FILE PHOTO: A person enters a Wells Fargo branch in New York City, U.S., July 18, 2025. REUTERS/Kylie Cooper/File Photo

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 rose nearly 3.9% in early trading.

HEALTHY LOAN GROWTH

The bank is targeting a 17% to 18% return on tangible common equity (ROTCE) over the medium term, compared with its earlier expectations of 15%.

Wells Fargo registered a ROTCE of 15.2% 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.

Wall Street had been anticipating the bank to raise the target following the removal of the cap, a punishment that restricted its expansion.

"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.

Net income was $5.59 billion, or $1.66 per share, in the three months ended September 30. That compares with $5.11 billion, or $1.42 per share, a year earlier.

Analysts had expected a profit of $1.55 per share, according to estimates compiled by LSEG.

"We grew our balance sheet, including the highest linked-quarter loan growth in over three years," Scharf said in a statement.

"While some economic uncertainty remains, the U.S. economy has been resilient and the financial health of our clients and customers remains strong."

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.

Wells Fargo's shares have gained 12.4% this year as of last close, underperforming rivals JPMorgan Chase and Citigroup.

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.

"It (credit quality) was strong across the board, and I think it's been very consistent now with what we've been seeing. We've continued now to see higher payment rates on credit card than what we had modeled," Chief Financial Officer Santomassimo told journalists.

The bank set aside $681 million as provision for credit losses in the quarter, compared with $1.07 billion a year earlier.

Wells Fargo executives have previously said their efforts to tighten credit over the past couple of years should help the bank to weather a potential economic downturn.

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 $840 million in the quarter from a year earlier. They have surged 19% through the first nine months of 2025, from a year earlier.

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.

"Pipelines look good, the activity levels are good, and the conversations are constructive across the client set," Santomassimo said.

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.

It also advised buyout firm Sycamore Partners on its $23.7 billion take-private deal for U.S. pharmacy chain operator Walgreens Boots Alliance, which was finalized in August.

Wealth management was also a bright spot as stock markets surged during the reported quarter.

Investment advisory fees and brokerage commissions, the biggest component of Wells Fargo's fee-based revenue, rose 6% to $3.31 billion in the quarter from a year earlier.

(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)