Wells Fargo & Co. is eager to return more of its excess capital to shareholders, and executives sounded upbeat tones about the case already made to regulators to secure permission to make that happen.

But some Wall Street observers are dubious.

"Expectations are fairly low," analyst Brian Kleinhanzl of Keefe, Bruyette & Woods, who covers Wells, said in an interview.

At a Morgan Stanley conference in New York this week, Wells CFO John Shrewsberry noted that the banking giant's Common Equity Tier 1 ratio (CET1) — a key regulatory measure of capital strength — hovers around 12%. He said the company is confident it could lower that to around 10% and still have a cushion, indicating it has the wherewithal to ramp up dividends and share buybacks this year and beyond.

Wells CEO Timothy Sloan

Wells would need Federal Reserve authorities to sign off on such moves following their Comprehensive Capital Analysis and Review, or CCAR, a yearly exercise that tests whether banks have sufficient capital to weather severe downturns. This spring, Wells and other big banks submitted their plans to the Fed, and they now anticipate getting feedback as soon as June.

At a conference in late May, Wells President and CEO Timothy Sloan exuded confidence in the bank's CCAR filing, calling it "the best submission" Wells has ever had. Sloan noted that it was now "in the hands of the Fed," and as such, he could not make promises. But he said Wells' clear goal is to trim its excess CET1 by roughly 200 basis points, to around 10%. "We think that we could do that over the next two to three years," he said.

But the stress testing tied to CCAR could prove challenging for Wells, which is a major player in residential mortgages. CCAR banks are subject to stress tests that involve a sudden, double-digit drop in real estate values and a surge in interest rates.

"There are a lot of questions among investors about capital return and CCAR and what they can really do," Kleinhanzl said.

Regulatory scrutiny

Analysts note that Wells is already under intense regulatory scrutiny that leaves it little margin for error. The bank has grappled since late 2016 with the fallout of a sales scandal that exposed widespread risk management weaknesses. Authorities fined the bank in September 2016 after learning that retail staffers had opened millions of phony accounts. Other problems — including wrongly charged fees to auto insurance and mortgage customers — have drawn more penalties.

Federal regulators this year fined Wells $1 billion and issued a consent order that requires the bank to keep its total asset size under $2 trillion until it can prove it has addressed risk shortcomings. Shrewsberry this week reiterated that Wells anticipates getting the unprecedented asset cap lifted in 2019.

"At this point, I'd be in the camp of you have to show me first. I'm not going to get optimistic in advance," James Bradshaw, a bank industry analyst at Bridge City Capital, said of Wells and its ability to get the Fed's CCAR nod.

He said in an interview that so long as the asset limit looms over Wells, common sense suggests the bank will face extra challenges before getting any notable go-aheads from regulators.

Aftermath of scandal

Bert Ely, president of bank consultancy Ely & Co. and an independent analyst who has tracked Wells for years, noted in an interview that Wells has struggled to attract new customers and grow revenue amid fallout of the sales scandal. Wells' 2017 topline was flat from the previous year. Its 2018 first-quarter revenue declined nearly 2% from a year earlier.

Ely said that gives regulators added reason for caution because any new adversity, such as the stressors imposed under CCAR, would exacerbate challenges on the revenue front.

Lamont Black, a former Federal Reserve economist and current finance professor at DePaul University who researches the U.S. banking system, shared the analysts' unease. He said the Fed's asset cap — and its linked demands that Wells demonstrate stronger risk controls — has no official tie to CCAR. But the Fed order could factor into regulators' willingness to sign off on any big capital moves by Wells.

All of that noted, Black said the regulatory winds in Washington are shifting under President Donald Trump, who has championed deregulation across several industries, including banking. Black said that could provide the Fed room to alleviate pressure on Wells in 2019, assuming no further problems emerge.

"This new cycle of deregulation, it could lighten the constraints before long," Black said.

Wells executives have emphasized the bank's strides during recent conference presentations. It has replaced several executives and made numerous changes to its board to bolster expertise. It has beefed up training across the company and changed the way it compensates and motivates retail employees, among other moves.

Shrewsberry said at the conference this week that, among several pressing priorities for Wells, "satisfying the terms of the consent order that we're operating under, strategically, is at the front of the line."