All right. Which brings us -- here we go -- to the biggest, baddest boy in the portfolio, Wells Fargo. (WFC) - Get Report I can't handle Wells Fargo alone, and for that I bring in my partner, Jeff Marks, to talk about our newest position.
Thanks, Jim. So first off, we could talk about what's happening with the yield curve now. Higher rates should support net interest income in the future, and how the recovery in the economy will make our loan book better. But what I really want to dive into today is what's happening more on a company-specific level, because it explains why we like Wells more than Goldman Sachs (GS) - Get Report and JPMorgan (JPM) - Get Report at the current price.
So the first place you want to look for here, and where we think the most opportunity is, is really in the new CEO, Charlie Scharf’s, cost-cutting initiative for some perspective. Over the past few years Wells Fargo's efficiency ratio -- it's a measure of operating expenses as a percentage of revenues; in layman's terms, it’s profitability -- well, Wells Fargo’s has been running far too high, high being bad, relative to peers. In 2019 it was at 68.4%. Fourth-quarter 2020 was at 83% You want to be near 50%. So these numbers just aren't good.
But when you think about it, that's where the opportunity is. Because what Scharf and his new management team identified right away when they came in is that they need to become more efficient. They need to get the bank running at a way more efficient level. So, as we heard on the fourth-quarter conference call, they've already identified $8 billion worth of potential growth savings. And they're going to be taking this out over the next couple of years.
And now, [it] won't be one for one total expenses because … they're committed to investing in technology and they want to protect the value of the franchise. But what we're going to see play out, especially as the economy improves -- so you have that as a background -- is that you're going to see profitability improve. And they're going to hit their goal of 15% return on tangible book value. It's a long-term goal, but with profitability getting better and the economy improving, we could see that.
So also with Wells there's an underappreciated capital-return story here. Just real quick: Wells Fargo [authorized] an increase to the repurchase program. They added 500 million shares to it. That brings it to a total of 667 million shares. That's about 16% of the total shares outstanding. That's a huge figure. So Wells Fargo [also] ended the year with $31 billion worth of excess capital on the books. And that just serves as a great reminder of how much capital returns can really be part of the story here as the Fed loosens its grip on the banks.
And just as a catalyst, I know everyone's always asking, what's the next catalyst? I know everyone is asking what’s the next catalyst for most of our stocks. most of our stocks.
What I would look for here is the lifting of the asset cap. Now, you might remember: As punishment for the 2016 fake-account scandal, the Fed put an asset cap on Wells Fargo's balance sheet. And this has really limited the bank's financial performance, and they haven't been able to pursue some of the more higher yielding assets that they otherwise could. But with this new management team in place, they're working very closely with regulators to get this lifted.