A Wealth Management Bright Spot in Tough Quarter for Wells Fargo

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Advisor headcount fell and client assets shrank, but Wells Fargo ’s wealth management unit boosted revenue and profit in an otherwise tough quarter for the bank.

It’s been a challenging period for major U.S. banks, which have been reporting second-quarter earnings that have fallen short of analysts’ expectations. Wells Fargo was no exception. The bank reported July 15 that total revenue fell 16% year over year to $17 billion and net income dropped 48% to $3.1 billion. Profit fell in part because Wells Fargo increased its provision for credit losses by $580 million, according to the company’s earnings report.

Wells Fargo & Co.

Cooper Neill/Bloomberg

The bank’s businesses, including its wealth management unit, got a boost from  rising interest rates. Net interest income for Wells Fargo’s wealth unit soared 50% year over year, or $306 million, to $916 million. That helped offset lower asset-based fees and lower transactional revenue, the company said.

Net income for wealth management was $603 million in the second quarter, up 30% from both the first quarter and from the second quarter of 2021, the company said.

Wells Fargo, like other major brokerages, offers wealth management clients mortgages, securities-based loans, and other lending products. Morgan Stanley ’s wealth management unit, for instance, also reported a big boost to net interest income, which rose 39% to $1.7 billion for the second quarter. Wealth management loans to clients increased 25% to $143 billion, Morgan Stanley reported July 14.

Wealth management firms are facing lower client asset levels due to declines in financial markets. 

Wells Fargo’s wealth unit reported that total client asset levels fell 14% year over year to $1.8 trillion. The company also reported advisor headcount fell again, continuing a multiyear decline. Wells Fargo had 12,184 advisors at the end of the second quarter, down 66 from the previous quarter and 635 from the same period last year.

The company’s wealth management business includes a private bank, a traditional brokerage unit, and an independent broker-dealer. CEO Charles Scharf said the company has been investing in the wealth management business and reorganizing it so as to boost efficiency.

“Our wealth business is run entirely differently than several years ago,” Scharf told analysts during a conference call. “We had two different private banks that operated under two different brands. We had a bank channel. We had a digital platform and a separate platform for advisors going independent. The platforms had very little investment in [them].”

Scharf said the company has been streamlining that structure and boosting the wealth unit’s connectivity with the rest of Wells Fargo’s offerings. “For our advisors, it’ll make us an extremely attractive place to be whether they want to be an employee or be independent,” he said.

Write to Andrew Welsch at andrew.welsch@barrons.com