- Morgan Stanley upgraded Wells Fargo to buy-equivalent from hold and named it a top pick with a $102 price target, about 27% above Friday's close and roughly $6 above the stock's record close in early January. WFC rose about 1.5% Monday but remains down about 12% year to date, versus a roughly 4% gain for the Invesco KBW Bank ETF.
- The upgrade lands ahead of Q3 earnings next Tuesday, a break from the usual practice of waiting for the numbers. Morgan Stanley sees 2026 as a transition year after the Federal Reserve removed the $1.95 trillion asset cap last June; Wells ended June with $2.23 trillion in assets, up 15% year over year.
- Initial post-cap growth was funded with expensive wholesale borrowing that squeezed net interest margin. Morgan Stanley expects NIM to stabilize around 2.42% through Q1 2027 and expand to 2.49% by Q4 2027, with return on tangible common equity rising from 15.5% in 2026 to 17% in H2 2027 and 18% in 2028.
- Wells has hired roughly 150 senior bankers over four years and more than doubled investment-banking fees from 2022 levels, but fees remain well below peers relative to its commercial loan book. Closing that gap could generate roughly $4 billion in additional annual fees, according to Morgan Stanley.
- CFO Mike Santomassimo said at a Sept. 15 conference that Wells' Q3 net interest margin was running ahead of expectations, reinforcing the margin stabilization thesis into the print.
Quotes
“Typically we would not get anything of any substance ahead of the numbers”
“It was a very big call”
“Normalizing balance sheet growth should ease funding pressure, stabilize NIM, and raises our conviction in the path to higher returns”
“This piece says it's finally happening”