Wells Fargo Wealth Unit Ballast as Bank's Profit Declines

Wells Fargo Wealth Unit Ballast as Bank's Profit Declines

Wells Fargo’s wealth business was the bright spot in an otherwise bleak first quarter, as the San Francisco-based bank reported its first decline in profits in almost five years.

Overall, the bank reported earnings of $5.8 billion, or $1.04 a share, for the first quarter of 2015. That’s down almost 2 percent from the record profit of $5.89 billion, or $1.05 a share, Wells Fargo reported a year ago. Despite the decline, Wells Fargo still beat analysts’ estimates by $0.06, according to Seeking Alpha.  

Prior to Tuesday’s earnings report, the bank reported 18 consecutive quarters of higher profits on a year-over-year basis since mid-2010, CEO John Stumpf said Tuesday. Revenues at the bank rose 3 percent to $21.3 billion from $20.6 billion a year ago.

Wells Fargo’s attributed the decline to lower loan profitability, even as total loan volume rose 4.2 percent from the first quarter of the year to $861.2 billion. Wells Fargo’s community banking division also took a small hit, with profits declining 5 percent from a year ago.

“Credit quality remained strong, as net charge-offs continued to decline. Expenses also decreased from the prior quarter and our efficiency ratio improved," said Chief Finanical Officer John Shrewsberry.

Wells Fargo's Wealth, Brokerage and Retirement Division reported a net income of $561 million in the first quarter, a 15 percent increase from the $475 million reported a year ago and an 8 percent increase from last quarter.

Advisory fees, commissions and other wealth management fees made up 23 percent, or about $2.4 billion, of the firm’s overall $10.3 billion in non-interest income earned during the first quarter, in line with the previous quarter. Shrewsberry said the St. Louis-based employee retail brokerage unit partnership with private banking generated $1 billion monthly in referred investment assets.

The wealth division reported revenue of $3.7 billion in the first quarter, up 7 percent from a year ago and 2 percent from the prior quarter. Client assets within the retail brokerage business grew 4 percent from a year ago to about $1.4 trillion.

Wells Fargo Advisors, the retail brokerage unit, reported managed account assets of $435 billion in the first quarter, up 12 percent year-over-year and 3 percent from the fourth quarter. 

The firm lost a net 53 advisors during the quarter, bringing total headcount to 15,134. The wealth division saw non-interest expenses increase by $120 million, or 4 percent, from a year ago, driven by higher personnel expenses, the firm said.

The cross-sell ratio for the wealth, brokerage and retirement business came in at 10.44 products per household during the quarter, down slightly from 10.49 reported last quarter.

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