Wells Fargo's 2023 Expense Outlook On Track, but NII Outlook Shows the NII Boom Is Over After Q4

Wide-moat-rated Wells Fargo reported fourth-quarter EPS of $0.67, beating the FactSet consensus of $0.60 and well ahead of our estimate of $0.35 (including $3.5 billion in operating losses). While results will continue to have some noise related to the bank’s legal and regulatory issues, core expenses for the year of roughly $51.6 billion (assuming only $1.3 billion in operating losses) were in line with expectations at the start of the year. Expenses are a key focus for investors as the bank remains in turnaround mode. Based on management’s original 2021 cost-cutting plan and progress to date, we hoped for core expenses to be roughly flat to 1% down in 2023, and management’s guidance of flat core expenses met these expectations. We believe Wells’ expense initiatives remain on track for another year. Another positive note was the decline in the bank’s estimate of future possible legal losses, which declined from $3.7 billion to $1.4 billion. In the past, this number had often not declined even as the bank took legal charges and accruals. This is a positive sign that the bank is making real progress.