NEW YORK ( TheStreet) -Tim Sloan is the CFO of Wells Fargo ( WFC) overseeing financial management, investments, corporate properties and strategic planning. Sloan also serves on the Wells Fargo Operating and Management Committees and is based in Los Angeles. In his 24 years at Wells Fargo, Sloan has also served as the chief administrative officer and the head of Commercial Banking, Real Estate and Specialized Financial Services. He spoke with TheStreet Wednesday about the bank's investment banking business which is showing impressive growth at a time industry giants like JPMorgan Chase ( JPM), Bank of America ( BAC), Citigroup ( C), Morgan Stanley ( MS) and Goldman Sachs ( GS) are all struggling. This interview has been edited for clarity and brevity.
TheStreet:JPMorgan analyst Vivek Juneja published a note Wednesday saying investment banking and capital markets is the faster-growing business at Wells Fargo in terms of revenues. That was a surprise. Tim Sloan: Vivek's a great guy, but I don't think that's exactly correct. For example, as we highlighted--without spending too much time on that point--the mortgage business today is doing incredibly well and as we mentioned just because of the refinance activity going on right now will probably be a very fast- growing business as we speak so anyway the investment banking business is growing quite nicely but I wouldn't describe it as fastest-growing business in the company. TheStreet:Is there a metric you can offer to show how much it's been growing?
Sloan We break out our businesses in a different way from our peers so for example a Bank of America or JPMorgan or Citi or something would break out its investment banking business as a separate line item. We don't do that. We report three business lines: wholesale banking, which investment banking and capital markets would be part of, and then we report our consumer businesses and then our wealth management and brokerage business. Now having said that I think one metric that you could use would be to look at the market share that we have, which is a not created by Wells Fargo or any other industry competitor and it describes where we stand from an investment banking standpoint relative to our peers.
Wells syndicated loan growth is up 72% from the first quarter to the third quarter versus 4% growth in the industry, according to the JPMorgan report. The report also estimates $700-900 million in quarterly trading revenues for the first two quarters of the year. Sloan would not comment on these numbers. TheStreet:Wells Fargo's shares are obviously trading above book value, which ordinarily would not be something to crow about, but these days, it is. Sloan: laughs We're proud of that, by the way, but I agree with your historical observation. TheStreet: Are you concerned that as your investment banking and trading businesses grow it may cause the company to trade at a lower multiple, as all the big investment banks do? Sloan: First of all, we're really pleased with the performance of the investment banking and capital markets businesses that we have at the company. We've got a great management team. It's a team that's made up of folks from Wells Fargo and from Wachovia and from other places and its such a great team--great people--we're not concerned about somehow that business becoming a drag on the company and putting us in a position where it would potentially have a negative impact on our book value because we look at that business as a great extension in terms of the types of products and services that we can provide to our customers and clients. Our focus--I know this is going to sound a little bit corny, but we want our customers to succeed financially. We were fortunate enough when we bought Wachovia to be able to inherit a capital markets team that was very solid and made some mistakes but it was more historical than not. So we're in position to be able to deliver a broader set of products and services to our customers. That's a great thing, but we're going to operate the business just like we operate all of our businesses--in a kind of Wells Fargo risk culture. So we're probably not going to take as many risks as our competitors. We probably won't grow as fast as they might grow, but that's okay because it's still a great business. TheStreet:The JPMorgan report says Wells "wants to add prime brokerage to service hedge fund clients and to add to its cash equities platform, which will expand its presence in trading. The bank will also need to add other products to service investment banking clients effectively including derivatives so that customers can hedge their exposure." Do you quibble with any of this? Sloan: Let's take it in reverse order. We'ver been in the interest rate sales business for a long time. We were in that business at the legacy Wells. Whether it's a swap or a cap or a collar or whatever we've been doing that for a long time and that, as you know in capital markets speak, is a derivative. It's an interest rate derivative. We historically have not been as active in the credit default swaps market for example. Wachovia was a little bit more active than we were kind of pre-crisis. We're not a big player in the CDS market and candidly don't see that as a big growth opportunity for us. We are in the energy sales and trading business and again at Wells Fargo we've been in that Wachovia was and so there's an opportunity there to provide energy derivative products for our customer base. So we're gonna provide a set of products and services that make sense for us. I don't think that means we have to provide a full line because we don't necessarily think that we have to that. TheStreet:Have you gotten questions from investors about this? I gather that you're trying to stay away from some of the riskier stuff, but it's still a bit riskier than where you've been.
Sloan:Well, I would say it's different. If you operate the business like some of the more aggressive firms did at the height of the financial insanity that we went through in 2006 and 2007 then it is a riskier business. If you operate it with--you know, make sure you've got the right people, make sure you've got the right risk management process and procedures and oversight in place and you're 100% focused on the client, as opposed to a league table I don't necessarily think that it's a lot riskier than other things that we're doing. You look at a lot of those firms that operated in the business in an inappropriate way: they're not in business any more. So I think one of the things that we've seen is that the entire industry is operating in a more prudent way, and we. always will. So we'll just be a little bit different. I don't view this as any bit different from how when the
commercial mortgage backed securities market got crazy in 2007 we started to put our pencils down because we just weren't going to originate some of those loans. When the residential mortgage business got crazy in 2006-7 and there were all sorts of option ARMs and low downpayment loans and all that kind of stuff we didn't do that. So it's great to be in this business today but we're going to be in this business on our own terms. TheStreet: Everything you've just said--it seems like Jamie Dimon and JPMorgan could make a similar argument. And yet Wells trades at 108% of book versus 68% of book for JPMorgan. Sloan: I would not look at that differential as just based upon the investment banking business. I think one of the reasons we're trading at a premium--and I don't want to bad mouth JPMorgan because I think it's a very well run firm and a very effective competitor--but I think that one of the reasons we trade at a premium is we have a very diversified model, meaning that we've got a lot of businesses. None in particular is so great or so large that it creates a lot of volatility in our earnings stream. When you look at our loan portfolio, it's about 50/50--well maybe 55/45 consumer to wholesale. You look at how we generate income it's about 50/50 between loan spread and securities spread and fees. You look at our fee income and it's very diversified across different fee types. That's why I think we are viewed as trading at a premium versus others. That's the impression I have from investors. -- Written by Dan Freed in New York. Follow this writer on Twitter.