Banking

Here’s another way Wells Fargo is falling behind competitors in the wake of scandals

Wells Fargo has lost its ranking as the third-largest U.S. bank by assets, the latest example of how the company is falling behind its competitors as it grapples with scandals.
Wells Fargo has lost its ranking as the third-largest U.S. bank by assets, the latest example of how the company is falling behind its competitors as it grapples with scandals. AP

Wells Fargo has lost its ranking as the third-largest U.S. bank by assets, the latest example of how the company is falling behind its competitors as it grapples with scandals.

New York’s Citigroup quietly surpassed Wells Fargo this year, knocking the San Francisco-based bank to fourth place. Wells had held the No. 3 position since taking it from Citigroup toward the end of 2015 — a noteworthy development at the time, as Citi had been third for years.

The drop adds to the ways Wells Fargo, which has a large presence in Charlotte, is continuing to wrestle with revelations of sales-practices problems that have tarnished its reputation. Those problems have cost it business and prompted regulatory enforcement actions, including an unprecedented asset cap imposed by the Federal Reserve in February that restricts Wells’ growth.

Pointing to “widespread consumer abuses,” the Fed said Wells will be restricted from exceeding the roughly $1.95 trillion in assets it had as of the end of 2017 until it sufficiently improves its governance and controls.

Wells Fargo spokesman Ancel Martinez declined to comment. Citigroup spokesman Mark Costiglio also declined to comment.

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Speaking at a conference in May, Wells Fargo Chief Financial Officer John Shrewsberry said the asset cap has caused the bank to “take off some less-strategic assets.”

He also said the cap could make it hard for Wells to meaningfully grow its net interest income this year. That category of income includes the interest banks charge on assets like loans.

In addition, Wells has said deposits at the bank have fallen by billions of dollars, as a result of actions it has had to take in response to the asset cap.

To be sure, the gap between Wells Fargo and Citigroup, which overtook Wells in the first three months of this year, is relatively close. As of the end of June, Citigroup had $1.91 trillion in assets, about 1.7 percent more than Wells.

“If you think about Wells, what they have to do is shrink below that cap just to make sure ... they don’t drift above it at any point,” said Kyle Sanders, a bank analyst at Edward Jones. “They had to sell off some assets just to get some breathing room under the $1.95 trillion.”

Sanders and other analysts said Wells’ asset ranking among the largest banks was not a top consideration for investors.

Measures such as net interest margin — the difference between what a bank pays on deposits and receives for loans — are more important to shareholders, Sanders said.

The nation’s No. 1 bank by assets remains New York’s JPMorgan Chase, which in 2011 eclipsed Bank of America, now the No. 2. bank.

As of the end of June, JPMorgan had $2.59 trillion in assets, compared to Bank of America’s $2.29 trillion.

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Shrewsberry, speaking last week on a second-quarter conference call for analysts and investors, reiterated that the Fed cap has not impacted Wells’ ability to grow its core lending and deposit businesses.

“I think we could operate under $2 trillion for, frankly, a good long time and be very increasingly profitable and serve all the customers that we have,” he said.

Deon Roberts: 704-358-5248, @DeonERoberts
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