path to the 17%-18% return target is contingent on stable credit trends, interest rate movements, and evolving capital requirements. Management indicated that changes in the regulatory environment and capital rules could influence both balance sheet management and the pace of capital return.

Catalysts in Upcoming Quarters

In the coming quarters, our team will monitor (1) how quickly Wells Fargo deploys excess capital to support loan and fee-based business growth, (2) the pace of efficiency gains from technology and headcount initiatives, and (3) continued progress in expanding digital banking, credit card, and wealth management penetration. The company’s ability to maintain strong credit quality and navigate regulatory changes will also be pivotal in achieving its medium-term return targets.

Wells Fargo currently trades at $84.89, up from $78.90 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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