Wells Fargo's 2025 Catalyst: A Key Reason to Own the Stock

Wells Fargo (WFC) has been a subject of interest for analysts and investors alike, with one analyst at Bank of America (BofA) recently highlighting a key catalyst for the bank early next year. This catalyst is a significant reason why we continue to own the stock, as it aligns with our core investment values and positions Wells Fargo for growth. This article explores the catalyst, its impact on Wells Fargo's financial performance, and its alignment with broader macroeconomic trends.



The catalyst for Wells Fargo, as identified by the BofA analyst, is the anticipated lifting of the asset cap imposed by the Federal Reserve in 2018 following Wells Fargo's sales practices scandal. The analyst expects the cap to be lifted in early 2025, which could unlock significant growth opportunities for the bank. This catalyst is a crucial factor in our continued ownership of the stock, as it ties into Wells Fargo's strategic initiatives and business model.

Wells Fargo has been focusing on diversifying its revenue sources and reducing its reliance on net interest income. The bank has been investing in fee-based businesses, such as wealth management and investment banking, to offset headwinds in net interest income. This strategic shift aligns with the anticipated catalyst, as the lifting of the asset cap would enable Wells Fargo to grow its business more aggressively and tap into new revenue streams.

The catalyst is expected to have a significant positive impact on Wells Fargo's financial performance and stock price. The analyst forecasts earnings per share (EPS) growth of 8.1% per annum and a return on equity (ROE) of 11.4% in three years. This growth is anticipated to be driven by a broad early-cycle global recovery later in 2024, as the economy recovers and the Fed begins to cut interest rates. This should benefit equity sectors tied closely to the economy's cyclical turn higher, including Wells Fargo.



The catalyst for Wells Fargo aligns with broader macroeconomic trends and industry dynamics. The analyst expects a key catalyst for Wells Fargo early next year, which is a significant reason for their continued ownership of the stock. This catalyst likely relates to the anticipated pivot in the economy and markets, as outlined in Wells Fargo Investment Institute's 2024 Midyear Outlook. The report highlights five key points that will likely chart the market's path forward over the next 18 months, including a slowing U.S. economy, declining inflation, and a potential recovery in earnings growth. The catalyst for Wells Fargo may be tied to this expected recovery, as the bank's earnings profile has become more diverse and fee-based, largely offsetting net interest income headwinds.

In conclusion, the anticipated catalyst for Wells Fargo in early 2025 is a key reason why we continue to own the stock. The lifting of the asset cap could unlock significant growth opportunities for the bank, driving earnings and revenue growth and enhancing the stock's valuation. This catalyst aligns with Wells Fargo's strategic initiatives and business model, as well as broader macroeconomic trends and industry dynamics. As the economy recovers and the Fed begins to cut interest rates, Wells Fargo is well-positioned to capitalize on the anticipated catalyst and deliver strong financial performance.