It has been an eventful year for Wells Fargo (WFC -0.15%), to say the least. The bank booked a $2.4 billion loss in the second quarter of the year and has trimmed its dividend by 80%. Longtime Wells Fargo investor Warren Buffett and his company Berkshire Hathaway (BRK.A 0.37%) (BRK.B 0.29%) have also significantly cut their position in the bank, and many believe the love affair between Buffett and Wells Fargo may soon be finished for good.

Meanwhile, regulatory issues have not faded, and the bank's stock is now only trading at around 65% of tangible book value. With 2020 starting to wind down, where will Wells Fargo be one year from now?

the front of a Wells Fargo bank on a city street

Image source: Wells Fargo.

A slimmed-down bank 

Without question, Wells Fargo in a year will be a much skinnier, slimmed-down version of what it is today. In recent weeks, rumors have been circulating that the bank is planning to sell its asset management division, which had $607 billion in assets under management at the end of the third quarter. Other recent rumors say the bank is considering selling its corporate trust division, as well as its student loan portfolio, which could be worth close to $10 billion. It's all part of Wells Fargo CEO Charlie Scharf's strategy "to exit some things which aren't core to the U.S. banking franchise."

Scharf has also said previously that he wants to cut annual expenses by $10 billion to better get the bank's expense structure in line with its competitors. That means laying off employees, which the bank has already started to do, and closing and consolidating bank branches. The sale of the business units above may also help with this goal.

Considering the bank still has regulatory issues it needs to address, and the need to invest in technology, Scharf has not been clear on whether total expenses will actually be materially down in 2021. But by this time next year, you should at the very least have an understanding of the bank's plans and visions for expense cuts.

The big unknown

The one big unknown constantly dogging Wells Fargo is the asset cap placed on the bank by the Federal Reserve in 2018 for its fake accounts scandal. The cap prevents Wells Fargo from exceeding $1.95 trillion in assets, a huge handicap right now in the low-rate environment because it prevents the bank from originating lots of loans to offset smaller interest payments.

While a lot of effort seems to have been taken to get the bank into compliance, and it has been more than two years since the asset cap went into place, you can't say with certainty that the asset cap will be gone by next year. Although this is a very unique and punitive order, some consent orders on banks can last for three or four years or longer, and given the severity regulators seemed to have placed on the fake accounts scandal, it wouldn't surprise me to see it continue for another few years.

I'm just speculating here like everyone else -- I think it's a bit of a toss up right now. However, the asset cap is by far the biggest barrier standing in the bank's way in terms of earnings and stock price appreciation.

What will happen to the stock?

Trading this far below tangible book value, I do believe Wells Fargo's stock is near its floor and is likely to only be higher a year from now. It's still one of the largest banks in the U.S. and is very well established in many of its markets and product lines, despite its past reputational issues. The bank should be able to raise its dividend back to a more normal level and potentially get back to share repurchases once the Fed gets done with its second round of stress testing, and eventually removes restrictions on capital distributions.

I also believe that investors will gain confidence in the stock if Scharf is able to lay out a clear plan for how to achieve his expense cut initiatives. Lastly, barring any new details, I think Wells Fargo has received all of the punishment it is going to get from regulators when it comes to the fake accounts scandal. All that really remains is the asset cap, and once that is removed, I think the stock could rise significantly.