Comparing Citigroup and Wells Fargo: Which Bank Has More Upside After Fed Rate Cut?

Citigroup (C) and Wells Fargo (WFC) are influenced by the Federal Reserve's interest rate trajectory. A lower-rate environment typically boosts loan demand but can also squeeze the net interest margin. Both banks have different opportunities and strategies to unlock growth. Citigroup has been focusing on leaner operations and exiting consumer banking businesses in some markets. Wells Fargo expects NII to remain stable in 2025, while Citigroup's NII is projected to rise 4% YoY. The Fed's easing cycle and two more rate cuts by the end of 2025 are expected to support NII growth and boost borrowing, driving higher deal volumes and trading opportunities.

The Federal Reserve's recent interest rate cuts have significant implications for major banks like Citigroup (C) and Wells Fargo (WFC). Both institutions are positioned to benefit from a lower-rate environment, which typically boosts loan demand and supports net interest income (NII) growth. However, their strategies to unlock growth and adapt to the changing interest rate landscape differ.

Impact of Lower Rates on NII

The Fed's easing cycle, which includes two more rate cuts by the end of 2025, will support NII growth for both banks. Lower rates will ease funding pressure and improve the lending backdrop, offsetting any compression in yields on loans and securities. This environment will drive higher refinancing volumes and trading opportunities, benefiting the investment banking and trading businesses of both companies.

Citigroup's Strategic Approach

Citigroup has been focusing on leaner operations and strategic exits from consumer banking businesses in certain markets. The company has exited consumer banking operations in nine countries since April 2021 and is continuing to wind down operations in Korea and Russia. These moves aim to free up capital for investments in wealth management and investment banking, which are expected to stoke fee income growth.

Wells Fargo's Growth Strategy

Wells Fargo is prioritizing the enhancement of its risk management and compliance infrastructure under the leadership of CEO Charlie Scharf. The bank has streamlined operations, exited 13 businesses, and saved $12 billion in costs, which are being reinvested into core areas. Wells Fargo is also aiming to grow its market share in consumer and commercial lending, making it more competitive and adaptable to changing market demands.

Expense Management and Cost Efficiency

Both banks are adapting to rising expenses, shifting customer preferences, and ongoing digital disruption. Citigroup, under CEO Jane Fraser, is undergoing a full-fledged transformation, simplifying reporting structures, reducing headcounts, and streamlining operations. Wells Fargo, alternatively, is taking a more balanced approach, investing in its branch network and upgrading digital tools while reducing headcounts.

Stock Performance and Valuation

In the past year, Wells Fargo shares have gained 50.9%, while Citigroup's stock has surged 65.1%. Both stocks are trading at a discount compared to the industry's trailing 12-month P/E ratio of 15.1X, with Citigroup's stock being cheaper than Wells Fargo's. Additionally, Citigroup has a higher dividend yield of 2.35% compared to Wells Fargo's 2.14%.

Estimates and Upside Potential

The Zacks Consensus Estimate for Citigroup's 2025 EPS implies a 27.3% year-over-year increase, outpacing Wells Fargo's 12.5% growth. This robust EPS growth estimate suggests that Citigroup may offer stronger upside potential, leveraging lower rates, cost efficiencies, and strategic initiatives.

Conclusion

Both Citigroup and Wells Fargo stand to benefit from the Fed's easing cycle, but Citigroup appears to have a stronger upside potential due to its strategic focus on high-growth areas and cost efficiencies. As the Fed continues to ease rates, investors should closely monitor the performance of these two major banks to capitalize on the opportunities presented by the changing interest rate environment.

References

C vs. WFC: Which Stock Has More Upside Post Rate Cut Rally?^[1] https://www.tradingview.com/news/zacks:9dfd4448c094b:0-c-vs-wfc-which-stock-has-more-upside-post-rate-cut-rally/
ST Germain D J Co. Inc. Increases Stock Position in Wells Fargo & Company $WFC^[2] https://www.marketbeat.com/instant-alerts/filing-st-germain-d-j-co-inc-increases-stock-position-in-wells-fargo-company-wfc-2025-09-26/