(Bloomberg) - Wells Fargo & Co.’s early test of how much it can grow a trading desk by leaning on relationships across corporate America is yielding a $1 billion answer.
That’s roughly how much annual revenue is being churned out by its foreign-exchange business, a forerunner in the bank’s long-planned expansion on Wall Street, according to people with knowledge of the progress. It’s up by several hundred million dollars in three years and ahead of the firm’s own targets, the people said.
It’s the latest snapshot of Chief Executive Officer Charlie Scharf’s aspiration to turn the lender’s relationships with legions of US companies into more trading and dealmaking. Just a half-decade ago, Wells Fargo’s relatively small currencies desk was reeling from a scandal, after the bank discovered it had overcharged some clients on transactions. Now, senior managers are buzzing.
It’s “the tip of the spear of us building our capabilities,” Mike Riley, co-head of Wells Fargo’s markets division, said in an interview.
Scharf, 58, took over in late 2019 with a mission to resolve the bank’s myriad scandals and resume its once-enviable growth. Though fixing controls has remained the priority, he undertook a deep review of the company’s business lines and strategy, concluding that the corporate and investment bank division should eventually grow much larger. That would diversify Wells Fargo into something more like his former employer, JPMorgan Chase & Co.
That was always going to be a slow process — particularly in trading. Many desks require more capital to scale up, something that isn’t feasible until US regulators are fully satisfied and the Federal Reserve lifts a cap on the bank’s assets.
But currencies were an exception — liquid enough to be “capital light.” In 2020, the firm hired Deutsche Bank AG’s Rob Hitschler to help run daily trading operations and committed itself to a target of doubling the foreign-exchange desk’s revenue over five years.
A spokesperson for the bank declined to comment.
To be sure, Wells Fargo’s trading operations remain far behind those of its larger Wall Street rivals. Even with more capital, its traders may ultimately find it harder to advance in some other markets, where competitors may already have a formidable edge.
Still, executives say the swift success so far demonstrates Wells Fargo’s potential, and they hope it will help them recruit veteran traders for other business lines in years to come.
“This is an interesting proposition for folks,” said Vince Hindman, Wells Fargo’s global head of currencies. “It’s a fun and unique chance to come to a place like Wells Fargo with the size, scale and credit quality that Wells Fargo has and essentially be building a business.”
Wells Fargo was a late entrant in currencies trading. It didn’t offer clients its own platform until 1995, when the bank formed a joint venture with HSBC Holdings Plc. The foreign-exchange business grew out of that as a payments-related offering.
During the depths of the 2008 financial crisis, Wells Fargo scooped up Wachovia, inheriting its larger trading desk and international reach. Yet as the two banks’ operations merged, Wells Fargo’s top brass decided — to the surprise of its own trading leadership — to keep foreign exchange outside of the broader trading division, in line with the old setup. The company bought HSBC out of the joint venture in 2010.
For a decade after the merger, Wells Fargo ran currencies trading from San Francisco, far from its other hubs in New York and Charlotte, North Carolina. Its relatively staid focus on converting corporate payments ended up helping to avoid trouble that would eventually upend larger players.
In 2015, a coterie of firms including JPMorgan and Citigroup Inc. pleaded guilty to a felony charge for conspiring to manipulate the price of US dollars and euros. A network of traders dubbed “The Cartel” colluded to influence benchmark rates, the US Justice Department said at the time.
Though Wells Fargo was absent from that saga, misconduct in consumer banking led the firm to scrutinize virtually all of its businesses. Soon, it emerged that the bank had overcharged hundreds of clients on currency trades over seven years. It would eventually reimburse them about $35 million and pay a Justice Department fine.
‘Thesis’ Proved
In 2017, Wells Fargo moved the currencies desk into its markets unit. It was around then that executives spied an opportunity. The business could earn far more if it persuaded more clients to tap the platform, in large part by building out its ability to provide liquidity to institutional investors.
“We didn’t really expand our franchise,” so much as strengthen existing ties, said Dan Thomas, who co-leads the bank’s markets division with Riley. “These institutional clients are not new clients to Wells Fargo. We do a lot of business with them.”
The approach dovetailed with one of Scharf’s other initiatives: upgrading the company’s technology. In a memo to staff on his first day at the firm, he vowed to make “significant investments.”
That includes overhauling electronic-trading infrastructure. In one of their early moves atop the markets division, Riley and Thomas assigned a deputy to oversee a tech revamp across all asset classes.
“It’s proven out that clients want to do business with us,” Hindman said. “We had that thesis but we didn’t really know until we started onboarding clients, talking about our offering and capabilities.”
By Hannah Levitt
