Wells Fargo lifts investment banking ambitions

9 min read
Americas, EMEA
Steve Slater

Wells Fargo is punching below its weight in most areas of investment banking and is attempting to reverse that by hiring senior bankers and investing in products and platforms to lift revenues, mostly by targeting greater fees from existing clients. It sees opportunities to gain share in particular in M&A and ECM, and is also keen on targeted overseas growth, such as for Yankee bond issuance.

Wells Fargo CEO Charles Scharf has flagged his bolder plans for the corporate and investment bank several times in the past year, and doubled down on that earlier this month – saying previous management had lacked conviction to invest in CIB for the past 15 years, but that has changed.

"I said this very consistently, which is we are extremely underpenetrated across almost all segments of the investment banking space," Scharf said after the bank’s Q1 results.

"It's just not something that the senior management team here was supportive of, and we feel very differently than that," he told analysts.

The San Francisco-based bank has long had potential to be a bigger player in investment banking and trading, especially after its purchase of Wachovia in 2008. It has a strong position in debt underwriting, leveraged finance and bond trading in its home market, but progress in other areas has often stuttered.

There has been evidence of progress since Scharf took over as CEO in late 2019, however. CIB wasn't even reported separately before he restructured the bank. In 2023, the division's revenues hit US$19.2bn and net income was US$6.4bn, up 26% and 17% respectively from 2022. This month, the bank reported CIB revenues in the first quarter improved 2% from a year earlier and net income rose 9%.

Within that, investment banking revenues were US$1.4bn last year, up 16% from 2022, and were US$474m in Q1, up 69%. Wells ranked eighth for global investment banking fees in January–March, the same position it had for full-year 2023 and 2022, up from 10th in 2021, according to LSEG data.

“CIB represents a growth opportunity for the bank, but we already have really good momentum in these businesses,” said John Langley, chief operating officer for CIB and head of international.

Most banks are looking to win share from the likes of Citigroup as it restructures and Credit Suisse after its takeover by UBS, but the fight for that is as intense as ever.

Langley said the biggest opportunity comes from providing more products to existing Wells clients.

“We’ve been investing for the last couple of years in talent and have hired a number of senior bankers across a range of coverage roles and sectors as well as product areas such as M&A, ECM and leveraged finance.

“That’s primarily to drive more fee income from our existing clients – we have great lending relationships and transaction banking relationships with these clients but we want to drive more fee income and frankly have a deeper relationship with them," he told IFR.

The bank is far more reliant on its US heartland than rivals who have bigger international networks, and that is reflected in league tables.

Wells ranked sixth for fees in the Americas in the first quarter and for full year 2023, whereas in EMEA it was around 40th and lower in Asia. In the US, it ranked third for DCM fees in 2023 and Q1, and for syndicated loan fees it was third in 2023 and fifth in Q1; it ranked ninth for US ECM fees last year and 13th in Q1, and was 16th for M&A fees last year and 12th in Q1, the LSEG data showed.

“The aim is really to drive more strategic dialogue that will help to grow the M&A and ECM businesses alongside DCM and leveraged finance,” Langley said.

Scharf told analysts Wells had hired more than 50 senior bankers since 2019 under its investment in "talent and technology" in CIB.

Several big hitters joined in the last year, including Doug Braunstein as a vice-chairman. Braunstein spent almost two decades at JP Morgan, in roles including head of Americas investment banking and head of global M&A.

Other arrivals last year included Jeff Hogan from Morgan Stanley as co-head of M&A; Clay Hale from Citigroup and Jill Ford from Credit Suisse to co-head ECM; Malcolm Price from Credit Suisse as head of financial sponsors; Brian Godofsky from Credit Suisse to head TMT; and Darren Campili from Barclays as head of healthcare.

Those hires show that priority areas include healthcare and TMT, in addition to its long-standing strong suit in oil and energy (now including renewables and transition), and financial institutions, as well as doing more with sponsor clients.

Former JP Morgan banker Jon Weiss has led CIB since 2020, and investment banking is run by former Credit Suisse and BlackRock man Tim O'Hara, who joined in May 2022. Langley is a former Barclays and Merrill Lynch executive who joined in 2019 as head of CIB in EMEA and added oversight of international, and then added the COO of CIB role last year, when he moved to New York.

Target Yankees

Wells has a smaller overseas presence than most of its big rivals, although it has more than 1,000 staff in London (where it opened a new office in 2018, complete with the traditional stagecoach in the lobby) and has offices in Dublin, Paris, Frankfurt, Hong Kong, Singapore and Tokyo and a presence in other cities.

It typically targets US companies that need overseas products or international firms that want access to US markets.

“Our lower cost base outside the US is a competitive advantage. We remain super-focused on managing our cost base and improving our overall return on equity, and that’s paying off,” Langley said.

“Internationally, we’re being very targeted on how we can leverage our strengths in the US to support our global clients."

That plays to areas such as Yankee bond deals. Wells worked on 23 Yankee bond offerings for investment-grade corporate issuers and financials in Western Europe last year, raising a combined US$7bn to rank ninth for bookrunners, according to LSEG data. It has worked on 14 Yankee deals in Western Europe this year, raising US$2.8bn, including for France's EDF and Societe Generale.

Trading too

Scharf is also keen for Wells to grow other areas of CIB, including trading, treasury management and payments, and commercial real estate. It is part of the bank's recovery from a high-profile consumer banking scandal that cast a shadow for years, prompting it to scale back risk.

Wells' trading revenues in 2023 hit US$6.6bn, up 37% on the year, and were US$1.8bn in Q1, up 2%, with the bank trying to tap more revenues there too from the relationships it has in areas such as transaction banking and treasury.

"We do a lot with those institutions but we haven't necessarily leveraged trading flow as part of that," Scharf told analysts. "It really is about getting the right products, the right services, the right people, and calling on our customer base with a different degree of credibility and desire that we've had in the past."

Wells still lags well behind the big five US banks for trading revenues, but that also reflects the scale of the pool it can target, with FX seen as a ripe area to target. The bank's push has included investment in electronic trading and courting more institutional clients.

Scharf declined to tell analysts where he wants investment banking or trading revenues to reach when he was asked this month. "What we're focused on are: are we building businesses? Are we taking share in a way which is profitable? And that's exactly what we're starting to do," he said.

Additional reporting by Philip Scipio in New York