Update: Wells Fargo&Co.

Our stable outlook reflects our expectation that, over the next two years, Wells will progress in resolving the regulatory consent order that imposed the asset cap, and its preprovision profitability will gradually improve, although likely not to its historically strong levels. We also think any potential asset quality deterioration will not be outsize or overly weigh on earnings and capital. We expect Wells will maintain a CET1 ratio above its target of 10% and a risk-adjusted capital ratio (based on our measure) at or above 8.0%-8.5%. We also expect that growth restrictions will not significantly hurt its competitive positions in key businesses and that new management will execute on its strategy to improve profitability. We could lower the ratings if

...Rising interest rates are boosting Wells Fargo & Co.'s preprovision net revenue, though normalizing provisions will weigh on profitability next year, particularly if the economy enters a recession. Due to its asset sensitivity and loan growth, Wells' net interest will likely increase by over 20% in 2022, which should help the bank deliver a return on tangible common equity of around 10%. Some further net interest income growth in 2023 should also help it absorb increases in provisions should the economy enter a recession. In the first three quarters of 2022, the bank's earnings fell by 35% year over year as provisions totaled $577 million, compared with -$3.7 billion in the prior year. Higher operating losses also strained earnings in 2022. There is still no clarity about when Wells will be released from the asset cap imposed by regulators. The asset cap was instituted in February 2018, when Wells became subject to a consent order from the Fed capping the company's asset...

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