Wells Fargo (WFC) Earnings Effect
Impact of Regulatory Changes on Wells Fargo
Wells Fargo is set to release its second-quarter (Q2) fiscal 2025 earnings on Tuesday, July 15, 2025, before the market opens.
In this post, we’ll take a closer look at how WFC shares have reacted to recent earnings releases—specifically, the “earnings effect” (earnings volatility) observed after
Q1 2025,
Q4 2024, and
Q3 2024.
For this analysis, we’ll concentrate on the three most recent earnings releases. Specifically, we’ll look at stock performance within a one-month timeframe—covering two weeks before and two weeks after each earnings date. This helps us capture both the market’s anticipation before the announcement and its reaction afterward.
Please note that we’re using the traditional Post-Earnings Announcement Drift (PEAD) method, which calculates changes based on the closing price the day before the earnings release (T-1) and does not incorporate a benchmark. Therefore, cumulative abnormal returns (CARs) are not included in this analysis. We believe this approach is particularly appropriate during times of increased market uncertainty.
Along with other valuation methods used in this study, we combined the ATM Straddle Method to estimate the expected stock price range with the implied volatility formula. Using both approaches gives us a more comprehensive view of the stock’s potential movement based on option market data.
Below is Chart 1, which shows the stock prices on different dates surrounding the earnings release. The percentages are measured relative to T=0, which marks the earnings date. For instance, at T-1 (one trading day before the release), the value is 8.58, indicating the stock price was 8.58% higher than it was on the earnings date (T=0).
We used values from T-1 to T+3 to ensure our analysis aligns with the option expiration dates.
Expected range
The expected range for WFC is $80.94 to $85.88. We arrived at this result using the implied volatility formula, which produced the same value as the ATM Straddle Method. For this calculation, we used the implied volatility as of 3:00 p.m. EST today, which is 0.3023.
Similar to other major banks and financial stocks, WFC is currently trading approximately 40% above its near-term low recorded in early April of this year.
Recent regulatory changes have had a significant effect on Wells Fargo. Most notably, the Federal Reserve has lifted the $1.95 trillion asset cap that had restricted the bank’s growth since 2018, following Wells Fargo’s successful completion of required improvements in governance, risk management, and compliance programs. This milestone allows Wells Fargo to pursue growth and expansion strategies that were previously limited, and it reflects substantial progress in addressing past deficiencies.
Additionally, Wells Fargo’s stress capital buffer (SCB) is expected to decrease from 3.8% to 2.5%, reducing the minimum amount of capital the bank must hold above regulatory requirements. This change could free up additional capital for dividends, share repurchases, and other shareholder returns, as the company has already announced an intended increase in its quarterly dividend.
While the asset cap has been removed, some provisions of the original enforcement action remain in place, requiring ongoing improvements in risk management and regular progress reporting to regulators. Overall, these regulatory changes position Wells Fargo for increased operational flexibility, potential growth, and enhanced returns to shareholders, while maintaining a focus on robust governance and risk controls.
We are establishing a ratio straddle option position with an expiration date set for this Friday.