Wells Fargo shares rise after Fed ends growth freeze

Wells Fargo shares rose over 3% premarket after the Federal Reserve lifted its $1.95 trillion asset cap, imposed in 2018 following the fake-accounts scandal. The unanimous Fed decision marks a significant win for CEO Charlie Scharf, potentially enabling Wells Fargo to pursue growth in areas like credit cards and wealth management after underperforming peers like JPMorgan Chase and Bank of America during the restriction. Analysts at Deutsche Bank project earnings-per-share growth approaching 20% per year from 2026-2028 as a result of the lifted cap and recent investments.

Analysis

Wells Fargo & Co. (WFC) shares saw a premarket increase exceeding 3% subsequent to the U.S. Federal Reserve's unanimous decision to remove the $1.95-trillion asset cap, which had been in place since 2018 following the 2016 fake-accounts scandal. This regulatory action is a significant milestone, marking the end of a unique seven-year restriction where the Fed directly mandated a halt to a bank's growth to address internal deficiencies. The lifting of the cap is a notable achievement for CEO Charlie Scharf, who has managed the bank through intense regulatory oversight since 2019. During this period, competitors such as JPMorgan Chase and Bank of America experienced substantial asset growth, expanding by nearly $2 trillion and approximately $1 trillion respectively since the beginning of 2018. Wells Fargo has indicated intentions to now pursue growth in sectors including credit cards, wealth management, and commercial banking. Analyst outlooks are largely positive; Barclays analysts anticipate a "controlled" and "linear" growth trajectory over time, rather than exponential expansion, describing it as a potential multi-year journey. Concurrently, Deutsche Bank projects that the removal of the asset cap, coupled with significant investments in key business areas, could drive earnings-per-share growth approaching 20% annually for the years 2026-2028. This development positions Wells Fargo to potentially re-accelerate its growth and improve its competitive standing.

Key Decisions for Investors

• Investors should consider the positive catalyst presented by the removal of the asset cap, which significantly enhances Wells Fargo's growth outlook and earnings potential.
• Monitor the bank's execution in its targeted growth areas of credit cards, wealth management, and commercial banking, paying attention to the pace of asset accumulation, which analysts anticipate will be gradual and controlled.
• Assess Wells Fargo's ability to regain market share and narrow the performance gap relative to peers that expanded notably while the cap was enforced, recognizing this as a long-term strategic endeavor.