Wells Fargo’s business model
Wells Fargo (WFC) is the strongest among large banks (XLF) in the United States in terms of profitability. It benefits from a diversified business mix, talented management team, and a large deposit base that helps it to be the most profitable among its peers. Wells Fargo has a balanced business model based on three pillars:
- diversified loan portfolio
- balanced spread and fee income
- diversified fee generation
Diversified loan portfolio
Wells Fargo boasts a well-diversified loan portfolio. The company has a healthy split between commercial and consumer loans.
Its foundation is its mortgage portfolio. Although it has cut back on mortgage lending in the last few years due to low interest rates, it is still its strongest growth area. As of 3Q16, it had a loan portfolio of $957 billion. In comparison, peers Bank of America (BAC) and JPMorgan Chase (JPM) had loans of $900 billion and $888 billion, respectively.
Diversified fee generation
The bank has a well-diversified revenue stream for fee-based income, ranging from broker advisory, trust and investment management, and investment banking income.
Low risk, stable business model
Wells Fargo has been considered the strongest and most steady among the “too big to fail” banks in the United States for years, due to its low exposure to global events and prudent management.
Furthermore, the company has less exposure to risky businesses such as investment banking and trading, unlike peers JPMorgan Chase (JPM) and Goldman Sachs (GS). In 2015, trading assets accounted for 4.3% of its total assets, compared with 14.6% for JPMorgan Chase and 14.4% for Citigroup.