Comparing Wells Fargo’s Profitability to Bank of America and Peers



Wells Fargo’s profitability

Wells Fargo (WFC) ranks fourth in terms of profitability in the S&P 500 (SPY). Wells Fargo has long been one of the most profitable big banks in America. It turned in an ~1.3% return on average assets (or ROAs) in 2015.

JPMorgan Chase (JPM) and Bank of America (BAC), meanwhile, generated ROAs of 0.99% and 0.74%, respectively. Wells Fargo’s asset portfolio has grown from $575 billion in 2007 to $1.8 trillion in 2015.

A large portion of this growth is attributable to Wells Fargo’s (WFC) 2008 acquisition of Wachovia, which doubled WFC’s asset size. However, the rest of the company’s growth has been organically driven by a solid loan portfolio and portfolio acquisitions.

In 2015, Wells Fargo took over the loan portfolios from GE Capital, which added $32 billion in total assets.

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High net interest margins

Maintaining a high net interest margin has always been part of Wells Fargo’s (WFC) strategy. The net interest margin is the difference between interest income generated by loans and interest paid on deposits divided by their total assets.

Wells Fargo’s ability to generate high deposit and loan growth has fueled its margins. The net interest margins of major banks (XLF) (IYF) have been at historical lows as the Federal Reserve has maintained near-zero policy rates.

Wells Fargo’s (WFC) net interest income increased by 6% to $11.7 billion in 1Q16. However, its net interest margin declined by 2 basis points year-over-year to 2.9% due to variable income sources.

In comparison, Bank of America (BAC) and Citigroup (C) reported net interest margins of ~2.1% and ~2.9%, respectively, in 1Q16. For more information, please read Comparing Wells Fargo and Bank of America’s Profitability.


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