Wells Fargo's investment bank is back on track after a tough few years when a consumer banking scandal cast a shadow across the entire enterprise.
Its investment bank fees this year have surged 37% from a year ago as Wells has ridden the wave of record US debt capital markets activity; it has surged to fourth for debt underwriting fees globally, up from 10th a year ago.
"We have great market share as Wells Fargo across our consumer and commercial businesses, and believe there's still more opportunity for us to keep growing into the mid and large corporate and investment banking businesses," said Rob Engel, Wells' head of banking.
"The opportunity we see is to partner a lot of strong client relationships where we lend money, and as we uptier and strengthen those relationships clients reward us with more significant leadership roles in different transactions," he told IFR.
Right now, the strength of those relationships is evident in Wells' new reorganised corporate and investment bank, and in DCM specifically.
Wells' investment banking fees this year topped US$1bn last week, up from US$732m a year ago and lifting it to eighth for global fee revenues, above Deutsche Bank, according to Refinitiv data. Wells ranked 10th globally at the same stage last year.
DCM has always been Wells' sweet spot, and it has taken a bigger slice of a bigger pie as US bond issuance hit record monthly levels in March and April, and is on track to do so again this month.
Wells had brought in US$701m from DCM fees as of May 13, up from US$313m at the same stage last year, Refinitiv said. That gave it a 4.5% share of the market, up from 2.5% a year ago, and put it behind only the three US debt powerhouses: JP Morgan, Bank of America and Citigroup.
The surge in DCM revenues has occurred just as Wells has overhauled its structure and created a corporate and investment banking arm, potentially adding juice to its attempt to turn its US retail and commercial platforms into a leading investment bank franchise.
RENEWED FOCUS
This is not the first time San Francisco-based Wells has made a run at the investment banking wallet. The last run even alarmed JP Morgan CEO Jamie Dimon, who called out the bank as an aggressive up and coming rival in 2016. That advance stalled, however, when a mis-selling scandal in its consumer bank erupted in 2016, forcing Wells to divert its attention to fight fires.
Wells had ramped up its investment bank ambitions after 2008. That year it rescued Wachovia, which had strength in DCM and equity underwriting, and emerged from the financial crisis stronger than most rivals, especially retreating European rivals.
Wells ranked around 12th for global investment bank fees in the years before the financial crisis, and improved to ninth in 2013 and stayed there since, the Refinitiv data show.
But the consumer bank scandal was a sharp and steep fall from grace for Wells, which for periods of 2014 and 2015 was the world’s biggest bank by market value. It prompted years of upheaval in leadership, damage to its reputation, and intense regulatory scrutiny, including a cap on its assets under a consent order with the US Federal Reserve in 2018.
That all had a knock-on impact on the wholesale arm. Its share of global DCM fees slipped from 3.9% in 2015 to 2.9% in 2019.
FRESH BLOOD
Charles Scharf took over in October as Wells' third CEO in three years. Free from links to past problems, Scharf, the former chief of Bank of New York Mellon, has set about fixing relationships with regulators and repairing its reputation.
"From a Wells perspective, people are feeling much better now than they were a year or two ago," Engel said.
Scharf's overhaul of Wells' structure into five businesses, including CIB, gives the bank a similar structure to that of its peers. It should make CIB more comparable and give it more transparency and tighten how it assesses and structures risk and regulations.
Analysts said the change was also expected to give the capital markets and international activities a bigger role.
The bank is expected to start reporting under its new divisional structure at its second quarter results.
DEBT BLOOM
With debt issuance on course for a third successive monthly record, Wells is on track to extend its strong first quarter in the current quarter.
Jim Sigman, Wells' head of capital markets and global institutional clients, told IFR that the bank was "reaping the benefit" from its mature DCM platform, where it is strong in investment grade and leveraged finance.
It is seeking to evolve its strong DCM position to win leading roles on large mandates. The bank joined the roster of banks in April on Royal Dutch Shell's multi-tranche debt offering, for example.
Sigman said Wells is building up its ECM and M&A platforms, and increasing its focus on technology, pharmaceuticals and healthcare. It has also set up a restructuring team.
Engel said the bank was keen to continue hiring, although current conditions have made that harder.
"It [the coronavirus pandemic] has slowed us down, but it hasn't stopped us," Engel said. "We continue to be in the market looking for good talent."
One of the bank's biggest hires is former senior HSBC and Goldman Sachs banker Robert Ritchie, who joined Wells this month in London as head of banking and capital markets for CIB in Europe, the Middle East and Africa. He reports to EMEA CIB chief John Langley, a former senior Barclays and BofA banker who joined last July.
Even when Wells was flying high in 2015, only about 5% of the bank's revenue was estimated to come from outside the US. Its strong suit is for taking large and mid-sized US corporates to overseas markets, and offering international companies access to US markets.
Wells is likely to rely on overseas revenues far less than most rivals, but it has ambitions overseas, and the hiring of the likes of Ritchie backs that up, as does a large, shiny office in London, which was opened in late 2018.
