The Federal Reserve opted to keep interest rates steady, following the conclusion of its two-day Federal Open Market Committee meeting yesterday, given the rising risks of inflation and unemployment because of heightened economic uncertainty on the back of Trump's tariff plan. The resulting higher-for-longer interest rate backdrop can pose new challenges for banks like Wells Fargo & Company WFC.
For Wells Fargo, the unchanged rates may not offer the relief many investors had expected. Given mounting concerns, let us try to decipher whether the WFC stock is worth holding on to in the current scenario.
Wells Fargo & Fed Rates
Last year, the Federal Reserve lowered the interest rates by 100 basis points but has kept them steady since then. Wells Fargo's net interest income (NII) and net interest margin (NIM) have been subdued by the increased funding costs as the high-interest rate environment weighed on it, as evident by declines in NII and NIM in the first quarter of 2025.
With no change in interest rates for now, WFC will likely face extended periods of elevated funding costs. As economic growth is likely to be subdued, the lending scenario is not expected to improve much in 2025 from 2024. With interest rates remaining high for long, the operating backdrop for WFC will likely be challenging. Weak asset quality will continue to be a major headwind this year, as borrowers may find it difficult to repay loans.
Hence, Wells Fargo may witness modest growth in the near term. Management expects the 2025 NII to be 1-3% higher than that reported in 2024.
Other Factors Aiding WFC
Progress to Fix Compliance Issues: Under the leadership of CEO Charlie Scharf, Wells Fargo is strengthening its compliance framework. The bank's improved risk management techniques have received regulatory approval, with progress closely monitored by its operating committee.
The company has managed to close six regulatory actions this year and 12 since 2019. This demonstrates that strengthening risk management and compliance infrastructure continues to be the mainstay of WFC’s operational strategy.
Wells Fargo is operating under an asset cap of $1.95 trillion imposed in 2018 following the revelation of its fake account scandal. In March, Reuters reported that investors and analysts are more hopeful that the asset cap will be lifted later this year following the bank's progress in resolving multiple consent orders.
Because of the asset cap, the company is unable to grow to its potential. This is affecting its loan growth. Given that loans are among the largest assets a bank can hold, lifting the asset cap will mark a turning point for Wells Fargo.
Growth Initiatives to Drive Cost Efficiency: WFC has been making progress on various initiatives to achieve cost efficiency. The company is actively engaged in cost-cutting measures, including streamlining organizational structure, branch closure and headcount reductions.
WFC keeps investing in and optimizing its branch network. It is being more deliberate about branch location strategy, as the number of branches declined 2% year over year to 4,155 in the first quarter of 2025.
As part of its attempts to improve the branch experience, the company is investing more in branch staff and upgrading technology. One such improvement is a new digital account opening process that has proven beneficial for bankers and consumers alike. Management is keen on updating its branches. It has already upgraded 730 of them in 2024. WFC plans to update all branches in the next five years.
Management expects $2.4 billion of gross expense reductions in 2025, driven by efficiency initiatives.
Impressive Capital Distribution: As of March 31, 2025, Wells Fargo’s long-term debt was $173.6 billion and short-term borrowings were $139.8 billion. The company has a strong liquidity position, with a liquidity coverage ratio of 125% as of March 31, 2025, which has exceeded the regulatory minimum of 100%. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $177.6 billion as of the same date.
Hence, WFC rewards shareholders handsomely. In July 2024, the company announced a dividend hike of 14% to 40 cents per share from its prior payout. In the past five years, Wells Fargo has raised its dividend six times. It currently has a dividend yield of 2.18%.
Similarly, its peer Bank of America BAC has raised its dividends four times in the last five years. It has a dividend yield of 2.55%. Citigroup C has raised its dividends twice in the last five years. It has a dividend yield of 3.22%.
Coming back to WFC, it also has a share repurchase program in place. In April 2025, the company’s board of directors authorized a common stock repurchase program of up to $40 billion to take effect upon the completion of the current repurchase program. Earlier, in July 2023, its board of directors authorized a share repurchase program worth $30 billion. As of March 31, 2025, the company had remaining board authority to repurchase up to $3.8 billion of common stock.
Over the past month, WFC shares gained 10.3% compared with the industry’s rise of 8.2%. Wells Fargo’s peer Citigroup has grown 10.4% and Bank of America has risen 10.2% over the same time frame.
Price Performance
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From a valuation standpoint, Wells Fargo appears somewhat inexpensive relative to the industry. The company is currently trading at a discount with a forward 12-month price/earnings (P/E) multiple of 11.96X, below the industry average of 12.79X. Bank of America and Citigroup are trading at a forward P/E multiple of 10.57X and 8.83X, respectively.
Price-to-Earnings F12M
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How to Play WFC Stock With Interest Rates on Hold
As the interest rates are less likely to come down substantially in the near term, it is expected to hurt Wells Fargo’s credit quality and loan growth. This will hurt the company’s NII growth.
Nonetheless, WFC’s progress in fixing compliance problems will help lift the asset cap, allowing it to offer loans without restrictions and support the top-line expansion. Its progress on efficiency initiatives will support cost reduction.
Given the favorable factors, the company’s earnings and revenues are expected to register growth in the upcoming period. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
Earnings Estimates
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Sales Estimates
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Hence, given strong fundamentals, the WFC stock is worth holding for now to generate a solid long-term return.
Wells Fargo currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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