By Arasu Kannagi Basil and Prakhar Srivastava (Reuters) -Wells Fargo on Tuesday beat Wall Street estimates for third-quarter profit and raised its closely watched profitability target after regulators removed an asset cap on the bank, paving the way for it to pursue growth. The U.S. Federal Reserve lifted the lender's seven-year, $1.95 trillion asset cap in June, drawing a line under its fake accounts scandal and freeing it to accelerate CEO Charlie Scharf's growth plans. Shares of the bank jumped 7.6% in afternoon trading. Until Monday's close, the stock had gained 12.4% this year, underperforming rivals JPMorgan Chase and Citigroup. GROWTH ASPIRATIONS Wells Fargo is now targeting a 17% to 18% return on tangible common equity (ROTCE) over the medium term, compared with its earlier expectations of 15%. "Wells Fargo, without the regulatory constraints and with the changes we have made, is a significantly more attractive company than what we were several years ago and we believe this positions us for continued higher growth and returns," CEO Charlie Scharf told analysts on a conference call. "We are now on a path to grow more broadly with the lifting of the asset cap." Scharf said Wells Fargo was aiming to become the top U.S. consumer and small business bank and wealth manager, as well as a top five U.S. investment bank. Wall Street had been anticipating the bank to raise the target following the removal of the cap, a punishment that restricted its expansion. Wells Fargo met its 15% return target in both the second and third quarters. "Management is acting with a newer urgency and addressing concerns that WFC is not moving fast enough from defense to offense," said Piper Sandler analysts, referring to the new ROTCE target. Profit jumped to $5.59 billion, or $1.66 per share, in the three months ended September 30, beating expectations of $1.55 per share, according to estimates compiled by LSEG. The fourth-largest U.S. lender has closed seven regulatory punishments, known as consent orders, this year and 13 since 2019. It still has one remaining consent order from 2018. "This was an encouraging quarter as the company started to show off why the asset cap limitation was holding them back. We've been impressed by the continued upward trajectory of the company's ROTCE," said David Wagner, head of equity & portfolio manager at Aptus Capital Advisors. The bank's total assets also surged past $2 trillion in the quarter for the first time in its history as it registered the highest loan growth in over three years relative to the previous quarter. STRONG CREDIT QUALITY U.S. consumers continue to spend money and repay their loans on time, reflecting strong credit quality. Still, uncertainty looms as the labor market is showing signs of softening. "While some economic uncertainty remains, the U.S. economy has been resilient and the financial health of our clients and customers remains strong," Scharf said in a statement. Provision for credit losses shrank to $681 million in the quarter from $1.07 billion a year earlier. "It (credit quality) was strong across the board, and I think it's been very consistent now with what we've been seeing," Chief Financial Officer Santomassimo told journalists. Asked about the recent developments in the auto market, Santomassimo said the bank was not a big player in the subprime auto market and the performance in its auto portfolio continues to be good. While bankruptcies in the auto sector have raised new concerns about hidden risks in parts of the credit market, analysts have said the episodes are idiosyncratic problems. INVESTMENT BANKING SHINES Dealmaking has rebounded as corporate boardrooms shrugged off persistent uncertainty from President Donald Trump's trade policies and chased big-ticket purchases in their pursuit of scale. Global dealmaking surged past the $3 trillion mark in the first nine months of 2025, lifted by a 33% surge in U.S. M&A volumes, according to data from Mergermarket. Wells Fargo's investment banking fees jumped 25% to a quarterly record of $840 million. They have surged 19% through the first nine months of 2025, from a year earlier. "Pipelines look good, the activity levels are good, and the conversations are constructive across the client set," Santomassimo said. Rivals Goldman Sachs and JPMorgan Chase also beat profit estimates on Tuesday as bankers cashed in on big deals. Wells Fargo has been steadily building out its investment banking business, tapping dealmakers from rivals to bolster its ranks. Santomassimo said the bank had added 80 to 100 people in investment banking in the last few years and will continue to hire. Wells Fargo clinched a major win in the third quarter, advising freight rail giant Union Pacific on its $85 billion acquisition of smaller rival Norfolk Southern – the largest deal announced globally this year. Scharf said the bank was increasingly winning bigger and more complex M&A deals, adding that Wells Fargo advised on half of the top industrial deals announced or closed in 2025. (Reporting by Arasu Kannagi Basil and Prakhar Srivastava in Bengaluru and Nupur Anand in New York; editing by Lananh Nguyen, Sriraj Kalluvila and Nick Zieminski)
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