Wells Fargo’s Shrinking Loan Portfolio Drags Down Market Share Of Largest U.S. Banks

by Trefis Team
+0.28%
Upside
115
Market
115
Trefis
JPM
JPMorgan Chase
Rate   |   votes   |   Share

The total loan portfolio of the five largest U.S. banks crossed $3.7 trillion for the first time in Q3 2017. However, outstanding loans for these banks have grown by just 1.8% over the last twelve months – a figure that is roughly half the 3.4% loan growth reported by the U.S. banking industry as a whole. The single biggest contributor behind this trend is the steady decline in outstanding loans reported by Wells Fargo in each of the last three quarters, as a series of scandals involving the bank hurt customer confidence in the banking giant. Also, Bank of America and Citigroup reported sub-par growth due to their continuing focus on cleaning up their legacy mortgage portfolio.

We maintain a price estimate of $56 for Wells Fargo’s shares, which is slightly below the current market price.

The table above shows the average loan portfolios for each of the five largest banks over the last five quarters, and includes figures taken from their quarterly SEC filings. The total figure for all U.S. banks is as compiled by the Federal Reserve here.

Loans for U.S. commercial banks have seen considerable growth since 2010 as the U.S. economy recovered from the downturn. Growth rates were aided by the Fed’s decision to maintain interest rates at record low levels over 2009-2015, with annual loan growth rates being an extremely strong 10% for most of this period. But the Fed’s rate hike process has hit the pace of loan growth in the country over recent quarters.

Notably, the total loan portfolio of the five largest U.S. banks represents around 40% of all outstanding loans across U.S. commercial banks, according to quarterly data compiled by the FDIC – roughly the same as their share of total deposits held by U.S. banks. However, the combined market share of these five banks in terms of loans outstanding has been steadily shrinking over recent quarters in contrast to the gradual increase in their share of total deposits. As we pointed out, the key reason for this is Wells Fargo’s declining loan portfolio. In the short term, Wells Fargo will struggle to increase lending, as the banking giant faces the uphill task of restoring customer trust. The bank’s retail lending activity in particular has been hit hard since last September, and will likely continue to weigh on the total loan portfolio over coming months.

The chart below shows Wells Fargo’s card loan portfolio over the years and our forecast for it going forward. You can understand the partial impact of changes in these loans on our estimate for Wells Fargo’s share price by modifying this chart.

See full Trefis analysis for U.S. Bancorp | Wells Fargo | JPMorganBank of America | Citigroup

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!