富国银行

Wells Fargo reported mixed second-quarter 2026 earnings results on July 14, sending shares down a low-single-digit percentage as the net interest margin trajectory highlights the firm's aspirational changes.

Why it matters: Wells Fargo has long swum in its own lane with a scale and business mix that blended the attractive elements of a money-center bank with a regional bank, but now, one year removed from the lifting of the asset cap, the firm is taking steps to look closer to a traditional money-center bank. Unshackled by regulators to increase the balance sheet, management has deployed significant capital to expand its trading desk, hoping it will spur ancillary fee income growth that offsets the NIM compression associated with the lower-spread securities financing business in the interim. With net interest margins down 17 basis points over the past two quarters, we believe the decision to sacrifice the relative strength of its cost-advantaged deposit franchise to grow its trading business is unlikely to improve its competitive positioning within the banking universe.

The bottom line: After digesting the second-quarter results for wide-moat Wells Fargo, we are modestly raising our fair value estimate to $90 from $88, viewing shares as slightly undervalued. The fair value increase was chiefly due to a 50-basis-point reduction in the midcycle efficiency ratio to 58.2%, as the dissipation of legacy compliance costs associated with the lifting of regulatory penalties provides enhanced visibility into the firm's capability to drive positive operating leverage. While our views surrounding near-term net interest income have become less rosy due to the prioritization of the trading franchise, our updated interest rate forecast incorporates a delay in rate cuts until 2027, effectively offsetting the impacts of a lower-yielding interest-earning asset mix.

The decision to transform Wells Fargo appeared to predate the lifting of the asset cap, as the firm went on a hiring spree, hiring over 125 investment banking managing directors since 2019. We ultimately see the institutional trading business as difficult to forge a moat in isolation, with even well-scaled businesses like Goldman Sachs struggling to materially outearn its cost of capital over the cycle in this franchise, yet the business functions as a crucial facet of the broader ecosystem that is simply monetized via the corporate and investment banking franchises.

Though Wells Fargo made a material ascent up the league tables over the years, finishing eighth in Dealogic's total global revenue rankings in 2024 and 2025, the total profit pool in investment banking is not particularly high, as evidenced by investment banking contributing only 3.5% of Wells Fargo's net revenue in 2025. Even if the firm doubled the investment banking fees it generated in 2025 to surpass Citigroup for fifth place, the 3.5% revenue uplift is simply not worth the growth of the institutional trading franchise necessary to reach these goals, particularly given the lack of a global footprint that Wells Fargo currently has relative to the larger incumbents.

Further, Wells Fargo has built a strong commercial and corporate banking franchise with a smaller trading operation than its money-center peers, which is highly attractive from a returns-on-capital perspective. Rather than try to emulate its peers just because regulators have allowed it to grow its balance sheet again, we think investors would rather see the firm stick to its core competencies and maximize returns on capital utilizing the competitive advantages it has spent decades forging, evidenced by a negative reaction to an otherwise strong earnings report.

We are increasing our fair value estimate for Wells Fargo to $93 per share, from $90, due to a revised interest rate forecast. We are now expecting a 0.25% increase in the federal-funds rate in December 2026, on top of the 0.25% hike in September 2026, with our revised forecasts calling for short-term interest rate cuts in the second half of 2027 and an unchanged long-term forecast.

Consistent with other major financial institutions in our coverage, the primary drivers of Wells Fargo's valuation remain asset growth, the trajectory of its net interest margin, and the continued expansion of its core fee-earning businesses, particularly in wealth management, commercial banking, and trading. Ultimately, our revised fair value estimate equates to 2.02 times our 2026 projected tangible book value for the bank.

Digging into the drivers underpinning our fee-income growth forecasts of 3.9% over the decade ahead, we see modestly stronger revenue-generation runways in wealth management advisory fees, deposit- and lending-related fees, and investment banking fees.

For wealth management advisory fees, we forecast average assets under advisory to grow at an annualized rate of 5.5%, driven exclusively by market appreciation, as we forecast average net new asset flows to be negative over the next decade and modest fee compression, culminating in investment advisory revenue growth of 5.0%.

Turning to lending and deposit-related fees, we forecast growth at an annualized rate of 4.7% over the next 10 years, driven exclusively by increased lending and deposit-gathering activity after the lifting of the asset cap and new risk weights in the Basel III re-proposal, as we forecast net fee yields for each to compress across each segment.

Within the corporate & investment banking segment, we believe investment banking revenue should hold up relatively well given the improved external environment, married with Wells Fargo’s deep network of corporate client relationships that yield consistent deal flow. To that tune, we believe Wells Fargo will be able to gain slight market share in advisory and debt capital markets, while we forecast slight market share loss in equity capital markets, as we believe the breadth of the trading desk makes it less competitive than traditional bulge bracket competitors in landing large equity capital markets deals. Despite significant capital deployment toward scaling its trading operation to more closely resemble its money center peers, we ultimately view the firm's lack of global reach as prohibitive and unlikely to surpass incumbants, in addition to the belief that trading revenue is nearing cyclical highs for the industry and should experience a material correction in 2028, leading us to forecast a mere annualized growth rate of 2.0% over the next decade.

Regarding the balance sheet, we view Wells Fargo as relatively insulated, even in a rate-cutting cycle we forecast to resume in 2027, as the headwinds of rate cuts should be more than offset by balance sheet growth, forecasting net interest income growth of 5.5% and 9.8% in 2026 and 2027, respectively. Updated risk weights from the Basel III Endgame re-proposal, particularly within residential real estate, should enable Wells Fargo to support its lending portfolio with slightly less common equity Tier 1 capital, improving the bank’s return profile.

Finally, expenses have been another vital point of interest with Wells Fargo, particularly as one-time costs associated with severance, fines, and consent orders should not persist. This ultimately leads us to believe that expense growth will remain manageable, projecting a 1.8% average annual noninterest expense growth over the next 10 years. Married with our solid revenue growth outlook, this cost discipline drives our expectation for Wells Fargo to achieve a 58.1% long-term efficiency ratio, in line with its moaty bank competitors, despite operating with a significantly higher mix of investment banking and wealth management.

We assign Wells Fargo a Morningstar Economic Moat Rating of wide, based on durable cost advantages and switching costs across its consumer, commercial, and corporate & investment banking franchises, alongside switching costs in wealth management. Average returns on tangible common equity, or ROTCE, of 12.3%, relative to our 8.9% estimate cost of equity, over the past decade corroborate our view, despite being weighed down by the industry's first-ever asset cap, which barred Wells Fargo from growing its balance sheet above $1.95 trillion from 2018 until the restriction was lifted in mid-2025. We estimate the cap cost roughly $394 billion of foregone deposit growth and suppressed 2025 net income by about one-third, a drag that will fade as the balance sheet reaccelerates. As a result, we forecast average ROTCE expanding to 14.6% over the next decade.

Wells Fargo exercises cost advantages via both funding costs and operating efficiency. The firm’s funding cost advantage is exhibited by a deposit beta among the best in our coverage during the last rate-hiking cycle. Business mix makes traditional efficiency-ratio comparisons imperfect, as wealth management, investment banking, and institutional trading generate 29.5% of net revenue, versus 10.2% for our regional coverage, but after controlling for mix and one-time regulatory fines, we estimate the 2023-25 efficiency ratio would have averaged 59.8%, edging our moaty regional average. Further, Wells Fargo carries a meaningfully lower GSIB surcharge than money-center banks, translating to common equity Tier 1 requirements 1.5 to 3.0 percentage points lower than Bank of America, Citigroup, and JP Morgan, with a net result of 170 to 370 basis points of incremental ROTCE.

The consumer banking and lending segment gathers roughly 58% of consolidated deposits, versus 34% of loans, funding higher-yielding lending and securities elsewhere in the franchise. Competition for primary banking relationships is driven more by service quality—fraud prevention, app functionality, branch/ATM proximity—than by yield, and Wells Fargo's low deposit beta through the last rate-hiking cycle implies a primacy rate comparable to or better than the 80% and 92% rates reported by money-center peers JPMorgan and Bank of America, respectively. Wells Fargo has been meticulous about branch density: market share within a metro area typically moves roughly in tandem with deposit share until a high-single-digit threshold, after which deposit growth turns exponential relative to branch growth, driving positive operating leverage, and the firm's $349 million in deposits per branch, 26% above our coverage average, reflects this dynamic. On switching costs, just 7% of US banking customers switch primary providers annually, implying a roughly 14-year customer life industrywide, with money-center peer retention rates in the mid- to high-90s—dynamics we believe extend to Wells Fargo given its comparable primacy positioning.

The wealth and investment management segment holds $1.13 trillion in assets under management and $1.38 trillion in brokerage client assets. Wealth management carries structural, dual-sided switching costs: advisors are reluctant to move because roughly 19% of client assets don't follow them to a new firm (Cerulli Associates), while clients build deep, trust-based relationships with advisors who guide them through market volatility and major life events—retirement, divorce, a business sale, an inheritance—and craft personalized plans around bespoke risk and income needs that make advisor performance particularly difficult to benchmark. Relationship pricing across the consolidated platform helps offset a structural headwind: net new asset flows have averaged a negative 2.0% annually amid elevated advisor attrition toward the independent registered independent advisor, or RIA, channel, a dynamic we believe will persist, yet the segment still generated an 18.4% ROTCE over the trailing seven years.

The commercial banking and corporate & investment banking segments pair a hub-and-spoke middle-market franchise with a top-10 investment bank now rebuilding post-asset-cap scale, with commercial relationships feeding investment banking deal flow. Cost advantages stem from shared digital infrastructure fractionalized across roughly 60 million consumer and small-business customers and a $224 billion commercial loan book, including a shared AI platform (Fargo), enabling the commercial segment to generate ROTCE that exceeds its cost of equity by 450 basis points. Switching costs differ by client size, with middle-market clients facing workflow lock-in from proprietary portals or data feeds embedded in treasury operations and loss of a data-backed credit history if they leave, while large corporates face data degradation from bank-specific reconciliation nomenclature and lose the benefits of multicurrency notional pooling and intraday sweeping that only a single-bank ecosystem can provide. Altogether, the firm boasts average commercial relationships of 20 years, or effectively a 95% annual retention rate. The institutional trading business is not moatworthy in isolation, but it provides product and service options that bolster the commercial and investment banking franchises. Acknowledging the synergies of the business lines, the firm poached over 100 senior bankers in preparation for growing the trading desk following the official lifting of the asset cap, enabling ascension to eighth in the global league tables.

Taken together, we view Wells Fargo as a wide-moat franchise with durable cost advantages from lower funding costs, a lighter GSIB surcharge, and fractionalized fixed costs, and switching costs across its consumer, commercial, and wealth management segments. The consolidated ecosystem, now unshackled from the asset cap, positions the firm to convert a decade of suppressed returns into a multiyear acceleration toward our 14.6% forecast ROTCE.

The new Basel III re-proposal lowers the risk-weighting for residential mortgage lending, which positions Wells Fargo to regain significant market share.

The resulting reputational enhancement after lifted consent orders and asset cap removal may enable advisor retention and net new asset growth in line with peers, enabling strong uplift to fee-based income.

Vantage adoption rates that surprise to the upside for commercial clients could lead to it becoming the default choice for middle-market treasurers, granting further access to operational cash and high-margin fee revenue.

The continued push toward Fargo for mass affluent clients could decrease migration toward traditional and more lucrative wealth advisors.

Increased proliferation of fintech platforms that pay higher yields on deposits could bring up funding costs for all banks even higher than we forecast.

A “hard landing” scenario for CRE office could lead to elevated net charge-offs as bridge loans mature over the next couple years.