Charlie Scharf – ReportWire

What a resurgence in Wall Street dealmaking means for Morgan Stanley and Wells Fargo

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Great news for Club stocks Wells Fargo and Morgan Stanley : The rebound in investment banking isn’t over yet. The catalyst? Dealmaking is expected to continue to rise as the Federal Reserve delivers more interest rate cuts. This should, in turn, boost revenues for a key business within both Wall Street firms. We’ll find out to what extent when Wells Fargo reports earnings on Oct. 11 and Morgan Stanley delivers quarterly results on Oct. 16. Lower borrowing costs tend to spur mergers and acquisitions (M & A) and initial public offerings (IPO), which means more business for the banks. Recent numbers from consulting firm KPMG and financial data provider S & P Global Market Intelligence indicate a solid pickup in activity for M & A and IPOs already. So far in 2024, mergers and acquisitions transaction values and money raised from initial public offerings are largely outperforming all of last year’s lackluster activity. U.S. mergers and acquisitions rose 37% to $1.3 trillion in the first nine months of 2024 compared to the same period a year ago, according to KPMG, citing data through Sept. 15. Global M & A transaction values so far this year of roughly $2 trillion have already beat 2023’s total of $1.6 trillion, according to S & P Global data captured on Oct. 1. The IPO market has improved, too. According to KPMG, public offerings listed in the U.S. raised $28.3 billion during the first nine months of 2024. That’s up 50% year over year. All of this bodes well for the kind of advisory and underwriting fees that investment banks can charge to facilitate these deals. To be sure, M & A and IPO values are still down significantly from their Covid peaks in 2021 after the Fed delivered two emergency rate cuts in March 2020 that took the cost of borrowing to near zero. Rates remained that way until March 2022 when central bankers started their tightening cycle to fight inflation. The Fed hiked rates 11 times over 18 months before cutting rates by 50 basis points last month. Speaking at a National Association for Business Economics event in Nashville, Tennessee, Fed Chairman Jerome Powell said Monday that he expects an additional 50 basis points worth of rate cuts this year — 25 in November and 25 in December. The market is not quite ready to take Powell at his word. As of Tuesday, the CME FedWatch tool was putting roughly 66% odds on a 50 basis point cut in December. Rebecca Brokmeier, group head of KPMG’s investment banking platform, sees “an increase in new deals in the market in the fourth calendar quarter and expects this trend to continue as we move into 2025” while the Fed continues to lower rates. Brokmeier told CNBC Tuesday that a lot of this activity is expected to be driven by private equity, which is “more reliant on low interest rates for transactions than corporations and have record levels of dry powder to deploy as well as long-held assets that must be exited in order to return cash to their investors.” MS YTD mountain Morgan Stanley (MS) year-to-date performance For Morgan Stanley, a resurgence in its investment banking division is crucial to our investment thesis and why we stuck with it. Following nearly two downbeat years, we saw reason to be optimistic about Morgan Stanley’s IB business last quarter, which was out in July. IB segment revenue jumped 51%. Breaking IB down further, advisory and equity underwriting fees both surged 30% and 56%, respectively, from the prior year. Last month, however, Jim Cramer criticized the stock’s underperformance , adding that he was considering exiting Morgan Stanley and swapping in investment banking rival Goldman Sachs , where he used to work during his days on Wall Street. Part of that underperformance came after co-president Dan Simkowitz said that M & A and IPOs will remain below trend for the rest of 2024 at an industry conference. To be sure, he also predicted that this activity would accelerate in 2025 as the Fed lowers rates. “Morgan Stanley is in no man’s land, too low to sell and too high to buy. That means wait, which is exactly what we are doing,” Jim said during the Club’s Monthly Meeting on Sept. 12, two days after Simkowitz’s comments. “It might be time to say goodbye and pick up some of the much better run Goldman Sachs.” A week later, Morgan Stanley stock rose on the Fed rate cut, and the Club settled for trimming the position . Morgan Stanley has diversified its portfolio and moved more heavily into wealth management in recent years to reduce its exposure to the volatility of the IB business. So, it remains to be seen how investment banking performance fits into the whole profit picture. WFC YTD mountain Wells Fargo (WFC) year-to-date Morgan Stanley’s IB business is much larger than Wells Fargo’s. However, Wells Fargo, known for its roots as a traditional money center bank, has been working diligently to build out its dealmaking side of the shop. It’s kind of the opposite of Morgan Stanley. Wells Fargo, which has a strong wealth management franchise, is branching out to take a slice of the IB pie. Wells has made a series of senior-level hires in recent years to expand its corporate and investment banking (CIB) division. This helps the bank rely less on interest-based incomes from its consumer lending business, which have been long at the mercy of the Fed’s monetary policy decisions. We’ve seen positive signs already, as CIB revenue jumped 38% year over year in the July quarter. “We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” Wells Fargo CEO Charlie Scharf said during the July 12 earnings call. “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading and investment banking fees.” In another positive development in Scharf’s bid to clean up the bank’s past missteps and get regulatory permission to expand, Bloomberg News reported last week that Wells Fargo submitted a third-party review of its risk and control overhauls to the Fed in an effort to get the central bank-mandated $1.95 trillion asset cap removed. The restriction was put in place by the Fed in 2018 after a series of scandals under previous leadership. (Jim Cramer’s Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Federal Reserve Chairman Jerome Powell speaks during a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building on September 18, 2024 in Washington, DC.

Anna Moneymaker | Getty Images

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October 2, 2024

Here’s what Morgan Stanley, Wells Fargo stand to gain from lower interest rates

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Big Wall Street banks and interest rates have a complicated relationship. As the Federal Reserve on Wednesday afternoon embarks on easing monetary policy, banks are hoping for a more normalized bond market yield curve, with a wider spread between the short end and the long end. Banks make interest income by paying for deposits at a lower rate and lending at a higher rate. They also make money on fee-based services in businesses that pick up when rates are lower. “These banks are pretty sophisticated,” Erica Groshen, former New York Fed vice president, told CNBC in an interview. “They have been managing their risk all along knowing that eventually, interest rates were going to come down.” Groshen, a senior economic advisor at Cornell University, added, “The Fed has been doing a pretty amazing job of getting very close to a soft landing” as a stable economy can lift all boats. On the interest side, banks pull levers and push buttons to make the best of any rate environment. But the clearest line of sight to the benefits of lower rates is in investment banking because cheaper borrowing costs tend to encourage more mergers and acquisitions and initial public offerings. Banks take fees from clients putting together deals and taking their companies public. For Morgan Stanley , a rebound in capital markets is crucial to the Club’s investment thesis. While diversifying in recent years to become less dependent on investment banking, it’s still a big part of the business. When the Fed started hiking rates in March 2022, M & A and IPO activity grounded to a halt. Would-be clients sought to conserve capital on concerns about a recession. Dealmaking, however, has picked up this year on the prospects of lower rates. The Club has stayed with Morgan Stanley on expectations that its investment banking outfit will flourish again. MS YTD mountain Morgan Stanley (MS) year-to-date performance There has been some progress so far. Morgan Stanley was tapped for high-profile deals like Reddit’s IPO in March. Investment banking, which falls under Morgan Stanley’s Institutional Securities, accounts for roughly 46% of overall revenue. The division handily beat on second-quarter revenue . Morgan Stanley’s IB revenue increased 53% year-over-year, while advisory fees and equity underwriting fees jumped more than 30% and 56%, respectively. Still, Jim Cramer recently said there have not been enough signs of a recovery at Morgan Stanley. The stock’s underperformance compared to peers and the market has disappointed him. Shares of Morgan Stanley are up 7% year to date, versus the KBW Bank Index ‘s nearly 17% gain and the S & P 500 ‘s 18% advance in 2024. Jim has said he’s considering swapping Morgan Stanley for his old shop Goldman Sachs . “Morgan Stanley is in no man’s land, too low to sell and too high to buy. That means wait, which is exactly what we are doing,” he said during last week’s September Monthly Meeting. “That said, I think we have battled enough.” At Wells Fargo , the Club’s other financial name, lower rates should help its burgeoning investment banking business. While known as a traditional money center bank, CEO Charlie Scharf has been diversifying the firm’s business mix. Wells Fargo shares year-to-date have performed better than Morgan Stanley, gaining 11%. However, the stock was still trailing KBW and the S & P 500 over the same stretch. WFC YTD mountain Wells Fargo (WFC) year-to-date performance The Corporate and Investment Banking division makes up 23% of overall revenue. However, management has made significant strides to expand CIB through a slew of senior hires. These investments are helping Wells Fargo to rely less on interest-based revenue streams, which are at the mercy of the Fed’s policy rather than management’s own strategy. “Wells is doing incredibly well and I think that CEO Charlie Scharf has a winning formula for when rates go down,” Jim said, referencing the firm’s CIB expansion. Investment banking at Wells Fargo houses its Commercial Real Estate portfolio — once one of the largest among big banks. The estimated $21 trillion CRE sector has experienced mounting troubles due to higher vacancy rates and higher odds of delinquencies. However, with rates coming down, Wells Fargo’s CRE exposure becomes less of a concern for investors because cheap borrowing costs lead to more property sales and rentals. To be sure, Wells Fargo management said during July’s second-quarter earnings call that the bank will continue to de-risk its office portfolio. (Jim Cramer’s Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Federal Reserve Bank Chair Jerome Powell announces that interest rates will remain unchanged during a news conference at the bank’s William McChesney Martin building on May 01, 2024 in Washington, DC.

Chip Somodevilla | Getty Images

Big Wall Street banks and interest rates have a complicated relationship.

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September 18, 2024

Buying into Charlie Scharf’s 5-year turnaround plan for Wells Fargo just got a bit cheaper

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When Charlie Scharf took the reins at Wells Fargo five years ago, the bank was in turmoil. A series of scandals landed it in the regulatory doghouse — dealing a major blow to the 172-year-old firm’s reputation and leading to a multi-billion-dollar plunge in its stock market value. Fast forward to 2024: Wells Fargo looks like a different bank altogether — and despite Friday’s post-earnings decline, the turnaround is still humming. Wells Fargo tumbled more than 6% to under $57 per share after missing expectations on quarterly net interest income (NII), a key measure of lending profitability. Investors on Friday were more concerned about NII weakness than overall second-quarter revenue and earnings per share (EPS) beats. Management’s drive under Scharf into fee-based businesses such as investment banking helped offset softer NII. However, since investment banking revenue is tied to compensation, the bank had to raise its expense outlook for the year. That’s a good problem to have. In Friday’s earnings commentary , the Club upgraded Wells Fargo back to our buy-equivalent 1 rating — viewing Friday’s drop as an opportunity to add shares. Expansion into new markets has been a hallmark of Scharf’s tenure, along with an overhaul of senior leadership and an improved standing with regulators. Taken together, it shows just how far the CEO has gone to rehabilitate Wells Fargo. Investors have taken notice. Despite Friday’s setback, shares of Wells Fargo are still up more than 15% so far this year, compared to 13% for the KBW Nasdaq Bank Index , which tracks the performance of major U.S. banks. Since Scharf was announced as CEO in September 2019, Wells Fargo shares gained 12.5% — on par with the banking sector. The stock hit a multiyear high of $62.55 per share in May, which was only a few dollars off its January 2018 all-time record close of nearly $66. “Scharf has done an incredible job fixing up Wells Fargo,” said Jeff Marks, director of portfolio analysis for the CNBC Investing Club. “Before he joined, the bank had a bloated cost structure, lagged in technology, and suffered from a horrible reputation. Scharf and his team have right-sized costs, invested in tech, and materially enhanced the bank’s risks and controls.” A big part of Scharf’s job has been moving the company through all the regulatory hurdles that were put in place after the scandals of the late 2010s. In 2016, Wells was found to have opened millions of unauthorized bank accounts under customer names as employees tried to meet high-pressure sales goals. Just a year later, the bank was accused of charging hundreds of thousands of people for auto insurance they did not need, many of which resulted in delinquencies. Among those affected were active duty military service members. That same year, Wells Fargo admitted to improperly charging home lending customers for mortgage-rate-lock extensions as well. WFC YTD mountain Wells Fargo (WFC) year-to-date performance The Federal Reserve ordered Wells Fargo to freeze its balance sheet in 2018, keeping its assets below $1.95 trillion until senior management cleaned up its act. The most recent sign that Scharf is repairing that damage came in February when the company cleared a major regulatory hurdle tied to the 2016 fake accounts scandal. The bank said in a release that the Office of the Comptroller of the Currency terminated a consent order, or penalty, that forced it to change how it sells its retail products and services. This was a “huge accomplishment” and another big step toward removing the Fed’s asset cap, said Bank of America analyst Ebrahim Poonawala. “As we know, getting regulatory issues resolved is not an easy task for large organizations, and I think that if the bank can get out of the asset cap over the next year or so, that will be a big boost of additional credibility for Charlie and his leadership,” he added. The asset cap places a constraint on Wells Fargo’s growth by prohibiting the bank from doing more lending and, in turn, increasing interest incomes. It also keeps the bank from acquiring other high-growth companies or making strategic investments that could increase its assets beyond that nearly $2 trillion threshold. To be sure, Scharf and Wells are not out of the woods yet. The bank has cleared six of 14 consent orders from the Office of the Comptroller of the Currency. While they don’t all need to be cleared before the U.S. central bank lifts the cap, more progress is still needed. During a banking conference in May, Scharf said Wells had eliminated the aggressive sales targets and certain incentive plans at branches that initially spurred bad behavior. The bank has also paid billions to regulators over the years. In 2022, the Consumer Financial Protection Bureau ordered Wells to dish out $3.7 billion alone for violations across its auto loans, mortgages and deposit accounts. But ultimately, it’s up to the regulators to decide if the cap will be removed. “We have to close these orders. We have to build the controls and make them part of the company,” Scharf said. “So, we’re not declaring victory.” In addition, Wells Fargo’s investment banking business, while growing, is small in comparison to the other banking behemoths that also reported Friday. Revenue from Wells Fargo’s investment banking segment in the second quarter jumped 38% year over year to $430 million. JPMorgan Chase ‘s investment banking revenue surged 46% to $2.5 billion. The Club’s other bank, Morgan Stanley , also has a bigger investment banking division. It reports earnings on Tuesday. There’s still a lot to celebrate, however. Wells Fargo parted with most of its senior management from its pre-2019 era and remade its board of directors. Eleven out of the 15 members on Wells Fargo’s senior leadership team have joined since Scharf assumed his role. The same goes for six out of the 13 board members for the financial behemoth. Poonawala said the new hires will help change the company’s culture and build back its reputation for honesty and trust. “I think not having sort of a lot of intense legacy [in management] helps,” he said, adding: “If you look at the org structure, most of these executives are new to the bank during his operating committee. When you look at the turnaround and how this plays out, he’s been able to attract a lot of high-quality talent from competitors, and I think that helps” when fixing a company. Scharf’s plan to move Wells beyond its traditional lending roots is also well under way. A CNBC analysis in late May found that Wells Fargo made at least 17 senior-level hires in its corporate and investment banking (CIB) division since the start of 2023. Under Scharf’s leadership, the bank has poached top talent from Wall Street peers like Scharf’s former employer, JPMorgan Chase. For example, Doug Braunstein, an M & A veteran who spent nearly two decades at the bank, joined Wells Fargo as vice chairman in February to oversee its corporate finance and advisory businesses. “Wells Fargo has historically been known as more of a mortgage bank, but they’ve taken some measures to reduce their sensitivity to the mortgage environment,” Raymond James analyst David Long said in a recent interview. “Charlie and his team brought in several high-ranking bankers in the investment banking arena, and we’re starting to see positive results in that regard.” He added: “The higher-for-longer [interest rate] environment is not conducive to more M & A and other investment banking transactions, but if rates do start to come down, we’re likely to see a pickup in that business, which Wells would be a beneficiary of.” Thursday’s cooler consumer inflation report boosted the case for the Fed to start cutting interest rates, with market odds growing for as many as three cuts by year-end. An expansion into investment banking is beneficial for Wells Fargo because it allows the firm to rely less on interest-based revenues, which are at the mercy of the Fed’s monetary policy. Remember, management forecasted a NII decline between 7% to 9% for fiscal year 2024, and second-quarter earnings on Friday showed that it will likely come in at the top of that range. This is because customers are moving their funds to higher-yielding products as rates stay higher for longer. Instead, fee-based incomes — like those from advisory costs on M & A deals and other IB transactions — are a more durable and less volatile revenue stream. “We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” Scharf said on Friday. “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading and investment banking fees.” Marks said the exec’s strategy is “really working,” citing the second-quarter’s 19% year-over-year increase in non-interest income, which handily beat expectations. “Fee revenues were fantastic, we continue to see Charlie Scharf really make a really big push into this. He’s gone on a hiring spree lately, hiring a lot of ex bankers throughout the industry,” Marks said on Friday. “He wants to make the bank less tied to the yield curve and more tied to the sticky fee-based revenues, but it’s going to take time.” (Jim Cramer’s Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Charlie Scharf, CEO, Wells Fargo, speaks during the Milken Institute Global Conference in Beverly Hills, California on May 2, 2023. speaks during the Milken Institute Global Conference in Beverly Hills, California on May 2, 2023.

Patrick T. Fallon | Afp | Getty Images

When Charlie Scharf took the reins at Wells Fargo five years ago, the bank was in turmoil. A series of scandals landed it in the regulatory doghouse — dealing a major blow to the 172-year-old firm’s reputation and leading to a multi-billion-dollar plunge in its stock market value.

Fast forward to 2024: Wells Fargo looks like a different bank altogether — and despite Friday’s post-earnings decline, the turnaround is still humming.

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July 14, 2024

Wells Fargo CEO talks up reasons to love the stock — plus, what’s behind the market drop

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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Market pressure : The major stock benchmarks were moving lower Wednesday, with the Dow getting the worst of it again. Adding pressure on equities, bond yields moved higher following a poor auction of $44 billion worth of 7-year Treasury notes. Nvidia was bucking the overall market decline, but its modest gain was much cooler than the incredible march higher over the past three sessions after last week’s earnings. American Airlines shares sank roughly 15% after a company sales strategy backfired and the carrier cut growth guidance. Sector watch : All of the S & P 500 sectors were under pressure Wednesday, led by energy and utilities. Tech has been flirting with positive territory as Nvidia, which opened lower, reversed to the upside. Fellow Club names Apple and Microsoft were also in the green. Combined, the three account for nearly 49% of the tech sector index. Apple and Nvidia, our two “own, don’t trade” stocks were also the top performers among the entire 33 stock Club portfolio. Deal movers : ConocoPhillips has agreed to buy Marathon Oil in a $17 billion all-stock transaction. Marathon shares rose about 7.5%, while Conoco stock fell roughly 4%. Additionally, Hess shareholders approved the company’s pending merger with Chevron . And, Merck has reached a deal to acquire privately held Eyebiotech for $1.3 billion in cash. Banking news : Here’s a dispatch from our Investing Club reporter Morgan Chittum about what Wells Fargo CEO Charlie Scharf said Wednesday at Bernstein’s 40th annual Strategic Decisions Conference: Scharf said Wells Fargo has been focusing on investment banking in a “very, very targeted way.” There were several mentions of the bank’s quiet hiring spree to beef up its Corporate and Investment Banking (CIB) division, which we reported on last week . Building out lucrative underwriting and advisory fee capabilities is “staring us in the face,” he added, as long-dormant IPO and M & A activity have started to perk up. Expanding Wells Fargo’s Wealth Management franchise, another fee-based revenue stream is “one of the bigger opportunities” ahead, Scharf said. The bank has around 12,000 advisors and is better positioned than in years past, the CEO added. We have been encouraged by Wells Fargo’s push to boost fees business lines. Scharf said Wells Fargo remains focused on efficiency. The bank has cut staff to 225,000 from 275,000. “The conversation around efficiency is less [about] saving money and it’s more about how do we run a better company,” he added. When the Federal Reserve at some point removes its asset cap on Wells Fargo, Scharf said corporate lending and trading will be areas of growth for the bank. He said he dialed back those areas to stay under the Fed’s $1.95 trillion limit. “When you turn a consumer away, they’ll remember that forever,” Scharf said. Businesses understand and can be won back, he added. The CEO believes it’s just a matter of time before the asset cap is lifted and so do we. Scharf said Wells Fargo was able to get a key regulatory penalty removed back in February by stripping away things like certain incentive plans at branches. The so-called consent order was tied to the bank’s 2016 fake accounts scandal that predated Scharf. There are still several other orders outstanding. Quick hits : The FDA granted accelerated approval for Club name Eli Lilly ‘s Retevmo, which is used to treat certain kinds of advanced or metastatic medullary thyroid cancer in children two and older. Twelve years and older was the prior age threshold. Elsewhere, shares of HubSpot were bucking the broader market decline on further speculation that Club name Alphabet is indeed considering an acquisition. CNBC’s David Faber believes that should a deal occur, it would be all-stock. Up next : Salesforce is set to report earnings after Wednesday’s closing bell. AI monetization commentary and what the team has been seeing in terms of cross-selling opportunities will be key watch items. Foot Locker and Best Buy report before the bell Thursday. Costco is out with results Thursday evening. That will do it for Club name earnings, except for Broadcom, which is set to report next month. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.

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May 29, 2024

Wells Fargo goes on quiet hiring spree to expand from lending. What it means for the stock

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Wells Fargo is breaking out of its lending roots. The bank has quietly gone on a hiring spree to grab a bigger slice of the profitable investment banking business long dominated by its Wall Street rivals. Since the start of 2023, a CNBC analysis found that Wells Fargo made at least 17 senior-level hires in its corporate and investment banking (CIB) division. Leaning on the expertise of its rivals, many of the newly employed executives previously worked at the likes of JPMorgan Chase and other big banks. Expanding investment banking “improves our outlook” on Wells Fargo stock, according to Jeff Marks, director of portfolio analysis for the CNBC Investing Club. “Adding more fee-related revenues to the overall picture makes the bank’s profits less hostage to the bond market yield curve and could improve the overall return profile of the bank.” He added, “Wells Fargo could fetch a higher multiple in the market as a result.” It’s no wonder CEO Charlie Scharf wants a bigger slice of businesses like investment banking, which garner huge revenue from fees. Services like underwriting for initial public offerings (IPO) and facilitating mergers and acquisitions (M & A) allow banks to take home a percentage of these deals and advisory fees. Fees are a more durable and less volatile revenue stream than what Wells Fargo has historically focused on. This is important because, as Scharf said in the bank’s 2023 annual report , the CIB division has positioned Wells Fargo to “increase our fee-based revenues” and “increase our returns overall.” At the top of the recent hire list, however, is Doug Braunstein, a JPMorgan veteran who was brought in as vice chairman in February to help steer Wells Fargo’s corporate finance and advisory businesses. During nearly 20 years at JPMorgan, Braunstein held many roles including chief financial officer, head of investment banking in the Americas, and head of global mergers and acquisitions. Fernando Rivas was named earlier this month co-CEO of corporate and investment banking at Wells Fargo. Formerly head of North American Investment Banking at JPMorgan, Rivas will lead CIB together with Jonathan Weiss, who had been the sole CEO of the division since February 2020. Weiss, also a JPMorgan alum, has been at Wells Fargo since 2005. Rivas had been at JPMorgan for three decades. In addition to those high-profile hires, CNBC found that Wells Fargo also poached top talent from other financial behemoths such as Barclays , Deutsche Bank , Piper Sandler, and now-defunct Credit Suisse — all within the past year. A Wells Fargo spokesperson declined to comment on the total number of CIB-related hires across all levels in the division. However, Wells Fargo’s Scharf said in the press release announcing Rivas’ hire, “We have added over 50 senior bankers and traders since 2020 and have seen the positive impact with increased revenue and market share.” Break from tradition Management has long relied on interest-based revenue streams like net interest income (NII) from its retail and business customers. NII is the difference between what a firm makes on loans versus what it pays for customer deposits. Wells Fargo and other banks have benefited in recent years as the Federal Reserve began hiking interest rates in March 2022. That’s because the cost of borrowing goes up much more than what customers earn on deposits. However, as rates have stayed higher for longer, customers began to withdraw some of their deposits for higher-yielding offerings like money market funds. Wells Fargo said NII decreased 8% during the first quarter, citing interest rate dynamics. Full-year guidance for NII is also expected to decline in the 7% to 9% range. That’s the double-edged sword of rates, which are now expected to be cut by the Fed later this year, and why Wells Fargo was glad to see its CIB-related investments pay off in the first quarter. The division saw a 1.6% increase in revenue to $4.98 billion. During the April 12 post-earnings conference call, Scharf said the bank is “beginning to see early signs of share and fee growth which will be important as we diversify our revenues and reduce net interest income as a percentage of revenue.” From 2019 to the end of 2023, Wells Fargo’s overall investment banking share moved up two ranks in the U.S. market to No. 6, management said in an annual report , citing Dealogic figures. More recent data indicates that Wells Fargo’s investment banking revenue share globally has jumped to No. 7 from No. 12 year-over-year, as of Tuesday. In the investing banking subset of M & A, Wells Fargo has been garnering more fees. The bank has been tapped for a series of high-profile deals as well, including Kroger ‘s attempted nearly $25 billion acquisition of Albertson’s in October 2022. The transaction is in limbo after the Federal Trade Commission filed a lawsuit to block the merger in February . In IPOs, Wells Fargo was among the lead book-running managers of recent IPOs: cruise line Viking and data management firm Rubrik . Wells Fargo shares, which began their upward trajectory back in November, gained more than 50% in the past 12 months — and about half that gain in 2024 alone. That’s roughly double the S & P 500 ‘s performance on both measures. The stock saw its highest close last week of $62.55 since mid-January 2018. Shares have pulled back a bit since then but remain only about 7.5% away from its all-time high close of $65.93 at the end of January 2018. In recognition of that strength, the Club trimmed its Wells Fargo position in late April and booked a healthy profit on the trade. While still bullish, we wanted to reduce the stock’s overall weighting in a show of portfolio discipline. It was near the 5% threshold that we don’t like exceeding in order to run a diversified portfolio. The Club has a 2 rating on the stock and a $62 price target . WFC mountain 2018-01-26 Wells Fargo since record high close on Jan. 26, 2018 Moving forward Wells Fargo’s CIB expansion bodes well once the firm’s Fed-imposed $1.95 trillion asset cap is gone. Although the timing is uncertain, Wells Fargo secured a key win with regulators in February after the Office of the Comptroller of the Currency terminated a penalty tied to the bank’s 2016 fake accounts scandal. That so-called consent order was believed to be a major factor in the Fed’s decision to cap Wells Fargo’s asset levels in 2017. Those regulatory burdens for past misdeeds at the bank predated Scharf’s tenure who has been clearing them since becoming CEO in 2019. Piper Sandler analyst Scott Siefers has said that Wells Fargo will be able to compete more effectively against other large Wall Street firms once the growth cap is removed. “Wells Fargo on a relative basis is very undersized in businesses such as investment banking,” Siefers told CNBC in March . “So, one part of the investment banking business is being able to commit capital. In other words, put some risk on your balance sheet. But thanks to the asset cap, Wells has not been able to build out its investment bank to the same degree, as have some of its other peers.” (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A woman walks past Wells Fargo bank in New York City, U.S., March 17, 2020.

Jeenah Moon | Reuters

Wells Fargo is breaking out of its lending roots. The bank has quietly gone on a hiring spree to grab a bigger slice of the profitable investment banking business long dominated by its Wall Street rivals.

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May 24, 2024

Wells Fargo CEO won’t see a raise this year, as his compensation stays at $24.5 million

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Wells Fargo CEO Charlie Scharf’s pay will be unchanged in 2022, according to a securities filing from the bank. Courtesy of Wells Fargo

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January 30, 2023

Tag: Charlie Scharf

What a resurgence in Wall Street dealmaking means for Morgan Stanley and Wells Fargo

Here’s what Morgan Stanley, Wells Fargo stand to gain from lower interest rates

Buying into Charlie Scharf’s 5-year turnaround plan for Wells Fargo just got a bit cheaper

Wells Fargo CEO talks up reasons to love the stock — plus, what’s behind the market drop

Wells Fargo goes on quiet hiring spree to expand from lending. What it means for the stock

Wells Fargo CEO won’t see a raise this year, as his compensation stays at $24.5 million

Another tough year for Wells Fargo

Tag: Charlie Scharf

What a resurgence in Wall Street dealmaking means for Morgan Stanley and Wells Fargo

Here’s what Morgan Stanley, Wells Fargo stand to gain from lower interest rates

Buying into Charlie Scharf’s 5-year turnaround plan for Wells Fargo just got a bit cheaper

Wells Fargo CEO talks up reasons to love the stock — plus, what’s behind the market drop

Wells Fargo goes on quiet hiring spree to expand from lending. What it means for the stock

Wells Fargo CEO won’t see a raise this year, as his compensation stays at $24.5 million

Another tough year for Wells Fargo

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