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Wells Fargo Boosts Key Profitability Metric as Asset Cap Removed
stock :: 2025-10-14 :: source - bloomberg
By Yizhu Wang
(Bloomberg) -- Wells Fargo & Co. raised a key profitability metric, giving its first major update about the bank’s next growth target after the removal of regulatory restraints it had operated under for more than seven years.
The lender now aims to achieve return on tangible common equity of 17% to 18% in the medium term, an increase from its prior guidance of 15%, which the bank has reached. ROTCE measures how efficiently a bank can generate earnings available to shareholders, showing the pace of growth and at what cost.
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The projection comes as the San Francisco-based bank reported net interest income that slightly missed analysts’ estimates. NII — the difference between what the company earns on lending and pays for deposits — totaled $11.95 billion in the third quarter, compared with analysts’ expectations of $12.01 billion. The lender maintained its guidance of 2025 NII remaining steady from last year.
The ROTCE update, meanwhile, provided much-anticipated clarity on what to expect next as Wells Fargo enters a new phase of growth after the Federal Reserve removed an asset cap in June. The bank also plans to manage down its Common Equity Tier 1 ratio to 10% to 10.5% from 11% or higher in each of the past nine quarters as it continues to invest in growth.
The ROTCE question has been lingering among analysts since the second quarter, when Wells Fargo first achieved the 15% target. But company management, grilled by analysts, steered clear of “declaring victory” at the time, given that the achievement was based partly on one-time gains, Chief Executive Officer Charlie Scharf said on an earnings call in July.
“I’m excited about the continued progress we are making on our strategic priorities which is improving our financial performance,” Scharf said in a statement Tuesday. “I am more optimistic than ever about our path forward.”
Wells Fargo shares climbed 3.3% at 6:35 a.m. in early New York trading.
The target shows Wells Fargo’s earnings power as the fourth-largest US lender. JPMorgan Chase & Co. reported ROTCE of 21% in the second quarter, with a 17% target for the medium term. Bank of America Corp. generated 13.4% in ROTCE in the three months through June. Citigroup Inc posted 8.7% in the second quarter and is aiming for 10% to 11% next year.
Wells Fargo’s results come as the biggest US banks kick off earnings season, with JPMorgan, Citigroup and Goldman Sachs Group Inc. also reporting results Tuesday. Their financial performance offers a glimpse into the health of businesses and consumers amid mixed economic signals, including lingering recession fears tied to tariff uncertainty and a shift toward Fed rate cuts as the job market softens.
Also in the third quarter, Wells Fargo began seeing payoffs from the deal pipeline it’s built up. As Wall Street begins to benefit from the return of “animal spirits” that drove a $1 trillion-plus deal frenzy in the third quarter, Wells Fargo has been catching up with rivals in transaction advisory.
Investment-banking fees totaled $840 million, up 25% from a year earlier. That came after Wells Fargo scored major wins in some of the largest deals of the year, including co-advising Union Pacific Corp. on its $72 billion acquisition of rail rival Norfolk Southern Corp., a deal announced in July. As of the end of September, Wells Fargo ranked seventh in global deal advisement this year, leaping from 17th in the same period in 2024, according to data compiled by Bloomberg.
Noninterest income, also driven by credit cards and wealth management, totaled $9.49 billion, up 9.3% from a year earlier and topping analysts’ estimates of $9.09 billion. The increase comes as Wells Fargo reshapes its business mix to direct more of its balance sheet toward such businesses as investment banking, trading, cards and wealth management.
Wells Fargo hasn’t seen major signs of deterioration in consumer and commercial credit quality, Chief Financial Officer Mike Santomassimo said at an investor conference in early September. The bank charged off a total of $954 million of loans in the quarter, less than analysts’ expectations of $1.09 billion.
Scharf, 60, added the role of board chairman to his remit in July, with a $30 million award of restricted stock. Since taking the helm in 2019, Scharf has been cleaning up scandals at the firm, and the work led the Fed to lift a years-old cap on assets in June. Steven Black, who was chairman before Scharf, was named Wells Fargo’s lead independent director.
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