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Wells Fargo (WFC) Rides on Cost Control Amid Lower Loan Growth
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Wells Fargo & Company (WFC - Free Report) is well-poised to capitalize on its cost-controlling initiatives, rising deposit balance and strong capital position, which are likely to keep aiding its financials in the upcoming quarters. However, declining revenues, lower loan balances and concerns about mortgage banking income remain major challenges for the bank.
Through measures like streamlining organizational structure, closing branches and reducing headcount undertaken from the third quarter of 2020, WFC has managed its expenses prudently, aiding its financials. Non-interest expenses witnessed a negative compound annual growth rate (CAGR) of 1.1% over the last four years (ended 2023). However, the expenses saw an upward trend in the first half of 2024, primarily due to higher operating losses and an increase in revenue-related compensation. These were partially offset by the positive impact of efficiency initiatives. The company expects to carry on with these initiatives in 2024, which is expected to keep supporting its bottom-line growth.
Wells Fargo continues to grow its deposit base evidenced by its three-year (ended 2023) CAGR of 1.1%. Although total deposits declined in the first six months of 2024, mainly due to customers allocating cash to higher-yielding alternatives, a large base of retail clients will likely support the deposit balance in the upcoming period.
The company has an impressive capital distribution plan. In July 2024, the company announced that it is set to increase its dividend by 14.3% to 40 cents per share beginning the third quarter of 2024. The company also has a share repurchase program in place. In July 2023, the company’s board of directors authorized a new share repurchase program worth $30 billion. In the second quarter of 2024, WFC repurchased 100.5 million shares for $6.1 billion.
As of Jun 30, 2024, Wells Fargo’s total debt was $298 billion while its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $232 billion. As of the same date, WFC’s liquidity coverage ratio was 124%, which exceeds its regulatory minimum of 100%. Thus, given the company’s decent liquidity profile, its capital deployment activities seem sustainable and will drive investors’ confidence in the stock.
Wells Fargo currently carries a Zacks Rank #3 (Hold). Over the past six months, shares of WFC have gained 23.1% compared with the industry's growth of 20.8%.
Image Source: Zacks Investment Research
Despite the above-mentioned tailwinds, WFC’s revenue growth has become challenging. Revenues witnessed a negative CAGR of 1.2% over the last four years (2019-2023). The metric witnessed a marginal increase in the first half of 2024 on the back of rising fee-based income, while NII declined because of high funding costs. As the Federal Reserve has signaled rate cuts later this year, it will likely lead the funding costs to stabilize. Yet, NII is not expected to improve much as the loan demand remains decent. The company is trying to increase fee-based income sources, but it will take some time to reflect in its financials. Hence, the top-line growth is less likely to improve in the quarters ahead.
Also, the bank’s loan balance is not likely to improve much as Wells Fargo still has an asset cap in place, which will remain until it fully complies with regulators' demands regarding compliance and operational risk management. Although loans increased in 2022, the bank registered a decline in loans over the past few years on planned run-off from non-strategic/liquidating portfolios.
Wells Fargo’s mortgage banking income, which comprised activities like residential and commercial mortgage originations, sales and servicing, saw a four-year (ended 2023) negative CAGR of 25.7%. Although the metric witnessed an uptick in the first six months of 2024, driven by a modest rise in refinancing activities, the same is expected to remain muted in the near term as mortgage rates are still relatively high.
JPMorgan currently carries a Zacks Rank #2 (Buy). Its earnings estimates for 2024 have been revised 1.1% upward over the past 30 days. In the past six months, JPM’s shares have rallied 23.9%.
The Zacks Consensus Estimate for Bank of America’s current-year earnings has been revised marginally upward over the past seven days. Its shares have gained 23% in the past six months. Currently, BAC also carries a Zacks Rank #2.
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Wells Fargo (WFC) Rides on Cost Control Amid Lower Loan Growth
Wells Fargo & Company (WFC - Free Report) is well-poised to capitalize on its cost-controlling initiatives, rising deposit balance and strong capital position, which are likely to keep aiding its financials in the upcoming quarters. However, declining revenues, lower loan balances and concerns about mortgage banking income remain major challenges for the bank.
Through measures like streamlining organizational structure, closing branches and reducing headcount undertaken from the third quarter of 2020, WFC has managed its expenses prudently, aiding its financials. Non-interest expenses witnessed a negative compound annual growth rate (CAGR) of 1.1% over the last four years (ended 2023). However, the expenses saw an upward trend in the first half of 2024, primarily due to higher operating losses and an increase in revenue-related compensation. These were partially offset by the positive impact of efficiency initiatives. The company expects to carry on with these initiatives in 2024, which is expected to keep supporting its bottom-line growth.
Wells Fargo continues to grow its deposit base evidenced by its three-year (ended 2023) CAGR of 1.1%. Although total deposits declined in the first six months of 2024, mainly due to customers allocating cash to higher-yielding alternatives, a large base of retail clients will likely support the deposit balance in the upcoming period.
The company has an impressive capital distribution plan. In July 2024, the company announced that it is set to increase its dividend by 14.3% to 40 cents per share beginning the third quarter of 2024. The company also has a share repurchase program in place. In July 2023, the company’s board of directors authorized a new share repurchase program worth $30 billion. In the second quarter of 2024, WFC repurchased 100.5 million shares for $6.1 billion.
As of Jun 30, 2024, Wells Fargo’s total debt was $298 billion while its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $232 billion. As of the same date, WFC’s liquidity coverage ratio was 124%, which exceeds its regulatory minimum of 100%. Thus, given the company’s decent liquidity profile, its capital deployment activities seem sustainable and will drive investors’ confidence in the stock.
Wells Fargo currently carries a Zacks Rank #3 (Hold). Over the past six months, shares of WFC have gained 23.1% compared with the industry's growth of 20.8%.
Image Source: Zacks Investment Research
Despite the above-mentioned tailwinds, WFC’s revenue growth has become challenging. Revenues witnessed a negative CAGR of 1.2% over the last four years (2019-2023). The metric witnessed a marginal increase in the first half of 2024 on the back of rising fee-based income, while NII declined because of high funding costs. As the Federal Reserve has signaled rate cuts later this year, it will likely lead the funding costs to stabilize. Yet, NII is not expected to improve much as the loan demand remains decent. The company is trying to increase fee-based income sources, but it will take some time to reflect in its financials. Hence, the top-line growth is less likely to improve in the quarters ahead.
Also, the bank’s loan balance is not likely to improve much as Wells Fargo still has an asset cap in place, which will remain until it fully complies with regulators' demands regarding compliance and operational risk management. Although loans increased in 2022, the bank registered a decline in loans over the past few years on planned run-off from non-strategic/liquidating portfolios.
Wells Fargo’s mortgage banking income, which comprised activities like residential and commercial mortgage originations, sales and servicing, saw a four-year (ended 2023) negative CAGR of 25.7%. Although the metric witnessed an uptick in the first six months of 2024, driven by a modest rise in refinancing activities, the same is expected to remain muted in the near term as mortgage rates are still relatively high.
Bank Stocks Worth a Look
Some better-ranked stocks from the finance space are JPMorgan Chase & Co. (JPM - Free Report) and Bank of America Corporation (BAC - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
JPMorgan currently carries a Zacks Rank #2 (Buy). Its earnings estimates for 2024 have been revised 1.1% upward over the past 30 days. In the past six months, JPM’s shares have rallied 23.9%.
The Zacks Consensus Estimate for Bank of America’s current-year earnings has been revised marginally upward over the past seven days. Its shares have gained 23% in the past six months. Currently, BAC also carries a Zacks Rank #2.