Wells Fargo breaks into the upper ranks of global fee earners

Wells Fargo's investment banking operations grew faster than all its rivals in the first quarter and knocked Switzerland's UBS out of the top 10 table of global fee earners, according to Thomson Reuters.

Best known for being the dominant US retail bank, Wells has been quietly building up its investment bank since it acquired Wachovia during the financial crisis in 2008.

It earned $544m of fees from underwriting the issue of bonds, equity and loans as well as advising on mergers and acquisitions in the first three months of 2015, a year-on-year increase of 21.4 per cent.

The San Francisco-based lender earned most of its investment banking fees in the US from capital markets activity and loan syndication. It earned a relatively small proportion from advising on M&A and less than 7 per cent of its fees came from outside the US.

Under Tim Sloan, who stepped up from chief financial officer to run the wholesale banking group last year, Wells has sought to make more profitable use of its many corporate relationships, which include about 95 per cent of Fortune 500 companies.

In the first quarter Wells moved up to ninth place in the global investment banking fee table, unseating UBS, which fell to 11th place as its fees declined a fifth to $434m.

UBS, which is overhauling its investment bank, improved its position in Europe thanks to its work on big deals, such as the $15.4bn sale of Telefonica's UK operation. But it lost significant ground in the Americas, where its fees fell 40 per cent. A person close to the bank said it was "more focused on returns than revenue".

Swiss banks had a poor quarter, as Credit Suisse also fell two places to eighth place, as its fees fell 23 per cent to $707m.

Overall the top five investment banks were stable, with JPMorgan Chase in top slot with $1.49bn of fees, Goldman Sachs close behind in second, followed by Bank of America, Morgan Stanley and Citigroup.

The top European banks were Deutsche Bank in sixth place and Barclays in seventh.

In total, investment banking fees fell 8 per cent year-on-year to $20bn in the three months to March. They were flat in the Americas, but down in Europe and Asia. The drop in investment banking fees contrasts with the trading operations of many banks, which enjoyed a resurgent quarter.

Wells's wholesale banking unit, which includes investment banking as well as many other activities such as commercial mortgages, treasury management and asset-backed financing, earned $7.6bn of net profit last year. That is treble what it earned in 2007, before the Wachovia acquisition.

According to one senior executive at the bank, there is "an all-points bulletin for quality loan growth. [But] if it means scooping up the remnants of other people's wholesale or investment banking activities, we won't do it."

Wells worked on large equity issues for several companies in the first quarter, including Actavis and Citizens Financial Group.

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Wells is also the sole corporate bank for about three-quarters of the Fortune 2000 companies in its mid-market business. "Even where we are killing it, we have a 10 per cent share," the executive said. "Going from 10 to 15 to 20 per cent - those are big steps."

Doug Burtnick, a US portfolio manager at Aberdeen Asset Management, said he has long held Wells for its domestic orientation and the spread of its businesses, across basic lending, capital markets and wealth-management activities.

"We like how they're able to manage their credit in a way that adjusts for the growth rates of various parts of their books," he said. "Where other overcapitalised banks have started to see opportunities, they can get out before profitability compresses."

Wells's investment bank is heavily reliant on the oil and gas sector. In a recent presentation to investors, it said the two sectors provided $200m-$300m of average annual revenue from loan syndications and debt and equity underwriting.

The recent drop in the oil price has left some banks vulnerable to higher defaults on loans made to companies in the energy sector. But it said in its presentation that its 675 energy sector clients, more than half in exploration and production, had "deep relationships" with the bank, with an average of seven products each.

Warren Buffett's Berkshire Hathaway holding company is the bank's biggest shareholder with 9 per cent.

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