Wells Fargo Q3 Earnings Preview: Stock Lower Ahead of Report

Wells Fargo's stock (NYSE:WFC) has come down 7.5% since late September, with markets eagerly looking to the next set of financials. The company is set to release its Q3 2025 earnings tomorrow morning, and markets are parsing a complex landscape of positive developments and persistent challenges.

Analysts are projecting an earnings per share (EPS) of $1.54 for Q3 2025. This represents a year-over-year growth of approximately 1.32%. The projected EPS follows a trend of Wells Fargo exceeding expectations in recent quarters, with Q2 2025 EPS at $1.60 (vs. $1.41 expected) and Q1 2025 at $1.39 (vs. $1.23 expected).

The most significant tailwind for Wells Fargo is undoubtedly the lifting of the Federal Reserve's $1.95 trillion asset cap in June. This restriction, imposed in 2018 following the fake-accounts scandal, had effectively limited the bank's ability to grow. Its removal marks a turning point, allowing Wells Fargo to pursue strategic expansion and potentially increase lending activities. The market reacted positively to this development, with shares jumping over 3% upon the announcement.

Further bolstering the bullish sentiment, S&P Global upgraded Wells Fargo's outlook from “stable” to “positive,” citing improvements in governance, risk management, and control profiles. This upgrade signals increased confidence in the bank's operational structure and its ability to manage risk effectively.

Despite the positive developments, Wells Fargo faces significant headwinds, primarily related to net interest income (NII). The bank revised its 2025 NII guidance downward, now expecting it to be roughly in line with the 2024 level of $47.7 billion. This adjustment is attributed to lower interest income in its markets business, reflecting broader concerns about the impact of fluctuating interest rates on bank profitability.

The declining NII trend is evident in previous earnings reports. In Q1 2025, NII declined by 6% year-over-year to $11.50 billion. This decline underscores the challenges Wells Fargo faces in maintaining profitability in a potentially volatile interest rate environment.

While the market has largely celebrated the lifting of the asset cap and the S&P Global upgrade, a more cautious perspective is warranted. The fake-accounts scandal left a deep scar on Wells Fargo's reputation, and rebuilding trust with customers and regulators is an ongoing process.

The lifting of the asset cap doesn't automatically translate to unbridled growth. Wells Fargo will need to demonstrate prudent risk management and a commitment to ethical practices to fully capitalize on this opportunity.

Furthermore, the bank's exposure to potential economic slowdowns and interest rate fluctuations cannot be ignored. While Wells Fargo has diversified its revenue streams, NII remains a critical component of its profitability. If interest rates remain low or decline further, the bank's earnings could be negatively impacted. The bank has stated it's prepared for a potentially slower economic environment, but preparedness isn't immunity.

The market might be overly optimistic about the speed and extent of Wells Fargo's turnaround. While the bank has made significant strides in addressing its past issues, it still faces considerable challenges in a rapidly changing economic landscape.

It's not all doom and gloom. In Q2 2025, investment banking fees rose by 9% to $696 million, driven by higher advisory fees. This indicates strength in Wells Fargo's investment banking division and its ability to generate revenue from sources other than traditional lending. The bank also joined the chorus of Wall Street firms lifting their S&P 500 annual target, suggesting a generally positive outlook on the broader market.

Wells Fargo's upcoming earnings release presents a crucial test for the bank. The markets will be closely watching to see how the company is navigating the challenges of lower NII while capitalizing on the opportunities created by the lifting of the asset cap.

The bank's ability to demonstrate sustainable growth, prudent risk management, and a commitment to ethical practices will be key to its long-term success. The current stock price reflects a degree of uncertainty, and the earnings report will likely be a catalyst for either a significant rally or a further decline, depending on the message it conveys.