Wells Fargo unfazed by Brexit, but investment banking build-out slows

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Wells Fargo has been adding to its investment bank even as other banks cut back, but while it's unfazed by Brexit, this aggressive buildout has been replaced by a more selective approach.

Instead, much of the focus has been on hiring for risk management and compliance.

“The growth we experienced in many areas was focused on various key drivers, including brokerage fees, trust and investment management and investment banking, as well as trading gains on customer accommodation and debt securities,” said its CFO John Shrewsberry during today's Q2 conference call. “We saw an increase in expenses related to risk, technology and compliance, both for internal personnel, outside professional services and contract services.

Revenues where stable in the second quarter, at $5.6bn, but resources have been funnelled into adding risk and compliance staff - even if its wholesale division remains a priority.

Investment banking hiring is fizzling out

The wholesale banking division generated a net income of $2.1 billion, a drop of 5% year-over-year but an increase of 8% over last quarter. Wells Fargo was building its London investment banking arm and was highlighted as a bank to watch by J.P. Morgan's Jamie Dimon as it looked to grab more market share.

The investment banking divisions continues making inroads slowly but surely, as Well Fargo’s U.S. investment banking market share of 4.5% was up slightly from its 4.3% market share last year, according to Dealogic data.  But aggressive hiring appears to be over. Jonathan Weiss, the head of the investment banking and trading division at Wells Fargo, has said that the bank plans “a consistent, slow build-out – add a person here, add a person there," as reported by Reuters.

Brexit won’t pose a problem other than keeping interest rates low

Stumpf shrugged off the potential impact of Brexit on Wells Fargo during the Q2 earnings call.

“Brexit has added to global economic uncertainty and could result in rates remaining lower for long than previously expected, but it will have a lower impact on our longer-term business drivers, because as you know we are a U.S.-centric company,” Stumpf said. “The main indicators point to continued strength in the U.S. economy, with the drivers broad-based, including the fact that consumer confidence remains strong.

“The biggest impact of Brexit on our company was the move down in long-term rates,” he said. “A lower-for-longer [interest-rate] scenario puts pressure on all of our businesses.”

Photo credit: Wells Fargo 5/2014 by Mike Mozart is is licensed under CC BY 2.0.b

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