What Next For Wells Fargo Following Strong Q4

Wells Fargo’s stock (NYSE: WFC) posted a better-than-expected set of Q4 2024 results with its stock rising by about 5% in Wednesday’s trading.  Net income rose about 47% compared to last year to $5.1 billion, or $1.43 per share, up from $3.45 billion in the year-ago quarter while revenue came in at $20.4 billion. Earnings growth was driven largely by stronger deal-making activity, which helped investment banking fees jump 59% year-over-year to $725 million. Increasing confidence about the economic outlook has prompted companies to raise equity and debt, while mergers and acquisitions activity has also picked up from decade lows seen in 2023. However, net interest income for the quarter saw a decline, falling by 7% to $11.8 billion, due to lower interest income from floating rate assets as well as lower loan balances. The bank’s home loan business – which is one of its largest – also had a mixed performance over the quarter as mortgage rates remained relatively high.

The broader banking space in the U.S. has been faring well this earnings season led by rising stock markets which helped trading activity, stronger dealmaking activity, and general positivity about the economy. Well’s Fargo’s rival JPMorgan just reported record annual profits for 2024, while Goldman Sachs has also seen profits pick up after witnessing a post-Covid lull.

The increase in WFC stock over the last 4-year period has been far from consistent, with annual returns being more volatile than the S&P 500. Returns for the stock were 61% in 2021, -12% in 2022, 23% in 2023, and 46% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is much less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. So what’s the outlook like for Wells Fargo stock?

Things are expected to get better still in 2025, with Wells Fargo guiding for net interest income growth of 1% to 3% in 2025 compared to 2024 led by an improvement in loan demand as well as lower costs for deposits. Separately, the election of Donald Trump to the U.S. presidency for a second term is also expected to benefit the financial sector at large. Investors are betting that the Trump administration’s focus on deregulation could translate into a more lenient approach to bank oversight versus the Biden administration, with antitrust-related rules also potentially easing. This could help banks boost their revenues, via higher deal volumes, and lending activity, as well as possibly lower compliance costs which could directly boost profitability. Trump has also been in favor of tax cuts, which could also help the bottom lines of banks such as Wells Fargo.  Overall, lower interest rates and more political certainty post-election could spur investment banking and M&A-related activity.  Wells Fargo, too, has indicated that it has a strong pipeline in its investment banking business for 2025.

Wells Fargo, in particular, could stand to benefit from the incoming administration if regulators ease the $1.95 trillion asset cap that was imposed upon the bank in 2018 following its fake account scandal. The cap had made the company scale back on lending and taking deposits, putting it well behind counterparts such as JPMorgan Chase, which now has over $4 trillion in assets. Following the scandal, Wells Fargo tweaked its strategy focusing on higher-return businesses as well as less capital-intensive businesses like investment banking. Easing the cap could help the company grow its balance sheet and earnings after years of being constrained. We value Wells Fargo stock at about $67 per share which is slightly below the current market price. See the Trefis’ estimate for Wells Fargo’s valuation

[1] Returns as of 1/16/2025
[2] Cumulative total returns since the end of 2016

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