With a lot of past revenue and profits being dried up through new government regulations, major banks are looking for other sources of revenue, and with Wells Fargo (NYSE:WFC), like many other major banks, investment banking could be the answer for the years ahead.
For years Wells Fargo has been a consumer banker, and still is. But now that they’ve been working for some time with the investment banking unit which came with Wachovia when they acquired them, they’re increasingly looking at it as an important engine of revenue growth and profits.
Rob Engel and Jonathan Weiss, who both head up the investment banking division at Wells Fargo, are motivated to make this a reality and have recently stated they have the people and ability to become a “Top Five equity house.”
The question the leadership will have to answer is how much their revenue and profits will decline from the regulations they have to now adhere to. If growth isn’t what they want it to be in that atmosphere, they may have to focus stronger on investment banking to make up for the shortfalls in profits which will accompany the new rules.
At this time about 70 percent of the profits at the company come from small businesses and consumers. It that is cut into in any significant or sustainable manner, we probably will see a renewed emphasis on the investment banking business of the company, and if that happens, I wouldn’t be surprised to see Wells Fargo become one of the top five in the nation.
Even so, most following Wells think this is highly unlikely, and they will probably find new ways of generating revenue and profits without overly committing to the equity underwriting market.
