Wells Fargo Maintains Growth Momentum Despite Rate Headwinds October 21, 2026
Overview
Wells Fargo reported third-quarter 2026 earnings of US$6 billion, up 6% year-on-year, though below analyst estimates due to lower net interest income and trading gains. Investment advisory fees rose 15% as client assets grew, while investment banking fees increased 6% from market share gains. The company maintained its BUY rating with a reduced target price of US$105, down from US$115.
Investment Positives
Wells Fargo demonstrated strong operational efficiency through successful cost management initiatives. Expenses fell 1% year-on-year despite a 15% increase in revenue-related expenses, as non-revenue-related expenses declined 4%. The bank achieved this through workforce optimisation, with headcount falling 8% year-on-year to 194,000, marking the 24th consecutive quarterly decline. This drove efficiency ratio improvement to 63% from 65% in the prior year, with management expecting to absorb approximately US$400 million of higher revenue-related expenses within unchanged full-year guidance. The bank’s commercial client franchise powered impressive balance sheet growth. Average loans surged 11% year-on-year to US$1.03 trillion, led by Corporate and Investment Banking (+19%), Wealth and Investment Management securities-based lending (+16%), and Commercial Banking (+10%). Deposits mirrored this growth, rising 11% year-on-year to US$1.48 trillion, with Corporate and Investment Banking up 22% and Commercial Banking advancing 16%. Auto balances showed particularly strong momentum, climbing 31% year-on-year. Credit quality metrics remained robust throughout this expansion. The net charge-off ratio improved to 0.38% from 0.40% in the prior year quarter, whilst nonperforming assets declined to 0.70% of loans from 0.83%. Investment advisory fees benefited from market tailwinds, rising 15% year-on-year as higher stock and bond prices lifted Wealth and Investment Management client assets by 11%. Investment banking fees grew 6% year-on-year as strategic hiring enhanced market share in mergers and acquisitions and equity capital markets.
Challenges
Lower interest rates compressed loan yields, offsetting the benefit of strong loan growth on net interest income performance. A sharp move in interest rates in late September also slowed client activity in fixed income, currencies and commodities, impacting trading revenues. The bank faced headwinds from lost lease income following its rail car business sale and lower mortgage banking fees, which left non-interest income down 1% year-on-year despite gains in other areas.
Outlook
Wells Fargo maintained its full-year 2026 net interest income guidance at approximately US$50 billion, though it lowered Markets net interest income expectations to approximately US$1.8 billion from the previous US$2 billion estimate. The bank expects continued earnings growth from balance sheet expansion capabilities, with maturing card vintages and investment banking share gains contributing to earnings into fiscal year 2027. The company targets return on tangible common equity of 17% to 18%, supported by ongoing cost discipline and revenue growth initiatives.
Recommendation & Target Price
Phillip Securities Research maintains a BUY recommendation on Wells Fargo with a target price of US$105, reduced from the previous US$115. The firm lowered fiscal year 2026 earnings estimates by 8% due to reduced net interest income, investment advisory, and other non-interest income projections. The valuation assumes 1.85x fiscal year 2026 price-to-book value and return on equity estimate of 16.7%.
Frequently Asked Questions
Q: What drove Wells Fargo's third-quarter 2026 earnings performance?
A: Earnings rose 6% year-on-year to US$6 billion, driven by strong loan growth and effective cost management, though results were below estimates due to lower net interest income and trading gains.
Q: How did the bank achieve cost savings despite revenue growth?
A: Non-revenue-related expenses fell 4% as headcount declined 8% year-on-year to 194,000, the 24th consecutive quarterly reduction, allowing total expenses to fall 1% despite 15% higher revenue-related expenses.
Q: What areas showed the strongest loan growth?
A: Corporate and Investment Banking led with 19% growth, followed by Wealth and Investment Management securities-based lending at 16% and Commercial Banking at 10%, contributing to overall 11% loan growth.
Q: How did credit quality perform during this growth period?
A: Credit metrics improved with the net charge-off ratio falling to 0.38% from 0.40% and nonperforming assets declining to 0.70% of loans from 0.83% year-on-year.
Q: What challenges did Wells Fargo face in the quarter?
A: Lower interest rates compressed loan yields, late-September rate movements slowed trading client activity, and the bank experienced lost lease income from rail car sales plus lower mortgage banking fees.
Q: What is the investment thesis for maintaining a BUY rating?
A: The bank can now expand its balance sheet with both loans and deposits up 11% year-on-year, whilst cost cuts keep expenses flat as revenue grows, with maturing card vintages and investment banking gains supporting future earnings.
Q: Why was the target price reduced?
A: The target price fell to US$105 from US$115 due to 8% lower fiscal year 2026 earnings estimates from reduced net interest income, investment advisory, and other non-interest income projections.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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About the author
Glenn Thum
Phillip Securities Pte Ltd
Glenn covers the Banking and Finance sector. He has had 3 years of experience as a Credit Analyst in a Bank, where he prepared credit proposals by conducting consistent critical analysis on the business, market, country and financial information. Glenn graduated with a Bachelor of Business Management from the University of Queensland with a double major in International Business and Human Resources.
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