Goldman Sachs maintains Wells Fargo Bank (WFC.US) “buy” rating, lifting asset caps to unlock growth potential

The Zhitong Finance App learned that Goldman Sachs research indicates that on June 3, 2025, the Federal Reserve officially lifted the asset cap imposed on Wells Fargo Bank (WFC.US) since 2018. The lifting of this key regulatory constraint has opened up new growth space for the US banking giant. Goldman Sachs believes that as asset caps are lifted, Wells Fargo is expected to benefit from a number of unique profit drivers. On the one hand, it can recapture some of the lost deposit market share, thereby providing financial support for growth in various business areas; on the other hand, as regulatory and legal expenses are reduced, the cost savings effect will gradually become apparent. It is expected that Wells Fargo's earnings per share (EPS) will increase by 14%-19% by 2026, and ROTCE (return on tangible common equity) will increase by about 200-280 basis points to 16.5% to 17.3%. Goldman Sachs maintains Wells Fargo's “buy” rating with a target price of $76.

Wells Fargo's recent financial data showed steady performance. According to Goldman Sachs Research, in the 12 months ending December 31, 2024, Wells Fargo had revenue of $82,637 billion, net profit of $18.607 billion, and earnings per share (EPS) of $5.37. Goldman Sachs predicts that from 2025 to 2027, Wells Fargo's revenue will maintain steady growth of $83.925 billion, $88.254 billion, and $92.499 billion; net profit will also rise year by year to $18.431 billion, $20.36 billion, and $22.527 billion, respectively; and earnings per share (EPS) are expected to be $5.67, $6.65, and $7.8, respectively.

Meanwhile, its price-earnings ratio (P/E) will gradually rise from 11.0 times in 2024 to 13.4 times in 2025, and then decline; the net price-earnings ratio (P/B) will slowly drop from 1.4 times in 2024 to 1.2 times in 2027. Return on assets (ROA) and return on shareholders' equity (ROE) will also show a steady upward trend. Among them, ROE will grow from 11.4% in 2024 to 13.4% in 2027. The overall financial situation is good, profitability continues to increase, and the market outlook is optimistic.

According to Goldman Sachs analysis, Wells Fargo currently has a large amount of unused balance sheet capacity under the Supplemental Leverage Ratio (SLR), about US$325 billion. Wells Fargo is expected to invest this amount of capacity in traditional banking and low-risk weight-intensity transactions, such as securities and repurchase agreements. Assuming that this portion of assets is invested at a rate of return on tangible assets (ROA) of 70-90 basis points, it is expected to generate net income of $23-29 billion, bringing an 11%-14% increase in earnings per share in 2026, and increasing ROTCE by 160-210 basis points.

As asset caps are lifted and regulatory pressures ease, Wells Fargo's investment in risk control and compliance may have peaked and gradually declined. This will help Wells Fargo achieve additional cost cuts and improve efficiency ratios. Goldman Sachs calculated using two methods. One is that Wells Fargo recovers part of its historic efficiency advantage over its peers and is expected to generate 3-6% earnings per share; the other is to reduce professional service costs associated with sales practices, which can lead to a 2-4% increase in earnings per share.

Goldman Sachs also pointed out that Wells Fargo can further increase balance sheet capacity by issuing preferred shares, and the ROTCE for this preferred stock is expected to reach 11%-15%. By issuing preferred shares and investing capital into traditional banking and trading operations, Wells Fargo is expected to further grow its assets and reap significant returns.

Goldman Sachs maintained its “buy” rating for Wells Fargo and gave a 12-month price target of $76.00, which is based on an expected price-earnings ratio of 11.5 times the 2026 earnings per share. However, Goldman Sachs also alerted investors to potential risks, including slowing loan growth and possible additional regulatory measures.

In summary, this Goldman Sachs research report presents investors with Wells Fargo, which ushered in new development opportunities after the asset cap was lifted. From various perspectives such as financial performance, balance sheet capacity, improved efficiency ratios, and preference for equity financing, Wells Fargo has shown great potential for development and investment value. However, investors still need to pay attention to related risks and make careful investment decisions.