Wells Fargo Sees Room To Expand Investment Banking
11 Avril 2011 - 9:06PM
Dow Jones News
Wells Fargo & Co. (WFC) has finally landed Warren Buffett's
Berkshire Hathaway Inc. (BRKA,BRKB), the bank's biggest shareholder
and an owner of the stock for more than 20 years, as an
investment-banking client.
In January, Buffett hired the San Francisco bank, the second
largest in the U.S. by deposits after Bank of America Corp. (BAC),
to help underwrite a $1.5 billion bond offering.
For Wells Fargo's modest investment bank--the smallest by far of
the four largest U.S. commercial banks--the deal shows it is
starting to gain some muscle.
Wells Fargo's goal now is to boost revenue at the investment
bank, which has a staff of about 700, by 10% to 20% a year in the
foreseeable future, said Jonathan Weiss and Robert Engel, the
co-heads of investment banking and capital markets, in a recent
interview.
Expanding the investment bank would help Wells Fargo overcome
limits it faces in commercial and retail banking, where it is
already so large that growth is difficult.
Wells Fargo will face challenges. Its brand isn't well known in
investment banking, and "they don't appear interested in hiring
expensive bankers" to grow, said Frederick Cannon, Keefe, Bruyette
& Woods Inc.'s chief equity strategist.
Engel said, "Our biggest challenge is to continue to deepen the
relationships Wells already has so that more CEOs and boards view
Wells Fargo as the trusted advisor for all their strategic banking
needs, including accessing the capital markets and M&A."
Wells Fargo is using its $1.3 trillion balance sheet to help
lure investment-banking customers by offering loans along with bond
and stock underwriting deals. "Wells is a bank that likes to lend
money. Not every investment bank has that approach," Weiss said.
Wells Fargo will also rely on its tested cross-selling
strategy--selling more to customers the bank already has. It isn't
looking for big acquisitions and is unlikely to go on a massive
hiring spree.
The unit's contribution to Wells Fargo's bottom line isn't
disclosed. It's part of Wells Fargo Securities, which also includes
the bank's trading, derivatives, and large-corporate-banking
businesses. The bank did say investment banking revenue from
underwriting and merger and acquisition advising increased 44% in
2010 from a year earlier.
The bank remains far behind rivals in equity and bond
underwriting, according to data from Dealogic. But in some
businesses Wells Fargo has been catching up fast since its
acquisition of Wachovia Corp. in late 2008.
In U.S. leveraged lending, Wells Fargo didn't figure and
Wachovia ranked ninth and eighth in 2007 and 2006, respectively;
the combined firms ranked third in 2009 and 2010. Further, Wachovia
wasn't among the top 10 banks making financial-sponsor-backed
loans; last year, Wells Fargo ranked No. 5, according to
Dealogic.
Keefe Bruyette's Cannon, who follows Wells Fargo, estimates it
might generate $3 billion or $4 billion a year in investment
banking revenue. "If you can grow that... it can become
meaningful." J.P. Morgan booked than $6 billion in advisory and
underwriting revenue last year, and Bank of America's investment
banking revenue was $5.5 billion. In trading, however, J.P. Morgan
and Bank of America dwarf Wells Fargo's equivalent operation.
Wells Fargo is the nation's second-largest commercial
lender--Bank of America is the largest, according to SNL
Financial--the largest mortgage lender, and has the most bank
branches. "A lot of investors are generally skeptical about Wells'
ability to grow because they have such big market share" in
banking, Cannon said. Investment banking is "one of the few
businesses where Wells has such a small market share they can drive
really strong growth."
Before buying Wachovia, Wells Fargo had only dabbled in
investment banking. Chief Executive Officer John Stumpf told
investors last year investment banking "has changed a lot." There
are fewer competitors now and Wells Fargo is a bigger company with
more clients who need capital-market access.
Dole Food Co. (DOLE), a long-standing Wells Fargo client that
hadn't used Wachovia's investment bank, added Wells Fargo as
bookrunner when it went public in October 2009. Dave Delorenzo, CEO
of the fruit and vegetable company, said in an interview Dole
already did commercial banking with Wells Fargo, and "We think they
have a very good team in place" in investment banking.
Wells Fargo's balance sheet may well be its sharpest weapon.
Wells Fargo advised RockTenn Co. (RKT), a paper products company
and Wachovia client, on its pending $5 billion purchase of
Smurfit-Stone Container Corp. (SSCC), and led a $3.7 billion loan
to finance the transaction. RockTenn Treasurer John Stakel said the
big balance sheet of Wells will help build its investment banking
platform.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
Smurfit-Stone Container Corp. Common Stock (NYSE:SSCC)
Graphique Historique de l'Action
De Août 2024 à Sept 2024
Smurfit-Stone Container Corp. Common Stock (NYSE:SSCC)
Graphique Historique de l'Action
De Sept 2023 à Sept 2024