While the sluggish macroeconomic environment has been
negatively impacting the investment banking business,
Wells Fargo & Company
) is all set to bolster in that area. The company aims to expand
its investment banking and capital markets business under its
Wells Fargo Securities division.
Situated in Charlotte, Wells Fargo Securities is a relatively
small unit. However, according to industry estimates, it has
tremendous growth potential. The unit is anticipated to account
for roughly 10% of the company's total revenue, up from about 5%
presently. Other banking giants, such as
JPMorgan Chase & Co.
Bank of America Corporation
), garner roughly 20%-25% of their revenue from investment
Management at Wells Fargo believes in establishing the
company's investment-banking business in a way, which is
different from that of its peers. Management plans to concentrate
more on customers and will steer clear of the riskier
Further, the company aims to focus more on services like
underwriting of stocks and bonds as well as advising on mergers.
Processing futures and swaps trades for investor will also be an
area of operation.
The bank is focused on strengthening the futures clearing and
execution business, since it is building a swaps clearing
business required by new regulations. In August this year, Wells
Fargo acquired Merlin. This led to Wells Fargo venturing into the
business of providing trading, reporting and added services to
However, some investors are wary of Wells Fargo's foray into
investment banking might prove costly for the company in the
current situation. Further, the sluggish macroeconomic
environment might pose headwinds.
We believe the recent regulatory upheavals are compelling the
company to turn to investment banking to stimulate growth.
Wells Fargo currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering its
fundamentals, we also have a long-term Neutral recommendation on
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