Wells Fargo has an opportunity to grab US$1bn of investment banking fees from mid-sized corporate customers that haven't been targeted in the past, CEO Charles Scharf said in a rare look under the hood of its corporate and investment bank.
Scharf became Wells Fargo CEO in October 2019 with the task of stabilising the US bank after a series of scandals in its retail bank. He said the bank will target existing corporate bank customers and try to sell them more CIB products.
“These are folks that we’re already taking the financing risk on. We know them intimately. And so that kind of opportunity, ... it's a US$1bn opportunity just with our own customers,” Scharf said.
“All we've done is we've looked at our own customer base, and we started with how much those customers pay The Street. And it's huge – it's like US$4bn–$5bn or something. And you look at what we get paid, and it's teeny – it's embarrassing to even say the number,” he said at a Sanford Bernstein conference on June 1.
Scharf, who was previously CEO of Bank of New York Mellon and Visa, said there was no new strategic direction for CIB, but he wants to get on the front foot more with the business.
“Historically, we never wanted to talk about it because we always told people we're Main Street, not Wall Street. It's about kitchen tables, not league tables, and a whole bunch of things like that.
“And the reality is when you look at the company, the corporate investment bank and our middle market business, ... it's half the company. It's hugely important,” he said.
“We want to grow the business, we're not afraid to say that, but in a way that works inside the risk tolerance of this company.”
This year’s investment banking league tables make good reading for Wells, albeit with fees across the industry down from record levels in 2021. Wells Fargo brought in US$884m in fees from M&A advisory, debt and equity underwriting and syndicated loans in the first five months of this year, down 19% from a year earlier but outperforming a 35% drop in global industry fees, according to Refinitiv data. That lifted Wells Fargo to eighth for global fees, from 12th a year earlier, and it ranked sixth globally for debt underwriting and syndicated loans, according to Refinitiv.
Debt capital markets in the US is the bank’s strongest suit, partly dating back to its takeover of Wachovia in 2008. Although Wells Fargo is based in San Francisco, CIB is largely based in New York and Charlotte, North Carolina.
Still, Scharf said Wells isn’t making the most of its long and deep relationships with many corporate customers, even if it finances them with its balance sheet or in public markets. “It just makes sense for us to build our public underwriting capabilities in some of those products and our advisory capabilities alongside that,” Scharf said.
“You don't have to be a rocket scientist to figure out ... those people pay The Street a huge amount of fees. We know the company inside and out and we have these great capabilities over in our corporate investment bank,” he said, but their customers haven't been made aware it.
He said the corporate bank and CIB are now working more closely and the bank had changed incentives and getting more staff licensed, but the shift will take time.
Jon Weiss is CEO of CIB, and the bank has hired Tim O'Hara to run investment banking. O’Hara joined in May from BlackRock, where he had been global co-head of credit since 2017, and previously spent 28 years at Credit Suisse, including running its global markets business. Rob Engel, who led banking since 2014, is now the unit's chairman.
Scharf said the bank is able to look at opportunities now it is on a more stable footing and making progress resolving the raft of risk management and regulatory issues that he faced when he started. He said that will be a long slog, and involves not just closing consent orders issued by regulators, but also changing culture across the bank. A mis-selling scandal in Wells Fargo's consumer bank erupted in 2016, and the bank has spent years trying to put out fires.
“There was a period of time where we didn't move forward because we were very inwardly focused. We have to be able to walk and chew gum at the same time. And I think you're starting to see that,” Scharf said.