Wells Fargo Doubling Asset Management Business to $1T in 10 Years

NEW YORK (TheStreet) -- Wells Fargo (WFC) is a boring bank. Since the Great Recession hit, Wells Fargo has been able to get its return on shareholder's equity in the second quarter up to 14.1%, up from a near-term low hit in 2010. It has also posted 16 straight quarters where profit was up, year-over-year.

But, what is important to me... and, I think, for all investors in financial institutions... is what Wells Fargo is trying to do to capture the future.

Banking is changing and advances in information technology are playing a big role in the future of the industry. in fact, in the future of the whole financial industry. The choices that are being made right now are going to have a substantial impact on what finance is going to look like.

Wells Fargo has announced plans to double the size of its asset management unit to one trillion dollars. The scheduled horizon for this move is 10 years. This move to build the asset management facility represents the way that some commercial banks are going to evolve and still remain banks, organizations that take deposits.

The word is that this area will be made up primarily of mutual funds and accounts for institutional investors. But, it can be much more than that. And, Wells Fargo is planning to grow this area through acquisitions, greater presence with larger investors as well as through the internal development that will tap the latest technology, including a movement into exchange traded funds.

This area seems to personify a structure of steady revenue flows along with lower requirements for capital than other areas in the banking world. This is consistent with the culture that Wells Fargo seems to be looking for within the whole company.

In this respect, Wells Fargo is more of a consumer's bank than most of the other large banks in the U.S. It does provide investment banking services, but these seem to play a more secondary role than these other organizations.

Herein lies the need of Wells Fargo to provide a platform from which retail banking can thrive in the information age, an age where more and more customers can electronically borrow, make payments, and invest all from the same account.

For example, one such platform is that provided by TD Ameritrade  (AMTD) related to Toronto Dominion Bank  (TD) which allows a customer to write checks as well as manage their whole portfolio of investments from one account...all online. Within this framework is a whole network of asset management resources and alternative investment options.

The future seems to be headed in this direction for the financial organizations that are moving out the edge of personal financial management. Add to this some of the borrowing platforms that are being developed as mentioned in the first link provided above and you get a snapshot of what the future of banking is going to look like.

To add to its products and services, Wells Fargo filed an application in June with the Securities and Exchange Commission to begin developing an ETF. JPMorgan Chase  (JPM) actually launched its first ETF in early June. The word is that in the next year and one-half, JPMorgan will launch 10 to 15 more ETFs.

Companies like Wells Fargo are also looking more and more to go into other offerings like alternative investment funds that will allow customers to make investments more like those of hedge funds.

The competition is heating up and this, I believe, is only the start.

Wells Fargo seems to be on the way to creating that future. The important thing is that it is staying in areas that it is either in or are closely related to what it does now. But, it is expanding in a way that will incorporate the advancing technology as an integral part its platform. This is why I believe that investors need to keep Wells Fargo on their list of interesting investments.

TheStreet Ratings team rates WELLS FARGO & CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate WELLS FARGO & CO (WFC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Commercial Banks industry average. The net income increased by 3.8% when compared to the same quarter one year prior, going from $5,519.00 million to $5,726.00 million.
  • The gross profit margin for WELLS FARGO & CO is currently very high, coming in at 94.48%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.94% significantly outperformed against the industry average.
  • WELLS FARGO & CO's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WELLS FARGO & CO increased its bottom line by earning $3.89 versus $3.36 in the prior year. This year, the market expects an improvement in earnings ($4.12 versus $3.89).
  • Despite the weak revenue results, WFC has outperformed against the industry average of 11.9%. Since the same quarter one year prior, revenues slightly dropped by 1.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

At the time of publication, the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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