Wells Fargo Unshackled: Asset Cap Removal Fuels Strategic Growth Amid Lingering Risks

What happened

Wells Fargo has regained balance sheet flexibility after the Federal Reserve removed its asset cap in June 2025, enabling normal competition in deposits, lending, and capital markets. The bank is now targeting higher returns through disciplined growth, including expansion into options clearing to bolster fee income and institutional ties. DeepValue's report notes WFC's strong capital position with CET1 at 11.13% and efficiency initiatives supporting ROE improvement, but it also flags persistent NII compression from deposit mix and credit normalization. Despite these challenges, the stock trades at a discount on P/B (~1.6x) versus top-tier peers, offering re-rating potential if execution holds. Regulatory uncertainties, such as Basel III Endgame calibration, remain key watch items that could temper upside.

Implication

The asset cap removal reduces regulatory drag, allowing Wells Fargo to pursue balance sheet growth and potentially accelerate earnings recovery. Expansion into options clearing strengthens the fee income buffer against NII pressures, aligning with the report's emphasis on diversification. Strong capital levels provide downside protection and support for continued capital returns, enhancing shareholder value. However, investors must watch for sustained NII compression without fee offsets, credit deterioration in areas like CRE, and adverse regulatory outcomes that could constrain returns. Valuation discounts offer upside if WFC executes on efficiency and growth, but missteps could delay re-rating and expose the stock to volatility.

Thesis delta

The new article highlights options clearing as a strategic addition, reinforcing the report's focus on fee resilience and growth post-asset cap removal. This move could modestly enhance the growth trajectory by diversifying revenue streams, but it does not fundamentally shift the core thesis of favorable risk/reward with regulatory easing. Execution on this initiative must be monitored alongside existing risks to maintain the BUY stance.