Wells Fargo targets 17% to 18% ROTCE as asset cap lift accelerates growth opportunities

Earnings Call Insights: Wells Fargo & Company (WFC) Q3 2025

MANAGEMENT VIEW

* CEO Charles Scharf stated that "we're very happy with our third quarter results. The momentum we are building across our businesses drove strong financial results, with net income and diluted earnings per share both up from a year ago and the second quarter." He emphasized that the company's progress has been fueled by prior investments and that "revenue increased 5% from a year ago, with growth in both net interest income and strong fee-based revenue." Scharf also highlighted the 25% increase in investment banking fees year-over-year and acceleration in loan growth for the quarter.
* Scharf detailed strategic developments following the lifting of the asset cap, noting, "Wells Fargo, without the regulatory constraints and with the changes we have made, is a significantly more attractive company than what we were several years ago, and we believe this positions us for continued higher growth and returns." He described a refined business mix, significant expense reduction, and investments in high-growth areas. The CEO pointed to the company's focus on being the "top U.S. consumer and small business bank and wealth manager," and targeting a "17% to 18% ROTCE over the medium term, and managing to a 10% to 10.5% CET1 ratio."
* On growth opportunities, Scharf reported that "our total assets at the end of the third quarter were over $2 trillion for the first time in the company's history" and that the company has started to use "increased capacity and have started to grow our balance sheet."
* CFO Michael Santomassimo stated, "We earned $5.6 billion in the third quarter, up 9% from a year ago, and diluted earnings per common share was $1.66. This strong performance reflects the progress we have been making... including investing in our businesses, executing on our efficiency initiatives, maintaining strong credit discipline and returning excess capital to our shareholders."

OUTLOOK

* The company now targets a return on tangible common equity of 17% to 18% over the medium term, up from an earlier 15% goal. Scharf clarified that "this is not our final goal, but another stop along the way to achieve best-in-class returns by businesses and ultimately, our returns should be higher than this target."
* Full-year 2025 net interest income is expected to be "roughly in line with full year 2024 net interest income of $47.7 billion." Fourth quarter net interest income is anticipated at "approximately $12.4 billion to $12.5 billion."
* Noninterest expense guidance for 2025 has increased to approximately $54.6 billion, up from the prior expectation of $54.2 billion, due to higher severance and revenue-related compensation expenses.

FINANCIAL RESULTS

* The company reported net income of $5.6 billion and diluted earnings per share of $1.66 for the third quarter. Revenue grew 5% year-over-year, with investment banking fees rising 25% from the prior year.
* Noninterest income increased by $810 million or 9% year-over-year, with fee-based revenue growth in Wealth and Investment Management and Investment Banking.
* Noninterest expense rose $779 million or 6% year-over-year, driven by $296 million in severance expenses and $220 million in higher revenue-related compensation.
* Net interest income increased $242 million or 2% from the second quarter, though net interest margin declined by 7 basis points, primarily due to growth in lower-yielding trading assets.
* The allowance for credit losses for loans declined $257 million from the second quarter, reflecting improved credit performance. The CET1 ratio remained at 11%.
* Share repurchases reached $6.1 billion in the third quarter, and average common shares outstanding have declined by 24% since 2019.

Q&A

* Kenneth Usdin, Bernstein Autonomous LLP, asked for clarity on the timeline for achieving the new ROTCE target. Scharf responded, "it's not next year, but we're not looking at any extended period of time either... it's not our final destination relative to our targets either."
* Usdin also inquired about the fourth-quarter net interest income ramp, to which Santomassimo explained the drivers as "overall markets NII going up... the benefit of the loan growth we saw in the third quarter plus some more that we expect to see in the fourth quarter."
* Ebrahim Poonawala, BofA Securities, questioned cost-saving opportunities. Santomassimo emphasized that "there's a significant amount to do across the company. Some of that is people-related, head count-related... and you can see our head count just gradually and coming down quarter after quarter."
* John McDonald, Truist Securities, asked about loan growth momentum and the impact of the investment bank build-out. Santomassimo reported "really good growth in card and auto" and noted that "for the first time in a while, we saw overall consumer loans grow on a linked-quarter basis."
* Robert Siefers, Piper Sandler, questioned consumer credit health and auto lending. Scharf stated, "the performance of the consumer is just very, very consistent... we just see a lot of consistency."
* Betsy Graseck, Morgan Stanley, inquired if trading activity was maxed out. Santomassimo said, "we still have a lot of opportunity across the Markets business."

SENTIMENT ANALYSIS

* Analysts maintained a constructive but probing tone, focusing on sustainability of returns, NII drivers, cost controls, and the pace of strategic execution. Questions repeatedly pressed management on efficiency, loan growth sustainability, and capital deployment.
* Management’s prepared remarks were confident, with Scharf affirming "our confidence in reaching this range is driven by several factors." In Q&A, responses were measured, occasionally cautious, as Scharf reminded analysts that targets depend on "interest rates, the broader macroeconomic environment and the regulatory environment."
* Compared to the previous quarter, the tone was more forward-looking and ambitious, shifting from discussing the immediate impact of the asset cap removal to a broader focus on growth and efficiency targets.

QUARTER-OVER-QUARTER COMPARISON

* Management upgraded the ROTCE target from 15% to a range of 17% to 18% over the medium term.
* The company provided more explicit guidance on fourth-quarter and full-year net interest income and acknowledged a modest increase in the expense outlook versus the previous quarter.
* Analysts’ questions evolved from clarifying post-asset cap strategy to probing execution risks and the specifics of driving higher returns.
* Management’s tone indicated increased confidence, with a stronger emphasis on executing new growth strategies and leveraging scale.
* Key metrics such as net income, EPS, and investment banking fee growth all improved sequentially. Management continued to stress efficiency, with ongoing headcount reduction and process automation initiatives.

RISKS AND CONCERNS

* Management highlighted the dependency of new return targets on "interest rates, the broader macroeconomic environment and the regulatory environment."
* Credit quality risks remain, particularly in commercial real estate, but management described performance as "stable overall" and within expectations.
* Analysts raised concerns about cost management, loan growth sustainability, the impact of trading business expansion, and the ability to deliver on upgraded return targets without additional risk.

FINAL TAKEAWAY

Wells Fargo’s management underscored the company’s transformation following the removal of the asset cap, highlighting robust growth in net income, fee-based revenues, and investment banking, while setting a new medium-term ROTCE target of 17% to 18%. The leadership expressed confidence in achieving higher returns through disciplined expense management, targeted investments, and ongoing capital returns to shareholders, positioning the company for continued improvement in performance and market share expansion.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/wfc/earnings/transcripts]

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