Cramer calls Wells Fargo's asset-cap removal a 'watershed moment,' raises price target on the stock

CNBC

2 days ago

Wells Fargo is unshackled. That's according to Jim Cramer and Wall Street analysts, who are both forecasting more upside for the Club stock following the Federal Reserve's removal of the bank's $1.95 trillion asset cap Tuesday evening. The seven-year lid on Wells' balance sheet growth was precipitated by the bank's past misdeeds, such as its notorious fake accounts scandal in the 2010s. Bank of America and Morgan Stanley are among the Wall Street shops that became more optimistic Wells Fargo shares in response to the long-awaited development. Bank of America went to $90 a share from $83, while Morgan Stanley went to $87 from $77. Piper Sandler and Evercore ISI also upped their price targets. The Club is doing the same, hiking ours to $90 a share from $80. "I think this is a watershed moment" and a "pivotal milestone," Jim said Wednesday. With the nearly $2 trillion lid on its balance sheet gone, the bank can grow its deposit base further, invest more into high-growth lines of business and can lower costs that were previously poured into compliance and remediation efforts. On Wednesday, at least, the market reaction is somewhat subdued, with Wells Fargo shares up less than 1% to roughly $76 apiece. Investors had likely been pricing some of the good news, viewing the asset-cap removal as a "when, not if" event. Entering Wednesday's session, Wells Fargo's had significantly outperformed a group of banking peers since Election Day in November, as investors bet on an easier regulatory regime under President Donald Trump's second term. Wells Fargo also had numerous other scandal-related penalties lifted earlier this year. No matter the stock move Wednesday, Jim said investors need to remember that this is "a fundamental change" for the bank and CEO Charlie Scharf. The executive has wanted to "turbocharge" its growth, but he had "playing with shackles," Jim said. "The shackles are off." Wall Street analysts echoed similar sentiments. Bank of America, for example, described the event as a "positive catalyst, both fundamentally and for stock valuation." "We see potential for a new pool of investors who had been fatigued by the regulatory overhang to step-in given WFC's idiosyncratic growth story, room for efficiency gains in the consumer bank and potential for capital relief," the analysts, who reiterated their buy rating on the stock, wrote in a note to clients. Meanwhile, Morgan Stanley said the cap's removal will "spur a multi-year period of growth at Wells." Analysts cited more loan growth and an expansion into its capital markets business. "An unconstrained Wells will put balance sheet and capital to work in markets, supporting and financing client trading activity, driving higher markets-related NII and overall trading volumes," the analysts, who reiterated their buy-equivalent rating, said. WFC YTD mountain Wells Fargo (WFC) year-to-date performance All of this aligns with CEO Scharf's comments Wednesday in an exclusive interview with CNBC. The executive, who was hired in 2019 to clean up the bank, described the cap's removal as "hugely significant." He pointed to growth in customer deposits first and foremost because now the bank can expand its balance sheet. That's because by some estimates Wells Fargo has missed out on $400 billion worth of deposits over the past seven years due to the Fed-imposed regulatory punishment. It's more than just the deposit base, though, according to Scharf. "It's the ability to provide advice, provide investment services. If it's in corporate, it's the ability to help [clients] access public markets," he continued. "With the exception of the mortgage business, all have the opportunity to grow – both in terms of returns and in terms of rate of growth." Jim said Wells Fargo can also compete better among its Wall Street peers in the long run. "Before this cap, these banks were all kind of clustered. Since this cap, Wells has fallen so far behind," he said. "I think Charlie is going to go for JPMorgan, " Jim added, arguing that Wells Fargo can grab more share in businesses like commercial banking and credit cards. Asked specifically about going after JPMorgan, the CEO told Jim that Wells now has "the ability to compete differently moving forward," but "there's no one person we're targeting." Although none of these changes can happen overnight, management has been laying the groundwork for a turnaround in its businesses for years. Case in point: Wells Fargo has made a slew of senior level hires in its corporate and investment banking division. The expansion into Wall Street dealmaking and capital markets diversifies Wells Fargo's revenues further, so that the firm doesn't rely so heavily on interest-based incomes that are at the mercy of the Fed's monetary policy moves. And although Wells will definitely save on expenses in remediation efforts, the bank still plans to invest into compliance. "Yesterday versus today, the only thing that's different is the perception of Wells Fargo, which is incredibly important because we've always been perceived as being in the penalty box," Scharf said. He continued, "This is not the kind of environment where you come out guns ablazing on anything...There's no light switch that's going to go off today versus yesterday." Still, that doesn't mean the stock can't benefit in the meantime. (Jim Cramer's Charitable Trust is long WFC. See here for a full list of the stocks.) 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