The maiden sale of €3 billion of bonds by Berkshire Hathaway in March may have flashed by amid the throng of US companies rushing to raise cheap, long-term euro bond funding.
But for Wells Fargo Securities, one of the leads on the transaction, it was to be savoured as one of the most high-profile examples yet of the bank taking corporate America into non-dollar global markets.
Since at least 2012 this has formed a key wheel in Wells’ drive for international expansion, coupled on the other side with the depth of market access it can provide foreign institutions in the US.
Wells has consistently ranked in the top tier of US debt and equity capital markets and corporate lending for the past five years or more, a position enabled largely by its acquisition of Wachovia in 2008.
In turn, this has helped triple net income from wholesale banking to $7.6 billion last year from 2007, and lifted Wells into the top 10 in the global rankings for investment banking revenue for the first time.
|Top 10 Global IB Revenue Bank Ranking 2014|
|Rank||Bank (Parent)||Net Revenue USD (m)||% Share|
|3||Bank of America Merrill Lynch||5,381||6.6|
|10||Wells Fargo Securities||1,940||2.4|
Yet outside of the US – in Europe especially – Wells’ investment banking and securities business is not quite punching its considerable weight. Wells was, for instance, ranked outside of the top 20 by investment banking revenues in Europe last year, according to Dealogic.
It’s a question many are asking: can, indeed, will it enter the ring?
“I have little doubt that if they really wanted to do something big in Europe, they could,” says one senior executive of a European investment bank. “They’re showing how an acquisition can pay off, and given all the rationalization and deleveraging happening among most European corporate and investment banks, there’s plenty of opportunity.”
We’re careful with shareholder money. We’re not going to move into businesses that do not match our core competencies. We won’t move in and out of businesses as other banks have. Client relationships matterLisa McGeough
He adds, however, that “charging into Europe with all guns blazing is, from what I’ve seen, not something they seem particularly willing to do”.
He’s not wrong. Wells sees the opportunity to gain market share in Europe, but pursuing it aggressively by engaging in hiring sprees and throwing capital around is, analysts say, anathema to the bank’s culture.
Equally, says Jonathan Weiss, head of Wells Fargo Securities, the bank is acutely aware of the competitive challenge of gaining ground in Europe, which, he adds, is not dissimilar to the trials of European banks in the US.
Wells’ investment banking executives talk instead of a slow, steady and disciplined approach to growing the business in Europe, primarily by focusing on credit, asset-backed finance, equities and clearing – businesses that in the US Wells has a respected strength and expertise in.
Geographically, Wells opened a new office in London, its European headquarters, last year as well as in Paris, Frankfurt and Aberdeen, all of which should support its banking growth, albeit in a measured way.
“We’re careful with shareholder money,” says Lisa McGeough, managing director and head of Wells Fargo Securities, EMEA.
“We want to continue to deliver revenue and be highly accretive to the broader securities business, wholesale business and the group, but we’re not going to move into businesses that do not match our core competencies and where there is no real need among our clients. We won’t move in and out of businesses as other banks have. Client relationships matter.”
Coming from other banks that might sound pretty hollow, but unlike most, Wells emerged from the 2008 global financial crisis unscathed and stronger. It has not had to restructure or simplify its business model – it has stuck to what it is good at.
That struck a chord with institutional investor and issuer clients in Europe, and says McGeough, “given what we can do, our rating and our size by market cap, they’re keen to find a way to work with us.”
Wells can boast a who’s who list of large US investor clients in Europe: from BlackRock, T Rowe Price and Vanguard to Fidelity and Western Asset Management – as well as large European investors such as Amundi and Legal & General. On the issuer side, many of Europe’s largest banks and financial institutions are on the US bank’s client books too – relationships born of correspondent banking and taken into US DCM.
Wells has not penetrated corporate Europe to the same extent, but that’s not necessarily the game plan. Wells has strategic partnerships in Europe with the large commercial banks of ING, Santander and UniCredit, and seemingly has little desire to encroach on their territory.
Indeed, on whether or not Wells has any ambition to build up a top-tier Eurobond franchise, Matt Carter, who joined last year as head of international syndicate from Royal Bank of Scotland, shoots the idea down, saying “the aspiration [of the bank] is not to be a big euro corporate bond shop”.
Instead, he says, even before quantitative easing in Europe gave rise to the attractive euro-funding opportunity for US corporates, the extent of Wells' ambition, leaving aside its US dollar bond franchise, was no more than helping to bring mid- to large-cap US corporates to the euro market.
A multi-tranche dollar and euro bond issue in 2013 that Wells was joint lead on for Microsoft gave the bank what Carter describes as a “light-bulb” moment as to that opportunity. The €3 billion bond issue in March by Berkshire – Wells’ single largest shareholder – has helped support it.
“Any treasurer seeing [Warren] Buffett issuing in euros is probably going to be thinking whether that same opportunity is there for them too,” says Carter.
We have been recalibrating the trading business in London to be more of a client-facing euro credit trading business, but we’re not trying to cover the whole waterfrontMatt Carter
Certainly, North American corporates led by Coca-Cola moved on the same opportunity and in total sold some $56 bil-lion-equivalent of reverse yankee Eurobonds in the first quarter of the year – double the volume issued last year and the second highest quarterly volume on record.
It was perhaps the trend of the quarter, which Wells played a role in. But in a sign of how stiff the competition is, Wells ranked outside the top 10 underwriters of these trades in the quarter, with Bank of America Merrill Lynch, HSBC and Bar-clays, printing the most, according to Dealogic.
Wells knows exactly how challenging it will be to gain momentum here, but they are moving steadily and logically, says Carter. “We have a salesforce here that have for years been placing primary dollar product from US institutions into Euro-pean institutional investors. While we don’t have the scale other banks have, it’s very much a logical extension for us to be selling euro paper from US corporates.”
He adds that they have been “recalibrating the trading business here [in London] to be more of a client-facing euro credit trading business” but that “we’re not trying to cover the whole waterfront”.
Pitching north American financial institutions on euros is probably one of Wells’ next steps on the primary side, while making any move in the sovereign, supranational and agency market is just given short shrift.
For now, Wells is more focused on what it can do for its legion of mid- to large-cap US corporate clients, many of which increasingly see Europe as the most important international market to expand into. A rush of deals is not going to happen overnight, but where one goes, others tend to follow.
In March, Berkshire agreed to buy German motorcycle gear manufacturer Detlev Louis Motorradvertriebs in what is believed to be its first direct investment in a mid-sized company in Europe. A potential boon for Wells is that Buffett sees this as a door opener to more European acquisitions.
Wells is also expanding its wholesale banking operations in Canada and Asia, but Europe offers it by far the bigger prize.
Weiss is attuned to the growth opportunity for the bank in each of these markets, but on being asked if Wells might be looking to make an investment banking acquisition to speed things up, he says such a move is just not something he feels “is on the cards” right now.
Rather, he says that the “organic, cross-selling growth opportunity combined with the portfolio acquisitions, such as the GE deal or when we purchased the energy platform from BNP Paribas in the US [in 2012] better fit our risk appetite and offer plenty of opportunity to grow.”
Cross-selling of products – from loans and treasury services to payments, foreign exchange, M&A and capital markets financing – lies at the heart of Wells’ wholesale banking business, and with 7.2 products sold per client relationship at the end of the first quarter, it is one of the best at it.
Wells’ wholesale banking business reported net income of $1.8 billion on total revenues of just shy of $6 billion in the first quarter – up 6% and 3% respectively on the same period last year.
Wells’ $23 billion acquisition together with Blackstone of GE’s commercial real-estate assets, is a fresh example of how bold it can be.
The deal, announced last month, involves Wells buying $9 billion of performing commercial real-estate loans mostly in the US, UK and Canada, while at the same time providing $4 billion of financing to Blackstone for a portion of the loans the private equity firm is buying.
Wells’ financing role on Actavis’ $70 billion-plus acquisition of Botox maker Allergen, completed earlier this year, provides a fresh example of how bold the firm is becoming. Wells, together with sole adviser JPMorgan and Mizuho stumped up $36.4 billion in bridge loans and $5 billion in revolvers to part finance the transaction, which also required a $4.2 billion equity offering, a $5.1 billion convertible and $21 billion of bonds to finally get it over the line.
Break into the top five global rankings for investment banking revenues would be a “huge ambition to fulfill for a company with which the vast majority of assets and businesses are still in the US”Jon Weiss
Robert Fernandez, head of international capital markets and syndicate at Wells, says that although the bank is not a “big bridge house,” it is deploying a bit more balance sheet and is seeing the results.
This all helps build momentum, helping to push Wells into the top 10 global rankings for investment banking revenues, which Weiss says is gratifying to see but not something that the bank manages its business to.
Could Wells ever break into the top five globally? Weiss says that would be a “huge ambition to fulfill for a company with which the vast majority of assets and businesses are still in the US.”
He adds: “I don’t think we have those aspirations even in the back of our minds.”
Should they ever come forward, capturing a greater slice of the European market will be critical.