Goldman Sachs maintains Wells Fargo's "Buy" rating, as the removal of asset caps releases growth potential

According to Zhitong Finance APP, Goldman Sachs research indicates that on June 3, 2025, the Federal Reserve will officially lift the asset cap imposed on Wells Fargo (WFC.US) since 2018. The removal of this key regulatory constraint opens up new growth opportunities for this American banking giant. Goldman Sachs believes that with the lifting of the asset cap, Wells Fargo is expected to benefit from several unique profit drivers. On one hand, it can regain some of the lost market share in deposits, thereby providing funding support for growth in multiple business areas; on the other hand, as regulatory and legal expenses decrease, cost-saving effects will gradually become apparent. It is expected that by 2026, Wells Fargo's earnings per share (EPS) could increase by 14%-19%, and the return on tangible common equity (ROTCE) will rise by approximately 200-280 basis points, reaching 16.5%-17.3%. Goldman Sachs maintains a "Buy" rating on Wells Fargo, with a target price of $76.

Wells Fargo's recent financial data has shown robust performance. According to Goldman Sachs' research report, for the 12 months ending December 31, 2024, Wells Fargo's revenue is projected to be $82.637 billion, with a net profit of $18.607 billion and earnings per share (EPS) of $5.37. Goldman Sachs forecasts that from 2025 to 2027, Wells Fargo's revenue will maintain steady growth, reaching $83.925 billion, $88.254 billion, and $92.409 billion, respectively; net profit will also increase year by year, reaching $18.431 billion, $20.36 billion, and $22.527 billion, respectively; earnings per share (EPS) are expected to be $5.67, $6.65, and $7.80, respectively.

At the same time, its price-to-earnings ratio (P/E) will gradually rise from 11.0 times in 2024 to 13.4 times in 2025, before declining slightly; the price-to-book ratio (P/B) will slowly decrease from 1.4 times in 2024 to 1.2 times in 2027. Return on assets (ROA) and return on equity (ROE) will also show a steady upward trend, with ROE increasing from 11.4% in 2024 to 13.4% in 2027, indicating overall good financial health and continuously improving profitability, with a relatively optimistic market outlook.

Goldman Sachs analysis suggests that Wells Fargo currently has a significant amount of unused balance sheet capacity under the supplementary leverage ratio (SLR), approximately $325 billion. Wells Fargo is expected to deploy this capacity into traditional banking operations and low-risk-weighted trading activities, such as securities and repurchase agreements. Assuming this portion of assets is invested at a tangible return on assets (ROA) of 70-90 basis points, it is expected to generate $2.3-2.9 billion in net income, contributing to an 11%-14% increase in earnings per share for 2026 and raising ROTCE by 160-210 basis points.

With the lifting of the asset cap and the easing of regulatory pressures, Wells Fargo's investments in risk control and compliance may have peaked and are gradually decreasing. This will help Wells Fargo achieve additional cost reductions and improve its efficiency ratio Goldman Sachs conducted its analysis through two methods: first, it expects Wells Fargo to restore some of its historical efficiency advantages relative to peers, which could generate a 3-6% increase in earnings per share; second, reducing professional service fees related to sales practices could bring a 2-4% increase in earnings per share.

Goldman Sachs also pointed out that Wells Fargo could further increase its balance sheet capacity by issuing preferred stock, with an expected ROTCE of 11%-15% for this preferred stock. By issuing preferred stock and investing the funds into traditional banking and trading operations, Wells Fargo is expected to achieve further asset growth and obtain substantial returns.

Goldman Sachs maintains a "Buy" rating on Wells Fargo and has set a 12-month target price of $76.00, based on a price-to-earnings ratio of 11.5 times the expected earnings per share for 2026. However, Goldman Sachs also cautioned investors about potential risks, including a slowdown in loan growth and possible additional regulatory measures.

In summary, Goldman Sachs' report presents Wells Fargo as a bank poised for new development opportunities following the lifting of asset caps. From various perspectives, including financial performance, balance sheet capacity, efficiency ratio improvement, and preference for equity financing, Wells Fargo demonstrates significant growth potential and investment value. However, investors should remain vigilant about related risks and make investment decisions cautiously