WFC - Wells Fargo: Manageable Near-Term Risks And Meaningful Longer-Term Potential

2024-07-01 15:01:05 ET

Summary

• Wells Fargo's second quarter is likely to resemble recent quarters, with modest underperformance in lending (outside cards), healthy non-interest income, and rising credit costs.
• CRE credit is likely to get worse from here, but Wells Fargo is already well-reserved and this is likely to be a multiyear process.
• Wells Fargo continues to make progress on resolving outstanding regulatory and compliance issues, and the removal of the asset cap should unlock significant growth opportunities.
• Long-term core earnings growth in the neighborhood of 4% can support a fair value in the $60's, as can ROTCE-driven P/TBV and P/E.

Current operating conditions are still not exactly easy for Wells Fargo (WFC), even excluding the self-inflicted headwinds of past management mistakes. An asset-sensitive bank, higher-for longer rates haven’t been all that bad for this bank. Wells Fargo’s strong core deposit franchise has allowed it to maintain a better-than-average deposit beta that has helped offset some weak lending performances that have, at least in part, been driven by the compromises needed to comply with the ongoing asset cap....

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