Market Downturn Could Cost Wells ‘Hundreds of Millions’: CFO
The disastrous start to the 2016 stock market could affect hundreds of millions of dollars of potential income in Wells Fargo & Co.’s wealth and brokerage businesses, an executive at the giant bank said Friday.
“If we don’t have meaningful new customer growth over the course of the year,” net-income “sensitivity” would reach into nine figures, Wells Chief Financial Officer John Shrewsbury during the bank’s fourth-quarter earnings report.
His public comment was the first from the officer of a major bank or brokerage on the nightmare retail brokerage scenario keeping executives awake at night. The Dow Jones Industrial Average and there Standard & Poor’s 500 have plunged about 8% this year and the Nasdaq is off more than 10%.
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Shrewsbury separately played down the boost that Wells was expecting to get from hiring advisors it is trying to recruit from the U.S. brokerage unit that Credit Suisse is shutting down.
Brokerage accounts and account assets typically grow in the high single digit percentages each quarter at Wells Fargo’s wealth and investment management division, which includes almost 15,000 brokers.
“There would be good strong growth…if we were in a more normalized S&P environment,” Shrewsbury said when asked for his outlook on the brokerage business. With the “the overlay of the market instability,” he indicated, all bets are off.
Wealth division head David Carroll is, of course, encouraging brokers to have clients stay the course and buy more at bargain prices if they have the money and risk appetite, Shrewsbury said. But the levels this year are harder to predict. “Customers [could] stay, move or back away as volatility increases,” he said.
Wells ended 2015 with $1.6 trillion of customer assets in its wealth businesses, down 2% from 2014 despite rising markets. Its profitable niche of managed account assets inched down 1% to $420 billion during the fourth quarter as lower market valuations were only partially offset by net new flows of money.
In asset management, client assets fell $6 billion during the quarter due to equity outflows and lower market valuations, while institutional retirement plan assets were off 2%.
Average net loans made to brokers’ wealthy clients, however, grew 15% from the fourth quarter of 2014 to $63 million in the just-ended quarter. Wells, Bank of America, UBS and Morgan Stanley have all been offering special bonuses and incentives to have brokers sell portfolio-backed loans and mortgages to their wealthy clients.