Wells Fargo’s asset cap removal has not been the silver bullet we expected. What to do next
When Wells Fargo finally broke free from the Federal Reserve’s punitive $1.95 trillion asset cap last June, investors had expected big things. Twelve months later, however, sentiment has soured, and the stock is stuck in the penalty box. On paper, it looked like a lock — do the work to clean up the bank and get the cap removed, which would then unleash the business and the stock. So, what happened? While the lifting of the asset cap, on June 3, 2025, after seven years, did coincide with a strong six-month period for shares, the bank’s performance in 2026 has been nothing to write home about. Between a stagnant stock price and a series of disappointing earnings releases, Wells Fargo is on the outs with the CNBC Investing Club. “Wells hasn’t done what I’ve wanted,” Jim Cramer acknowledged on June 2, pointing to the bank’s back-to-back subpar quarters. “It’s disappointing. I want to sell companies that are underperforming to be able to buy outperformers.” That day, the Club trimmed some after the stock had strung together a few positive weeks. Despite those gains, shares remain down nearly 9% year to date, versus the S & P 500 ‘s more than 10% advance. Last week, Jim said, “We have made a lot of money [with Wells]. I would love to exit the position.” He then stressed, “I don’t like to exit all at once.” On Tuesday, Jim said he considered selling some more Wells on its most recent advance. “I don’t think it’s that bad of an idea, given the fact that we have a huge gain.” He added, “It’s a huge gain, and I don’t want to give it back.” Jim will take a closer look at Wells during Wednesday’s June Monthly Meeting, which will be livestreamed at noon ET . At first glance, the lackluster 2026 could be chalked up to financial sector weakness. Banks have been one of the worst performers in the S & P 500. Concerns about private credit contagion, the impact on the economy of the Iran war-induced spike in oil prices, and AI-driven disruption have pressured shares. While Wells Fargo and many of its peers have struggled, Club holding Goldman Sachs has outperformed, climbing more than 24% year to date, after securing a slew of big-name deals , including a lead position in bringing SpaceX’s initial public offering to market. Elon Musk’s rocket and AI company saw its stock debut up 19% on Friday in the biggest IPO ever. SpaceX surged again on Monday and Tuesday. The offering initially raised about $75 billion, generating $500 million in fees for the advisory firms. Goldman and Morgan Stanley will each get about $100 million. Other underwriters — Bank of America , Citigroup , and JPMorgan Chase — each landed about $75 million. Wells, which has been building up its investment banking business, did have a small role in the SpaceX IPO. But it didn’t collect anywhere near those fees. The total SpaceX raise went to $85.7 billion on Monday after the underwriters exercised the so-called greenshoe overallotment. “I think that we are in the wrong bank,” Jim said. “I’ll take the leverage of Capital One, and I’ll take the surety of Goldman. We just don’t need Wells Fargo.” On Monday, we added to Capital One because its credit card business can benefit from the lower oil prices due to the U.S. and Iran reaching a framework of deal to end the conflict. Back to Wells Fargo, investor sentiment weakened following two consecutive spotty quarters. After a disappointing first quarter, along with a top and bottom line miss the quarter before that, the Club downgraded Wells Fargo stock to a hold-equivalent 2 rating and lowered our price target to $95 per share from $100. In April, Wells missed a crucial indicator. The bank’s efficiency ratio, which measures how much a firm spends to generate one dollar of revenue, came in higher than expected. Typically, a lower ratio is better because it can command a higher valuation. It shows that banks can convert top-line revenue into net income more cleanly. That metric for Wells is uniquely important because CEO Charlie Scharf emphasized improving operational efficiency when he took over back in 2019 to rehabilitate the bank after its fake accounts scandal and other missteps. Management implemented an aggressive multiyear plan to target billions of dollars in structural cost savings. That efficiency ratio shows if the bloat is actually being carved out or if Wells is continuing to suffer from its big expense base. Wells Fargo’s efficiency ratio was 67% for the first quarter of 2026. It’s much higher (meaning worse) than Citigroup’s efficiency ratio of 62% and Bank of America’s 61%. Goldman Sachs announced an efficiency ratio of a little over 60% last quarter. That said, Wells Fargo’s efficiency ratio has improved over the years. After the CEO took the reins in the fourth quarter of 2019, that figure has gone from roughly 78% to 67%. Scharf recently pointed to several drivers that have improved efficiency since his tenure began. The firm, for example, lowered headcount to 205,000 from 275,000 and sold some of its businesses, including its ailing mortgage unit. “We’ve done this in a way where we’re actually improving the performance of the company, better customer service, higher returns, higher growth because we’re just eliminating all of the wasteful things that have happened inside the company,” Scharf said at an investor conference in late May. “We prioritize it. We have looked at the overall expense levels. We feel good about where we’re investing, but we have targeted intentional restraint on the overall expense base. But at the same time, I would say, I don’t think there’s anything that we’re not doing that we should be doing because of the way we think about that,” the chief executive added. Wells is in a tough position, though. The bank is simultaneously trying to optimize its balance sheet for returns while also improving its operational efficiency. “They’re trying to do what is the hardest thing to do in banking,” said Ebrahim Poonawala, an analyst at Bank of America. “It’s fine to go from really subpar to average. It’s very hard in the current landscape to go from what Wells is trying to do: Go from good to great.” On top of that, competition is fierce, Poonawala said. “It’s challenging when you have every bank in the world competing in capital markets, in credit cards, in wealth management,” he added. “All banks are trying to grow and lean in and play offense. That’s where this becomes a bit more tough.” Wells Fargo’s plan to go on the offense after its asset cap was lifted is a key reason we touted the stock for so long. The company has invested more in its investment banking and capital markets businesses, with a slew of senior big-name hires. That’s a great way for the firm to diversify its revenue and not rely so heavily on net interest income streams, which are at the mercy of the Fed’s interest rate decisions. “The investment bank, relative to some of its peers, has been underscaled. If you think about league tables, if you think of market share, JPMorgan, Goldman, Morgan Stanley [are] clear, clear standouts,” said Christopher McGratty, the head of U.S. Bank Research at KBW. “But it’s a big market. It’s a big wallet. It’s a growing wallet. The capital markets business is very healthy, so being able to capitalize on the momentum and the buildout is important. That’s a good thing.” McGratty also said that Wells’ expansion into dealmaking and capital markets more broadly “really complements” its traditional banking platforms. “You can serve clients in multiple capacities that you perhaps may not have otherwise been able to do,” he told CNBC. “It becomes somewhat self-fulfilling where they can generate high returns. Returns can be more predictable, and our work shows that predictable returns get high multiples in terms of your valuation.” A lot of this can be credited to Wells’ exceptional management team. Scharf was given a monumental task when he became CEO: Turn around one of America’s largest and most scandal-ridden banks. Under his leadership, the bank was cleared of more than a dozen regulatory actions, with the asset cap removal the pinacple. During Scharf’s tenure, Wells stock has gained about 70%, not bad considering the hand he was dealt. The reason for our frustration is that Goldman over that same stretch shot up 400%. Wells has so much potential under Scharf — but, as of late, we haven’t seen the firm live up to it. Time is running out. Now that Wells can grow its balance sheet again, the market wants the firm to operate and perform like any other money center bank: not the turnaround story it once was. Earnings just haven’t been as dazzling as they have in the past. “A couple of bad quarters in a row. It goes into the penalty box, and if you can’t get out of the penalty box, then there’s only one thing to do after that, and that’s to move on,” said Jeff Marks, the Investing Club’s director of portfolio analysis. Wells Fargo is set to report second-quarter earnings on the morning of July 14. (Jim Cramer’s Charitable Trust is long WFC, GS, COF. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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