Wells Fargo’s Loan Growth Has Been Sluggish Compared To Peers Over Recent Quarters

by Trefis Team
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Wells Fargo & Co.
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The five largest U.S. banks reported $3.67 trillion in outstanding loans worldwide in Q1 2017. This represents a little more than 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.

The loan portfolio for the five largest U.S. banks have grown by 3.7% over the last five quarters, with JPMorgan witnessing the highest y-o-y jump of 6%. This is a commendable feat given the diversified banking giant’s huge loan portfolio, and also considering the fact that the industry as a whole expanded by just under 5% over this period. While Bank of America and Citigroup reported sub-par growth due to their continuing focus on cleaning up their legacy mortgage portfolio, the latter has also been hurt by negative exchange rate movements over recent quarters.

CB_QA_LoansChange_17Q1

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. The 25 basis point rate hike in December 2015 did not weigh on loan growth, as steady economic growth continued to fuel the demand for new loans – especially commercial loans, and the impact of the two rate hikes in December 2016 and March 2017 have yet to reflect in the loan growth figures.

However, as the Fed sticks to its rate hike schedule, U.S. loans will grow at a slower pace of around 3-4% annually – well below the figures of 10% seen over recent years. That said, consolidation in the U.S. banking industry should have a positive impact on overall loan growth for the largest banks, and we expect most of them to increase lending at a faster rate than the industry as a whole. In the short term, Wells Fargo will struggle to grow as fast as its peers, though, as the banking giant is still struggling to restore customer trust after its fake account opening scandal came to light last September. The bank’s retail lending activity has fallen considerably over the last two quarters, as is evident from the stagnating loan portfolio since Q3 2016.

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

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