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WFC's Efficiency Story: Will Cost Cuts Lift ROTCE to Its Target Level?
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Key Takeaways
Wells Fargo achieved Q1'26 ROTCE of 14.5%, as the efficiency ratio improved to 67%.
WFC targets $55.7B in 2026 non-interest expenses, while investing in technology and growth.
Wells Fargo reduced headcount for the 23rd straight quarter and cut branch count y/y.
As Wells Fargo & Company (WFC - Free Report) moves beyond years of regulatory and operational restructuring, the focus is increasingly shifting toward the bank’s ability to translate efficiency gains into stronger shareholder returns. The bank has already made meaningful progress on efficiency, but first-quarter 2026 results show that the path to higher returns will depend on balancing cost discipline with investment in technology, compliance and growth initiatives.
In the first quarter of 2026, Wells Fargo reported a return on tangible common equity (ROTCE) of 14.5%, up from 13.6% in the year-ago quarter, while return on equity (ROE) improved to 12.2% from 11.5%. The company’s efficiency ratio also improved to 67% from 69% a year earlier, indicating that revenue growth outpaced expense growth despite higher absolute expenses.
Management’s 2026 expense guidance is central to the efficiency story. WFC expects non-interest expenses of $55.7 billion for 2026, suggesting a slight hike from the 2025 reported level. This target comes as the company continues to spend on technology, strategic initiatives and other investments. The company expects 2026 net interest income of $50 billion, suggesting that operating leverage could improve if revenue momentum continues while expenses remain controlled.
Wells Fargo has been pursuing cost-cutting measures since the third quarter of 2020, including streamlining its organizational structure, closing branches and reducing headcount. Importantly, headcount declined 6.5% year over year to 201,000 at the end of first-quarter 2026, marking the 23rd consecutive quarter of reductions. Branch optimization also remains part of the strategy, with retail branches down 1.5% year over year to 4,093 by the end of March 31, 2026.
These actions matter because WFC is targeting a medium-term ROTCE of 17-18%, up from its earlier 15% goal. The removal of the asset cap and closure of regulatory constraints give the bank more room to expand deposits, loans and fee-based businesses, which could make expense discipline more powerful.
Overall, Wells Fargo’s efficiency strategy appears to be delivering gradual improvements in profitability and operating leverage. Continued expense discipline, combined with stronger revenue opportunities following the removal of the asset cap, could support further gains in ROTCE over the medium term. However, the path toward the bank’s 17-18% target will depend on management’s ability to balance cost reductions with sustained investments in technology, compliance and growth while navigating a still-uncertain operating environment.
How WFC Peers Are Expected to Fare in Terms of ROTCE
Citizens Financial Group, Inc. (CFG - Free Report) expects a return on average tangible common shareholders’ equity of 16-18% over the medium term. The execution of the target will be supported by Citizens Financial Group’s strategic initiatives and the NII tailwinds expected between 2025 and 2027. CFG expects the CET1 ratio to be 10-10.5%, while the efficiency ratio is projected to be in the mid-50s.
Meanwhile, Citigroup, Inc. (C - Free Report) is advancing its multi-year strategy to streamline operations and focus on its core businesses. Aligned with its goal of achieving leaner operations, Citigroup has overhauled its operating model and leadership structure, reduced bureaucracy and complexity while enhancing efficiency.Citigroup anticipates achieving $2-2.5 billion in annualized run-rate savings by 2026, reflecting the tangible benefits of its simplification and efficiency initiatives. ROTCE is expected to be 10-11% by 2026-end.
WFC’s Price Performance & Zacks Rank
Shares of Wells Fargo have gained 3.3% in the past year compared with the industry’s growth of 22.6%.
View the Zacks #1 Rank List
Image: Bigstock
WFC's Efficiency Story: Will Cost Cuts Lift ROTCE to Its Target Level?
Key Takeaways
As Wells Fargo & Company (WFC - Free Report) moves beyond years of regulatory and operational restructuring, the focus is increasingly shifting toward the bank’s ability to translate efficiency gains into stronger shareholder returns. The bank has already made meaningful progress on efficiency, but first-quarter 2026 results show that the path to higher returns will depend on balancing cost discipline with investment in technology, compliance and growth initiatives.
In the first quarter of 2026, Wells Fargo reported a return on tangible common equity (ROTCE) of 14.5%, up from 13.6% in the year-ago quarter, while return on equity (ROE) improved to 12.2% from 11.5%. The company’s efficiency ratio also improved to 67% from 69% a year earlier, indicating that revenue growth outpaced expense growth despite higher absolute expenses.
Management’s 2026 expense guidance is central to the efficiency story. WFC expects non-interest expenses of $55.7 billion for 2026, suggesting a slight hike from the 2025 reported level. This target comes as the company continues to spend on technology, strategic initiatives and other investments. The company expects 2026 net interest income of $50 billion, suggesting that operating leverage could improve if revenue momentum continues while expenses remain controlled.
Wells Fargo has been pursuing cost-cutting measures since the third quarter of 2020, including streamlining its organizational structure, closing branches and reducing headcount. Importantly, headcount declined 6.5% year over year to 201,000 at the end of first-quarter 2026, marking the 23rd consecutive quarter of reductions. Branch optimization also remains part of the strategy, with retail branches down 1.5% year over year to 4,093 by the end of March 31, 2026.
These actions matter because WFC is targeting a medium-term ROTCE of 17-18%, up from its earlier 15% goal. The removal of the asset cap and closure of regulatory constraints give the bank more room to expand deposits, loans and fee-based businesses, which could make expense discipline more powerful.
Overall, Wells Fargo’s efficiency strategy appears to be delivering gradual improvements in profitability and operating leverage. Continued expense discipline, combined with stronger revenue opportunities following the removal of the asset cap, could support further gains in ROTCE over the medium term.
However, the path toward the bank’s 17-18% target will depend on management’s ability to balance cost reductions with sustained investments in technology, compliance and growth while navigating a still-uncertain operating environment.
How WFC Peers Are Expected to Fare in Terms of ROTCE
Citizens Financial Group, Inc. (CFG - Free Report) expects a return on average tangible common shareholders’ equity of 16-18% over the medium term. The execution of the target will be supported by Citizens Financial Group’s strategic initiatives and the NII tailwinds expected between 2025 and 2027. CFG expects the CET1 ratio to be 10-10.5%, while the efficiency ratio is projected to be in the mid-50s.
Meanwhile, Citigroup, Inc. (C - Free Report) is advancing its multi-year strategy to streamline operations and focus on its core businesses. Aligned with its goal of achieving leaner operations, Citigroup has overhauled its operating model and leadership structure, reduced bureaucracy and complexity while enhancing efficiency.Citigroup anticipates achieving $2-2.5 billion in annualized run-rate savings by 2026, reflecting the tangible benefits of its simplification and efficiency initiatives. ROTCE is expected to be 10-11% by 2026-end.
WFC’s Price Performance & Zacks Rank
Shares of Wells Fargo have gained 3.3% in the past year compared with the industry’s growth of 22.6%.
Image Source: Zacks Investment Research
Wells Fargo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.