Wells Fargo Q1 Preview: Credit Risks in Focus as Asset Cap Progress and NII Outlook Take Center Stage

Wells Fargo (WFC) is set to report first-quarter earnings Friday morning amid rising investor concern about economic deceleration, inflation uncertainty, and potential credit deterioration. For the banks, these pressures translate into increased scrutiny on net charge-offs (NCOs), reserve builds, and the trajectory of loan growth—core themes likely to dominate WFC's results and conference call. Unlike peers with significant trading and investment banking operations, Wells Fargo is more of a pure-play on traditional banking, making it more exposed to interest rate dynamics and consumer and commercial credit trends. An additional layer of intrigue is the bank’s long-standing $1.95 trillion asset cap imposed by the Federal Reserve. Any sign that regulators may lift or ease this cap would be viewed as a material positive for the stock.

Investor positioning has become more cautious ahead of earnings, and for good reason. The consensus calls for earnings of $1.25 per share on revenue of $21 billion, both only modestly ahead of year-ago figures. Forecasts have drifted slightly lower over the past month, reflecting greater market apprehension. Management's most recent update, delivered at the Bank of America conference in February, struck a cautiously optimistic tone. CFO Mike Santomassimo guided for stable NII in the first half of 2025 with growth likely in the back half of the year. He also noted early signs of share gains in commercial banking and highlighted “hockey stick” growth in FX trading as a potential bright spot.

Expenses are expected to remain around $54.2 billion for the full year, with management under pressure to prove that operating efficiency remains a priority. Personnel and regulatory compliance costs have been headwinds in prior quarters, so any positive commentary around cost discipline or operational leverage will be well received. Meanwhile, WFC’s recent upgrades from Piper Sandler and RBC Capital—both citing regulatory progress, improved execution, and a favorable valuation reset—suggest investor sentiment has started to shift. The fact that Wells has closed 11 consent orders since 2019 (five in the past year alone) underscores meaningful traction on long-term risk management initiatives.

That said, not all macro headwinds are easing. Interest rate volatility, in particular, poses risk to WFC's net interest margin, and could disrupt deposit and loan pricing strategies. Additionally, while credit quality has held up, investors will be closely monitoring NCOs across vulnerable categories such as autos, cards, and commercial real estate. In that regard, Wells Fargo’s more measured balance sheet growth—constrained by the asset cap—may actually prove defensive in the event of further credit normalization.

On the capital markets front, Wells is less reliant on investment banking fees, but still exposed to the broader slowdown in equity and debt issuance. While there’s potential for M&A activity to pick up under a more pro-business regulatory regime, current tariff-related uncertainty and choppy markets are likely to keep activity muted for now. Any commentary about pipeline strength or changing sentiment in boardrooms will be watched carefully.

Wells Fargo delivered a strong fourth-quarter earnings report that was well-received by the market, with the stock jumping more than 7% on the day of the release—significantly outperforming its financial peers. The bank posted Q4 EPS of $1.43, beating estimates of $1.35, alongside a net interest income (NII) figure of $11.84 billion, which exceeded expectations. While total revenue of $20.38 billion came in just below the $20.59 billion consensus, strong performance across its core lending and investment banking divisions helped bolster investor confidence. Guidance for 2025 was upbeat, with management forecasting 1% to 3% growth in NII year over year—well ahead of consensus, which had anticipated a slight decline. Return on equity (11.7%) and return on tangible common equity (13.9%) also came in above expectations, while credit performance and capital returns ($25 billion in 2024) further underpinned the bullish sentiment.

Analysts at Raymond James reiterated their Strong Buy rating following the results, raising their price target from $72 to $88. They cited the better-than-expected NII guide and only modestly higher expense outlook as reasons to increase their 2025 EPS estimate by 5%. Commentary from management struck a cautiously optimistic tone: the CEO emphasized steady progress toward return-on-tangible-common-equity goals, while the CFO noted stable credit trends and anticipated stronger NII growth in the second half of 2025. However, risks around expenses remain, with Q4 non-interest expenses of $13.9 billion exceeding forecasts due to higher personnel costs. Still, the broader narrative remains constructive, with improving profitability metrics, regulatory tailwinds (e.g., potential consent order removals), and investment in areas like cybersecurity and corporate hiring positioning Wells Fargo well for 2025.

In sum, Friday’s report isn’t just a read on the last three months—it’s a referendum on Wells Fargo’s ability to navigate a murky macro backdrop with discipline, while positioning for eventual growth. With investor focus split between short-term credit risks and long-term structural tailwinds like regulatory relief, WFC’s tone on the call could matter as much as the numbers themselves. Given the bank’s cleaner balance sheet, progress on consent orders, and room for margin expansion, the bar is high—but so is the potential if execution continues to improve.