Which U.S. Bank Has A Larger Commercial Banking Business: Wells Fargo or Bank of America?

by Trefis Team
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WFC
Wells Fargo & Co.
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Wells Fargo (NYSE: WFC) is the third-largest bank in the U.S. by assets, and is best known as the largest originator and servicer of mortgages in the country. Notably, Wells Fargo also has the largest commercial banking business among all U.S. banks because of its strength in the commercial real estate (CRE) industry. Although Bank of America has a larger portfolio of commercial and industrial loans compared to Wells Fargo, the latter’s significantly larger CRE lending portfolio makes it the industry leader when it comes to commercial banking revenues.

Trefis captures the key trends in revenues of Bank of America vs Wells Fargo over the recent years in an interactive dashboard. While Wells Fargo has grown at a slower pace as compared to its peer due to the decrease in mortgage production & servicing income and Fed restrictions on its expansion, its commercial banking division has reported an increase of 59% over the last 5 years – which is more than double the growth Bank of America achieved over this period.

Wells Fargo’s revenues have grown 2% over the last 5 years, whereas Bank of America has reported an increase of 7%

  • Both banks offer a range of services spanning across consumer banking, commercial banking, investment banking and wealth management, among others.
  • Between 2014 and 2018, Bank of America’s revenue has grown from $84.9 billion to $91.2 billion – a growth of 7%.
  • In comparison, Wells Fargo’s revenue has grown from $84.3 billion to $86.4 billion – a 2% rise.
  • This difference could be attributed to negative growth in Wells Fargo’s consumer banking operations and Fed growth restrictions on the bank.
  • Further, the size of Wells Fargo’s investment banking and sales & trading division is significantly lower than its peer.

Additional details about Wells Fargo’s individual revenue streams along with our forecast for the next two years are available in our interactive dashboard.

Although Commercial Banking is a focus area for both the banks, Wells Fargo’s percentage growth was 2.5x Bank of America’s figure

  • Bank of America’s commercial banking segment has increased 24% over the last 5 years, from $13.3 billion in 2014 to $16.5 billion in 2018.
  • On the other hand, Wells Fargo recorded a 59% jump in its segment revenues, from $14.1 billion in 2014 to $22.5 billion in 2018.
  • The contribution of the commercial banking segment to total revenues has hovered in the 16-19% range for Bank of America, whereas it has increased steadily from 17% in 2014 to 26% in 2018 for Wells Fargo.
  • The growth for Bank of America was mainly driven by 16% increase in segment’s net interest income and 34% jump in treasury revenues.
  • Similarly, Wells Fargo’s growth could be attributed to 56% jump in segment’s net interest income driven by 76% increase in outstanding commercial & industrial loans – with the bank’s acquisition of GE Capital’s Commercial Distribution Finance and Vendor Finance platforms in late 2015 boosting these figures

 

 

Data explaining the trends in Bank of America’s Consumer Banking, Wealth Management and Investment Banking revenues compare with Wells Fargo is available in our interactive dashboard.

Conclusion

  • Bank of America has grown 7% over the last 5 years, which is more than 3 times the Wells Fargo’s figure of 2%.
  • Both the banks have reported positive growth in commercial banking revenues over 2014-2018, although Wells Fargo has grown at a much higher pace than its peer.

Trefis estimates Wells Fargo’s stock (shows cash and valuation analysis) to have a fair value of $51, which is slightly below the current market price (Our price estimate takes into account Wells Fargo’s earnings release for the third quarter).

 

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