So it comes as something of a shock when Euromoney points out this strength and chief executive John Stumpf immediately seeks to downplay his investment banking operations. “Oh, you should not read too much into that,” he deadpans. “You should see this as a product more than a business.”
Pure investment banking provided just 3% of group non-interest income in the first quarter of 2013. But take the wholesale business in its entirety, and it’s some product – as a matter of fact, it is some business. Over the past 18 months the wholesale bank has regularly produced quarterly net income in the region of $2 billion – about 40% of group profits. It is active in most areas of the investment banking landscape, through debt, equity and advisory, although its real strengths lie in lending to corporate America.
Stumpf is adamant that this business is there for one purpose only – to serve Wells Fargo’s corporate clients. And its shareholders, perhaps. Better still when the two are combined: “When Warren Buffett bought Heinz, we were there for him; Wells Fargo did half the financing, JPMorgan did the other half.” Buffett is Wells Fargo’s biggest shareholder – his Berkshire Hathaway owns 9% of the bank’s stock.
But it’s not just the Buffetts of this world that Wells Fargo is interested in. Mid-market clients make up a big part of the wholesale business. “It takes years to build a relationship with these businesses,” says David Hoyt, head of the wholesale division. “But once you do, and you are there for them consistently, then the relationship is very strong.” The aim, as in the retail bank, is to have the right range of products for clients, build the relationship with those clients, and then sell deeply to them. “That’s a model that gives us consistent growth,” says Hoyt.
You get the impression that Hoyt had a lot fewer sleepless nights over the Volcker rule banning proprietary trading. “We’re not good forecasters of business cycles. But we are good underwriters of credit,” he says. “We try to execute a simple business model. Of course there are many complexities within that execution.”
Both Stumpf and Hoyt are quick to rule out any substantial rolling out of the wholesale bank, although Wells Fargo does have sizeable and growing operations in both Canada and London, the latter centred on its commercial real estate capabilities.
For many years, the biggest part of Wells Fargo’s international focus has been its correspondent banking business. It’s also looking to increase the help that it can give to US clients for their funding, trade, FX and cash management needs as they do more business overseas.
Then there are the opportunities closer to home. The difficulties that non-US banks face in competing with Wall Street’s finest have not gone unnoticed by Hoyt and his colleagues. Foreign companies looking for alternatives to the bulge bracket to help them to do business in the US could see an option in Wells Fargo.
“We’ve got lots of opportunities here,” says Hoyt. “We can clearly grow our share of wallet with customers. The competitive environment is very interesting. We’re in a strong position to offer a real value proposition and consistency of relationship to companies.”
