Wells Fargo's finance bank struggles to regain a foothold

NEW YORK (Reuters) – Wells Fargo & Co's corporate bank has a revenue problem.

While its consumer bank is starting to see signs of recovery after a scandal in business practices that erupted more than two years ago, the San Francisco-based lender struggled to expand its customer base in the region. unit for businesses and institutional clients. Business bank revenues fell 4% last year.

Before the scandal, it grew by 6% per year on average. Because it offers better margins, the health of the corporate bank is essential for Wells Fargo; that's about one-third of the revenue but about half of an annual profit of $ 22 billion.

In September, the bank told investors that although it had kept most customers loyal throughout its scandals, it was struggling to recruit new clients.

This trend has been even more spectacular with the corporate bank where customers tend to stay on the spot. "We had a little more trouble attracting new customers," Perry Pelos, head of the corporate bank, told Reuters.

Corporate clients have a harder time in part because commercial banking relationships are more complex. Commercial customers are looking for cash management services, badistance with import and export transactions and various forms of credit, such as badet-backed loans or revolving lines of credit. These services are usually linked by multi-year contracts; some customers can only switch suppliers every five years.

Wells Fargo executives say they play long games by asking their teams to reach out to potential customers to build relationships that hopefully will pay off later.

"I have lived through a generation of homeowners before I won the contract," said Greg O'Brien, director of the New England Business Banking Division.

Reputation issues

Last year, leaders and badysts identified signs of life in the Wells Fargo consumer unit for the first time since the 2016 scandal that rocked the bank. Primary chequing accounts increased 1.2% in 2018 and auto loans increased 9% in the last quarter.

The corporate bank, however, continues to languish. According to badysts, when business customers plan to switch banks, Wells Fargo's lingering reputation issues complicate sales. Consumers do not have to justify their decision to open a new credit card to anyone, said Brian Foran, an badyst at Autonomos. Corporate decision-makers, such as the treasurer, are accountable to the board of directors and other officers.

"At the margin, some of them will say: Wells Fargo is very good but JPMorgan is too," he said. "Right now, no one gets fired for hiring JPMorgan."

Wells Fargo officials admit scandals continue to worry some customers. "I certainly attended meetings where this happens," O'Brien said.

The scandal began with the disclosure by the lender of having opened unauthorized accounts for consumers. Later, Wells Fargo revealed that bank employees inappropriately altered customer information on certain documents. Wells Fargo has accumulated billions of fines. Last year, the Federal Reserve imposed a punitive cap on its badets, preventing it from adding to its balance sheet until improved risk management.

Pelos, the head of the bank, tried to offset the decline in revenues by cutting costs. But the 3% cuts last year were not enough to offset the decline in revenues. Although 2018 profits have increased, unity has become less efficient. A key measure that measures the cost of a dollar of revenue, went from 55% the previous year to 56%.

Wells Fargo has not provided a business forecast for 2019 for its corporate bank. "They are confident in their ability to meet their spending targets, but they have less confidence in the fact that their earnings will grow at the same time," said Foran, the Automos badyst.

Earnings declines are bad for any business, but for Wells Fargo, this raises questions as to whether the type of growth announced before the scandals is achievable with tighter control, badysts said. Previously, the corporate bank focused on developing its cross-sell indicator, which measured the number of products offered by employees to customers, according to the deposits.

The bank is still tracking referrals in different areas of the company, but the company is no longer reporting them publicly.

O'Brien, the head of the Northeast Intermediate Bank, said the cross-selling system, which led to the creation of fake accounts in the consumer bank, did not cause similar problems in the consumer bank .

"We have never created false needs to sell," he said.

Business bank revenues were also affected by the Fed's badet ceiling. The unit no longer carries deposits for central banks and sold some small businesses. In January, Wells Fargo pushed back the planned deadline for raising the six-month badet ceiling.

The executives told Reuters that they "persisted pleasantly" with potential customers by offering them ideas and putting them in touch with their existing customers. So far, their efforts have not paid off, but executives say they have seen signs that client acquisition trends are starting to change.

As proof of the resumption of business, Wells Fargo pointed to recent deals he helped advise, such as Berry Global's $ 4.39 billion public offering on RPC Group Plc.

Earlier this month, Wells Fargo also advised its first global benchmark in USD for the World Bank.

"I think it will be better," said Pelos. "Is it going to be like before? It's hard to call.