Wells Fargo & Co. (WFC): Goldman Sachs remains confident Wells Fargo can achieve its $50bn 2026E NII target despite funding-cost pressure

Overview

This report addresses the central investor debate around Wells Fargo's ability to deliver its $50bn 2026E net interest income target. Goldman Sachs argues that continued loan and capital-markets balance-sheet growth should offset higher deposit costs and modest NIM pressure, while the bank's valuation remains attractive following relative underperformance.

Core views

Goldman Sachs remains confident that Wells Fargo can achieve its $50bn 2026E NII target. It forecasts $12.7bn of NII in 3Q26E and $12.9bn in 4Q26E. After accounting for first-half results and NIM guidance, the target requires roughly 5% year-on-year NII growth in 2H26 and about 4% average earning-asset growth versus 1H26. The latter represents a moderation from the 8% growth recorded from 2H25 to 1H26, which the report considers reasonable. It expects NIM to fall by around 0.5bp to 2.42% in 3Q26E and then stabilize in 4Q26E. The first debate is whether intensified deposit competition and possible further rate hikes will undermine NII. Goldman Sachs expects deposit yields to remain elevated because deposits are shifting toward higher-yielding commercial and corporate balances, brokered corporate CDs are being used when loan growth exceeds core-deposit growth, large-bank balance sheets are expanding rapidly, and the interest-rate backdrop is higher. WFC's deposit costs have therefore moved closer to peer levels. However, the report expects stronger asset growth and repricing to offset this pressure, following an approximately 15bp NIM decline in 1H26. Its downside sensitivity analysis, using historical-cycle betas and higher deposit pricing assumptions, finds that an incremental September hike would have a broadly net-neutral impact on 2026E and 2027E NII: higher asset yields largely offset higher funding costs, while any 2026 effect is de minimis because of late-year timing. Loan growth is expected to moderate after a peer-leading year-to-date performance, with 2Q26 loans up 12% year-on-year. Goldman Sachs forecasts about 1% quarter-on-quarter end-of-period loan growth in both 3Q26E and 4Q26E, equivalent to 10% and 7% year-on-year, respectively, versus 3% and 1% growth in 1Q26 and 2Q26. Commercial growth could be supported by greater utilization of credit lines, since year-to-date C&I expansion has been mainly origination-driven, and by a positive inflection in CRE balances. The report also points to approximately $3.5tn of expected hyperscaler capex in 2026E-28E, some of which should require debt financing and support commercial loan demand. In consumer lending, card-account expansion and improving auto origination are expected to help, partly offset by continued residential-mortgage declines in a steeper-rate environment. The report also examines whether capital-markets balance-sheet growth is worthwhile despite being NIM dilutive. Repo balances and trading assets grew about 40% and 25% year-on-year, respectively, in 2Q26. These assets have lower spreads: Goldman Sachs estimates incremental capital-markets asset spread at roughly 0.75%, compared with WFC's 2Q26 NIM of 2.43% and an estimated 2.20% incremental loan spread. But after adding the 2025 corporate-and-investment-bank non-interest-revenue yield of about 1.75%, the total incremental capital-markets revenue yield is estimated at 2.49%, around 10bp above the 2.38% estimated for incremental loan deployment. Goldman Sachs also highlights approximately 160bp and 120bp gains in WFC investment-banking and trading market share since 1Q22, respectively, as evidence that further capital allocation could support share gains. Despite a modest quarter-to-date rally, WFC had underperformed bank peers and the broader market by about 20 percentage points and 15 percentage points year to date, entirely due to multiple compression according to the report. Goldman Sachs attributes the derating chiefly to uncertainty about revenue growth and the $50bn NII objective. It views the valuation as attractive at 11.6x Goldman Sachs NTM P/E, or the 56th percentile of the past decade, below peers at roughly the 75th percentile; WFC also screens as undervalued on a relative P/TBV basis. The firm kept WFC at Buy* and reduced its target price by 4% to $107.00 as the target 2027E P/E multiple declined by 0.5x to 13.0x, while 2026E and 2027E EPS estimates increased 1% and were unchanged, respectively.

Analysis framework

Goldman Sachs tests the NII target by translating it into required second-half earning-asset growth and projected quarterly NII and NIM. It then assesses deposit-cost and rate-hike sensitivity using historical-cycle betas, examines commercial and consumer loan-growth drivers, compares incremental revenue yields from capital-markets assets and loans, and evaluates WFC against peers using P/E and P/TBV valuation measures.

Methodology notes

• Financial-sector metricsNet Interest Margin (NIM) Analysis

  NII and NIM sensitivity analysis

  The report estimates how deposit costs, asset yields, funding mix and a possible rate hike affect net interest income and net interest margin.

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation

  Goldman Sachs values WFC using a target 2027E P/E multiple and compares its NTM P/E percentile with peers and its own history.

• Industry AnalysisVolume-price decomposition

  Incremental asset revenue-yield comparison

  The report compares the interest spread and fee-income contribution from deploying incremental balance-sheet capacity into capital-markets assets versus loans.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Wells Fargo & Co. (WFC)

  Primary subject; Goldman Sachs maintains Buy* and includes the stock on the US Conviction List - Directors' Cut.

  Strengths

  Expected ability to reach the $50bn 2026E NII target; broad-based asset growth; peer-leading loan growth; capital-markets share gains; attractive relative valuation.

  Weaknesses

  Elevated deposit costs and lower-spread capital-markets assets create pressure on NIM.

  Comparison

  WFC underperformed bank peers and the broader market by about 20pp and 15pp year to date, while its NTM P/E historical percentile is below peers.

  Risks

  Slower loan growth, delayed completion of the consent order, and additional regulatory actions.

• Bank of America Corp. (BAC)

  Covered large-bank peer included in estimate and target-price revisions.

  Comparison

  Buy rating and revised $76.00 target price.

  Risks

  Less efficiency improvement from NII attrition and slower deposit repricing.

• Citigroup Inc. (C)

  Covered large-bank peer included in estimate and target-price revisions.

  Comparison

  Buy rating and revised $169.00 target price.

  Risks

  Slower revenue growth, higher card credit losses, and international-business underperformance.

• Morgan Stanley & Co. (MS)

  Covered large-bank peer included in estimate and target-price revisions.

  Comparison

  Neutral rating and revised $239.00 target price.

  Risks

  Higher capital requirements, market-share losses, trading and investment-banking normalization, lower market levels in wealth and investment management, or slower wealth-management inflows.

Key data

• 2026E NII target$50bnGoldman Sachs continues to expect WFC to achieve management's target.
• 3Q26E / 4Q26E NII$12.7bn / $12.9bnGoldman Sachs quarterly forecast.
• 3Q26E NIM2.42%Projected roughly 0.5bp decline before stabilization in 4Q26E.
• Required 2H26E average earning-asset growth~4%Versus 1H26; below 8% growth from 2H25 to 1H26.
• 2Q26 loan growth12% YoYPeer-leading year-to-date performance cited by the report.
• 3Q26E / 4Q26E loan growth~1% QoQ in each quarterEquivalent to 10% / 7% YoY end-of-period growth.
• Hyperscaler financing demand~$3.5tnExpected 2026E-28E capex financing need cited as support for commercial-loan demand.
• Incremental revenue yield2.49% capital markets vs. 2.38% loansIllustrative comparison; capital markets is about 10bp higher.
• WFC NTM P/E11.6x Goldman Sachs estimate / 12.0x consensusThe Goldman Sachs multiple is at the 56th historical percentile versus peers near the 75th percentile.

Impact & implications

The report argues that concerns over higher deposit costs should not prevent WFC from reaching its 2026E NII objective if balance-sheet expansion and asset repricing continue. It also contends that capital-markets growth can be economically attractive once fee income is included, and that uncertainty surrounding NII is the principal reason for WFC's valuation discount.

Risks

• WFC could experience slower loan growth.
• Completion of WFC's consent order could be delayed.
• WFC could face additional regulatory actions.

What to watch

• Quarterly NII progress toward the $50bn 2026E target, including the forecast $12.7bn in 3Q26E and $12.9bn in 4Q26E.
• Whether NIM stabilizes after the projected 3Q26E decline to 2.42%.
• Deposit pricing, use of brokered corporate CDs, and the effect of any additional rate hike.
• C&I line utilization, CRE growth, consumer card and auto origination trends, and residential-mortgage runoff.
• Capital-markets balance-sheet growth, fee-income realization, and investment-banking and trading market-share trends.
• Progress on the consent order and any further regulatory actions.