Wells Fargo to expand investment bank as CEO Scharf sets strategy

San Francisco

WELLS Fargo & Co, rarely seen as a major force in the world of trading and dealmaking, aims to expand its investment bank in coming years.

It's part of a strategy that chief executive officer Charlie Scharf has been developing since taking over the troubled consumer and commercial banking giant 14 months ago from its offices in New York, according to senior executives.

The push would take the fourth-largest US bank a step closer to emulating some of its biggest rivals, including JPMorgan Chase & Co, where Mr Scharf spent over a decade before running Visa Inc and Bank of New York Mellon Corp.

Inside Wells Fargo, managers say they intend to build a more commensurate presence on Wall Street, where the firm ranks a mere ninth in capital markets and deal advisory, by focusing on business lines and industries where it already has credibility. That would translate, for example, to providing more underwriting and merger advice to corporate clients, but also lending to hedge funds looking to ramp up bets.

"We, obviously, on the investment-banking side don't have the same market share that we have on the commercial-banking side," Jon Weiss, head of the corporate and investment-banking business, said in an interview. "The opportunity that we have is to narrow that gap."

Mr Scharf has been running the San Francisco-based company with a mission to overhaul operations after scandals eroded earnings and led the Federal Reserve to slap a cap on the bank's assets, now at about US$1.92 trillion.

While he's made appeasing the authorities his top priority, he also launched a deep review of the firm's units and has begun taking key steps. Some parts of the company, such as its branch network, are being streamlined. Others, like its asset-management arm, have been tagged for potential sale.

But so far executives haven't detailed their ambitions for the investment bank aside from general comments that it has potential. The plan now emerging underscores Mr Scharf's interest in building up, rather than downplaying, that division. The caveat is it will take a few years for the expansion to gain momentum, especially with the asset cap in place.

The CEO began setting the stage last year when he broke the company's three business lines into five - splitting the investment bank into a division that reports directly to him. He placed Mr Weiss atop the unit. This month, it's expected to begin publishing standalone results, giving shareholders numbers to assess its progress.

"Charlie wants to evaluate the business and grow the business," Mr Weiss said. "And that's new and that's exciting."

Giving the investment bank a direct line to the CEO's office - rather than wrapping it into a larger division - had a "huge energising impact on the entire team".

Part of the offensive relies on Wells Fargo's strengths in other areas. The company already runs a powerhouse commercial bank, providing loans and services such as cash management to legions of middle-market companies across the US. It's also the nation's top commercial real estate lender. Executives plan to lean harder on those C-suite relationships to win more mandates underwriting sales of bonds and stocks.

Operating committee members including Mr Scharf are reaching out personally to company leaders to ensure that Wells Fargo is included when they pursue deals, said sources.

The bank certainly has share to gain: The firm ranked sixth in underwriting US investment-grade bonds last year and seventh in US high-yield bonds, according to data compiled by Bloomberg. It ranked 14th in US equity offerings. Rivals such as Goldman Sachs Group Inc are also offering more Wall Street services to middle-market companies.

But Wells Fargo believes its longstanding connections to many such enterprises can still give it an edge in landing mandates for capital markets and advisory deals.

Its executives also see opportunities to use the bank's prowess in lending to do more business in markets. "One area where we note that we are underpenetrated relative to some of our competitors is on the financing front," Mr Weiss said. "So whether that's repo financing or equities financing, prime-services-type financing, those are areas that there's no question we have significant upside in."

Industry veterans will recognise elements of Wells Fargo's approach. The company telegraphed similar ambitions more than a half-decade ago. Back then, the lender had just successfully navigated the financial crisis and was churning out record profits as competitors were still retrenching.

JPMorgan CEO Jamie Dimon even publicly predicted to his shareholders in 2014 that Wells Fargo would be "a major investment bank" within five years.

But in September 2016, Wells Fargo's ambitions were tossed in limbo when a series of scandals erupted in its branch network. In early 2018 the Fed imposed a cap on the company's assets - essentially limiting Wells Fargo's growth - until its leadership addresses lapses.

Even with the cap in place, managers see ways to earn more from the division. The need for doing so became all the more apparent amid the economic shocks of 2020, as rivals with larger trading operations pulled in billions of dollars in revenue from a flurry of market activity, offsetting their potential losses on loans. Mr Scharf has listed credit cards and wealth management as among other businesses that present opportunities for revenue.

Mr Weiss is also a veteran of JPMorgan, spending 25 years at the firm and its predecessors before joining Wachovia in 2005, just a few years before its sale to Wells Fargo. BLOOMBERG