Why Wells Fargo focuses on non-interest income

Saul Perez - Author
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Nov. 20 2020, Updated 11:48 a.m. ET

Wells Fargo is different from other traditional banks

Traditional banks usually focus too much on growing their interest income stream. Interest income is the income a bank earns by giving out loans. However, Wells Fargo (WFC) is different.

Wells Fargo wants to maintain a balance between its interest income from loans and non-interest income. Non-interest income comes from selling various financial products. The financial products include equity brokerage, wealth management, mutual funds, and insurance. Non-interest income accounts for nearly 49% of Wells Fargo’s revenues.

 

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Of the income, 49% comes from a variety of sources. The largest part comes from brokerage advisory. This is a result of Wells Fargo’s strength in this business division. Its peers—like Bank of America (BAC), JP Morgan (JPM), Citigroup (C), or other banks in an exchange-traded fund (or ETF) like the Financial Select Sector SPDR (XLF)—also earn a good fee-based income. However, none of the banks can balance income like Wells Fargo.

Fee income as strong as interest income

In the financial year ending in 2013, the bank obtained its income almost equally from interest earning and fees. This helps Wells Fargo. It reduces the bank’s dependence on credit demand, movement in interest rates, and the economic cycle. It also helps the bank decrease the volatility of its earnings.

What’s Wells Fargo’s strategy for fee income in the future?

Wells Fargo wants to increase its focus on fee income more in the future. It will do this mainly by increasing fee revenues from its investments, brokerages, trust, and insurance businesses. Of its customers, 7% have purchased individual retirement arrangements (or IRAs) or hold a brokerage account with Wells Fargo.

Also, 8% of its customers buy insurance through Well Fargo. This is an area where the bank has the opportunity to grow by leveraging its client relationships. Wells Fargo also wants to increase its share in loan markets.

Visit the Market Realist Investment Banking page to learn more.

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