What BofA Thinks About Wells Fargo Asset Cap

Wells Fargo & Co WFC seems poised to benefit from the estimated 19% growth in the Federal Reserve’s balance sheet in 2021, which is driving deposit growth in the banking sector, according to BofA Securities.

The Wells Fargo Analyst: Erika Najarian maintained a Neutral rating for Wells Fargo, with a price target of $36.

The Wells Fargo Thesis: The Fed had offered temporary relief on SLR (supplementary leverage ratio), “which exempted banks from holding capital against cash and U.S. Treasuries in the SLR calculation,” Najarian said in the note.

If the Fed allows this to expire on March 31, 2021, and grows its balance sheet, “big bank excess capital as a % of market cap shrinks by 37%,” he added.

“Clearly, with the asset cap, WFC significantly underperformed industry deposit growth of 24% in ’20. But, if the Fed balance sheet continues to grow, it makes no sense to us to continue to sideline the fourth-largest bank in the U.S. — which has 23% of market cap in excess capital and would not be constrained by SLR in any scenario,” the analyst wrote.

WFC Price Action: Shares of Wells Fargo closed Monday's session up 2.6% at $33.40.

(Photo: Wells Fargo)