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Wells run dry

1 March 2016 By Jeffrey Goldfarb

It sounds like Jamie Dimon has been brushing up on his Sun Tzu. The JPMorgan boss appears to be goading one of his biggest rivals into the perilous terrain of global investment banking. He suggested in an interview with Bloomberg that if Wells Fargo wants to compete internationally, it’ll have to buy a Wall Street franchise. That would recklessly push the otherwise boring lender led by John Stumpf deeper into businesses it doesn’t know well.

San Francisco-based Wells Fargo’s generally narrower focus on U.S. home buyers and corporate borrowers appeals to investors these days. Simplicity has trumped sprawl and riskier operations like bond trading since the financial crisis. While JPMorgan trades at 90 percent of its expected 2016 book value, according to estimates culled by Reuters Eikon, the larger Wells Fargo fetches a multiple of 1.3 times.

Dimon gives off the impression he is both impressed by and fearful of Wells Fargo’s slow and steady rise in corporate finance. Though it isn’t top five in any broad market category, Stumpf’s bank claimed 2.5 percent of the industry’s global fees last year, as tallied by Thomson Reuters. That’s a far cry from JPMorgan’s leading 6.9 percent, but put Wells Fargo ahead of the likes of UBS and Lazard, mainly on the back of selling bonds and syndicating loans for clients.

Notwithstanding concerns from regulators, there probably would be some willing sellers of investment banking operations. Barclays, Credit Suisse and Deutsche Bank are struggling to develop profitable strategies in the new capital-intensive world order. Dimon may be theoretically correct in saying top clients operate globally, and Wells Fargo could chase them across oceans with an acquisition leveraging its corporate relationships and lower cost of capital.

History suggests that kind of derring-do is fraught with danger, however. It would be uncharacteristic for Wells Fargo, and undoubtedly spook its shareholders, including Berkshire Hathaway. Stumpf will be familiar with Warren Buffett’s aversion to investment banking. Such a bold move would distract Wells Fargo from the traditional lending at which it excels and developing the technology needed to attract a new generation of customers.

Surely, Dimon wouldn’t want any of that to happen.


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