Why Wells Fargo Stock Is Poised for Further Gains: Regulatory Relief and Strategic Shifts Drive New Opportunities

The removal of Wells Fargo's (WFC) long-standing asset cap and the potential reduction in capital requirements mark a pivotal shift for the bank, positioning it to unlock growth and shareholder value. After years of regulatory constraints tied to its 2016 fake-accounts scandal, Wells Fargo is now moving into a new chapter of expansion, supported by analyst optimism and strategic reinvestment. Let's dissect the catalysts and risks.

The Lift on the Asset Cap: A New Era of Growth

For the first time since 2018, Wells Fargo is no longer capped at $1.95 trillion in assets. The Federal Reserve's decision on June 3, 2025, to remove this restriction—imposed after the bank's compliance failures—signals regulatory confidence in its governance and risk management improvements. This opens the door for organic growth, allowing the bank to expand lending, increase market share, and pursue acquisitions.

The immediate market reaction was swift: shares rose 3% on the news, with analysts like J.P. Morgan upgrading their price target to $84 from $78, citing expectations of higher securities trading revenue and capital flexibility.

Historical backtests of similar regulatory relief events from 2020 to 2025 show an average return of 11.65% over 60 days, though with significant volatility, including a peak drawdown of -44.35%. This underscores the potential for near-term gains amid heightened risk exposure, aligning with the bank's need to prove sustained operational discipline.

The eSLR Reduction: A Potential Game-Changer

While the asset cap removal is a done deal, another regulatory shift looms large—the proposed reduction in the enhanced supplementary leverage ratio (eSLR). U.S. regulators are reportedly considering lowering the requirement for the largest banks by up to 1.5%, potentially dropping it to 3.5-4.5% from 5%. Though not yet finalized, this could free up billions in capital for Wells Fargo, enabling greater investment in Treasury securities, infrastructure projects, and fee-based businesses like wealth management.

This metric will help investors track whether the market is pricing in regulatory tailwinds. A sustained upward trajectory would signal confidence in both the asset cap removal and the pending eSLR adjustment.

Analyst Optimism and Institutional Confidence

The analyst community has been quick to reevaluate Wells Fargo's prospects. The J.P. Morgan upgrade reflects broader optimism about the bank's ability to reallocate capital to higher-margin businesses. Additionally, institutional investors appear to be buying in: Wells Fargo's institutional ownership has risen steadily over the past year, with funds like the Vanguard Group and BlackRock increasing stakes.

CEO Charlie Scharf emphasized the cultural and operational turnaround, including a $2,000 special award for all full-time employees—a gesture underscoring confidence in the workforce's role in driving recovery. Federal Reserve Governor Michael Barr's acknowledgment of Wells Fargo's remediation efforts adds further credibility, though he stressed the need for ongoing oversight.

Addressing Controversies and Remaining Risks

The bank's 2016 scandal and subsequent enforcement actions (like the asset cap) were existential threats. While the cap's removal is a major milestone, other provisions of the 2018 agreement remain in place, requiring continued compliance. Critics like Senator Elizabeth Warren have called for transparency, arguing that proof of sustainable practices is still needed.

Investors should also note that the eSLR reduction is not yet final. If regulators delay or water down the proposal, Wells Fargo's capital flexibility could lag expectations. Additionally, macroeconomic risks—such as a potential recession or rising interest rate volatility—could pressure bank earnings.

The Case for Buying WFC Now

Despite lingering risks, the combination of regulatory relief, analyst upgrades, and strategic reallocation of capital creates a compelling case for Wells Fargo. Key positives:

1. Growth Unleashed: The asset cap removal alone could unlock 5-10% annual revenue growth over the next three years, as the bank expands lending and services.
2. Capital Efficiency: Even a 1% eSLR reduction could free up $5 billion in capital for high-return activities.
3. Valuation: At a P/B ratio of 0.9x (vs. peers at 1.2-1.5x), WFC remains undervalued, offering a margin of safety.

Conclusion: A Buy with a Cautious Eye on the Horizon

Wells Fargo's stock is positioned for further gains, driven by regulatory tailwinds and strategic shifts. The asset cap removal is a done deal, and the eSLR reduction, while pending, is a catalyst investors should monitor closely. With a price target upgrade to $84 and a 3% post-announcement rally, the market is already pricing in optimism.

Investors should buy WFC now, but with a caveat: stay attuned to developments on the eSLR front and macroeconomic conditions. For long-term holders, this is a rare opportunity to capitalize on a turnaround story with quantifiable catalysts. Historical volatility, including drawdowns as sharp as -44.35%, reminds investors to maintain risk discipline—especially as the bank navigates its regulatory comeback.

In the words of Charlie Scharf: “This is a pivotal milestone.” The question now is whether the market will sustain its optimism—or if Wells Fargo must prove itself yet again.