Credit offtake weak
Wells Fargo (WFC) continues to see a contraction in its loan book in recent quarters mainly due to strict underwriting guidelines and repayments from existing clientele. Overall banks (XLF) are facing difficulty in expanding their loan books amid rising interest rates, which has pushed corporates to reduce leverage. The Trump administration’s tax cuts are also allowing corporates to generate higher operating cash flows, which should help them reduce leverage in the upcoming quarters.
Wells Fargo’s controversies surrounding fake account openings and the altering of internal records are resulting in lower originations as compared to other banks. The bank is seeing a weaker performance in commercial as well as corporate activity. In contrast, bankers like Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C) are seeing strong penetration into retail offerings and high growth across investment products.
As rate spreads stabilize in 2018, Wells Fargo could find it difficult to augment revenues in the absence of growth in originations. The bank will have to recover from controversies at a faster pace in order to garner credit growth. Its loan book stood at $947.3 billion in the first quarter compared to $956.8 billion in the previous quarter and $958.4 billion in the prior-year quarter.
Wells Fargo’s commercial loan book stood at $503.4 billion, flat sequentially, lower by $2 billion on a YoY basis. The consumer loan book stood at $443.9 billion, down by $9 billion sequentially. The bank’s weaker consumer lending is a cause of concern, as other bankers are managing strong growth in retail credit, credit card loans, and small business loans.