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Why Wells Fargo’s Earnings Are Resilient to Global Weakness

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Wells Fargo’s trading and investment banking business

Wells Fargo relies less on investment banking and trading revenues than its peers JPMorgan Chase (JPM), Citigroup (C), and Bank of America (BAC) do. The investment and trading businesses are expected to display weakness during the quarter, given turbulent market conditions and low client activity.

Generally, the first quarter is expected to be the strongest for banks’ trading divisions, as traders open new positions and set out their strategies for the rest of the year. However, 1Q16 hasn’t been favorable to client activity and trading, as financial markets have been extremely volatile during the quarter.

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Wells Fargo is less reliant on trading and investment banking revenues

Last month, JPMorgan Chase expressed concerns about low client activity and volatile financial markets hampering trading-related revenues. JPMorgan expects its sales and trading revenues to fall by 20% year-over-year during the first quarter.

Citigroup also warned that its trading revenues would fall by 15% during the quarter. While JPMorgan, Citigroup, and Bank of America derive 15%–20% of their non-interest income from trading activity, this activity constitutes less than 1% of Wells Fargo’s non-interest income.

Further, investment-banking revenues are also expected to be affected due to low mergers and acquisitions activity, another area where Wells Fargo’s exposure of 4% is insignificant compared to its peers.

Dealogic estimates that investment banking fees around the world have fallen by 36% so far this year compared to this time in 2015. The banking industry (XLF) is on track to record the lowest quarterly total of investment banking fees since the height of the financial crisis at the beginning of 2009.

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