 |
|
|
Best bank: Wells Fargo |
|
|
Also shortlisted: BNP Paribas and UBS |
For this year’s shortlist for best global bank, Euromoney focused on two key criteria: banks that are well run, and banks that know their strengths and stick to them.
‘Well run’ is not a phrase that has often been used about UBS over the past decade. But the new management team, under CEO Sergio Ermotti, has taken more tough strategic decisions than perhaps any other, and to date implemented them very successfully. They deserve credit for creating a new UBS, even if the jury remains out on whether or not its wealth management-centric business can turn out high-teen returns on equity with a Swiss capital finish.
BNP Paribas is the very epitome of a well-managed bank that focuses on what it is good at doing. These core competencies include retail banking, in Europe and in the US, and best-in-class firm-wide risk management. The task now for CEO Jean-Laurent Bonnafé is to deliver growth to shareholders, especially through its corporate and investment bank in the US and Asia. It’s a tough challenge, but few would have thought the EU’s biggest banking group by deposits would have come through the euro crisis producing consistently good profits. Don’t bet against Bonnafé and his team.
But pose the question: ‘Which is the best bank in the world today?’ to many leading executives at the globe’s biggest banks, and more often than not the answer will be the same: Wells Fargo.
It is something of a departure for Euromoney to give this award to a bank that does 97% of its business in one country, and in which its market share is a hardly dominant 10%.
 |
| John Stumpf, Wells Fargo: The firm knows what to do. And it does it well |
But then that country is the US, and Wells has built a unique proposition in the world’s biggest financial market, as the only bank that has a true presence from west coast to east coast.
Wells Fargo’s competitors praise the bank; its shareholders like it too, not least Berkshire Hathaway. The bank is Warren Buffett’s single-largest shareholding by value.
That value continues to rise. Wells Fargo is the largest bank in the developed world by market capitalization, which stood at around $220 billion at the end of June this year on a balance sheet of $1.4 trillion. In comparison, JPMorgan’s market cap was just under $200 billion, but it had a balance sheet of $2.3 trillion. Wells’s market cap at the end of 2011 was just $145 billion.
In 2012, Wells had the second-highest net income of any global bank, $18.9 billion, and just behind JPMorgan. Its return on equity was higher than any competitor’s, at 12.59%. In the first quarter of 2013, Wells printed net income of $5.2 billion, up 22% on the same time in 2012, with a return on assets at a hard-to-match 1.49%. Wells has produced 13 consecutive quarters of earnings per share growth, from $0.45 in the first quarter of 2010 to $0.92 in the first quarter of 2013.
How has Wells Fargo achieved this? There’s a simple answer: it sticks to what it is good at.
Wells Fargo is best at US mortgages. It was best at them in 2004 to 2007, when its management resisted the temptation to move into the racier reaches of the sub-prime market. Its profitability suffered at the time. Its strengths as a financial institution have become greater ever since the sub-prime bubble burst, eventually allowing it to make a truly transformative acquisition when it took over Wachovia in 2008 for $15 billion.
Some people say Wells Fargo has become too successful in the US mortgage market. At one point last year, it was producing 30% of new mortgages. That share has now fallen to a more sustainable, and healthier, 22%.
The bank is also the biggest commercial real estate lender in the US; the biggest small business lender; the biggest agribusiness lender; and the biggest auto lender.
In 2012, it processed $16 billion in net new loan commitments to small business customers in the US, up 30% on the previous year.
It matches its lending commitments with a strong track record in getting deposits: these grew from $826 billion in 2011 to $893 billion at the end of 2012. Chairman and chief executive John Stumpf says he “dreams about current accounts” because these are the product through which customers identify with a bank. Through that identification, Wells Fargo aims to be better at cross-selling than any other bank. On average it sells around six products per household; one in three US households is served by Wells Fargo.
Stumpf says Wells has no plans to grow the international mix of its overall business. He insists that although the firm has an active and profitable wholesale bank, this should be seen as a product for its clients, rather than a business the bank will look to grow in its own right.
While the US economy grows, Stumpf sits pretty. There’s little chance of straying, or needing to stray, from what Wells Fargo does best.
