Specific skills set required for investment banking
Success in investment banking requires different skills than those applied in traditional banking. Success in investment banking requires a bank to understand capital markets and how deals—mergers and acquisitions, raising equity capital, debt syndication—should be structured and executed.
Wells Fargo’s traditional banking legacy
Wells Fargo & Co (or Wells Fargo) (WFC) started out as a traditional bank with deep ties in the western U.S. The bank chose to grow its traditional banking ventures both in terms of depth, or the number of products offered, and breadth, or geographical reach. In this respect, Wells Fargo was similar to other traditional banks found in the exchange-traded fund, Financial Select Sector SPDR (XLF).
Only in more recent years did the bank venture into investment banking products.
Competition is strong and intense
One of Wells Fargo’s competitors, JP Morgan Chase & Co (JPM), operated in investment banking even before the Glass-Steagall Act of 1933. Later, it fortified its position in the segment by acquiring bulge bracket investment bank, Bear Stearns.
Another competitor, Citibank, of Citigroup Inc (C), acquired a big investment bank in in the late 1990s—Salomon Smith Barney. A third competitor, Bank of America Corporation (BAC), acquired Merrill Lynch. They chose the acquisition route partly due to regulator prodding during the sub-prime crisis.
Following suit, Wells Fargo acquired Wachovia to grow its business during the sub-prime crisis. In the years since, Wells Fargo has increased its focus on investment banking, but still has some catching up to do.
In the last article of the series, we’ll look at the strengths and weaknesses of the bank’s product areas.