Wells Fargo Shares Rise as Tax Cuts Lead Bank to Boost ROE Goal
Wells Fargo Boosts ROE Target on Tax Cuts, Rate Increases
(Bloomberg) -- Wells Fargo & Co. boosted profitability targets as it seeks to convince investors that it can move beyond recent scandals.
The target range was set at 12 percent to 15 percent for annual return on equity for the next two years, according to a presentation prepared for the bank’s investor day Thursday. That’s up from 11 percent to 14 percent it set for the past two years. The goal excludes litigation and remediation provisions, which have weighed on profit for the past three quarters.
Wells Fargo’s issues have weighed on its business, including from a Federal Reserve ban on increasing assets until it fixes missteps. The bank’s most recent results were marred by a charge of $800 million tied to a settlement with U.S. regulators that brought profit to the lowest level for a first quarter in six years.
Still, corporate tax cuts and climbing interest rates are likely to help Wells Fargo follow rivals in posting higher net income. JPMorgan Chase & Co. reported record profit for any bank in U.S. history last quarter.
The lender also increased the high end of its range for payouts to investors. The firm said it will look to return 55 percent to 80 percent of its earnings in dividends and buybacks over the “long-term.” That compares with the 2016 target range of 55 percent to 75 percent. Payouts will likely be even higher over the next two to three years because capital levels are above the bank’s internal target, according to the presentation.
Net interest income will be “relatively stable” in 2018 as some of the projected increase in interest rates will be passed along to depositors, Well Fargo said.
Cost Cuts
San Francisco-based Wells Fargo said it’s on track to achieve its targeted $4 billion of expense reductions by the end of 2019. The bank said it believes higher returns than its targets are achievable in 2020.
Shares of the company, which dropped 11 percent this year through Wednesday, climbed 2.3 percent to $55 in early New York trading at 7:51 a.m.
Wells Fargo plans to close about 300 branches in 2018, according to the presentation. That’s more than the 250 it announced in January. The bank also said it cut the number of tellers by 7 percent last year as more customers moved to digital services.
--With assistance from Brandon Kochkodin
To contact the reporter on this story: Hannah Levitt in New York at hlevitt@bloomberg.net.
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson
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