What happened to Wells Fargo Asset management
Some news came out about them.
What happened to them? Are they having a good year?
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I think The CEO just wants to stick to what theyre good at, and allocate more money to Corporate & Investment Bank, Shifting to more recession proof business since theyve had a massive amount of losses because theyre the biggest lender in the US, (and not like MS or GS where theyve killed it in their trading departments since covid started). They havent confirmed theyre selling either
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Traditional Asset management is becoming a hard business due to few compression on the equity side and low rates on the fixed income side. Fixed costs for infrastructure and personnel have led to margin compression. In AM there are the big guys such as blackrock, pimco, and Wellington that dominate the space due to their scale. Scale is very important in the space because the more aum equals more fees while your costs mostly personnel, and infrastructure stay relatively fixed. As such we have seen a decent amount of M&a in the space - think Franklin buying legg mason, ms buying Eaton Vance and invesco buying Oppenheimer funds.
Consolidation in the space is very likely to continue. BB am has always sort of been the red head step child of BBs - it’s sleepier than ibanking , trading or even wealth management.
Yes consolidations on 200 billion asset level have been usual.
Interned in Corp Dev a couple years back where we received a lot pitch decks from IBs and WFAM was always on them, so seems they have been shopping asset management biz for a few years. The big push toward low fee passive investing (with nearly identical results to active) has killed the retail biz.
I'd add their emphasis on liquidity options via money market funds, etc. by my count, it's at least 200b of their 500b. That's a brutal place to be - not only in that you compete with yourself to an extent via bank deposits, but also the low interest rate environment will be bleeding anyone in that space dry for the next few years via fee waivers. I'd suspect that taken as a whole, it's locked up capital that is better used elsewhere for Wells Fargo - less they have to deal with. Given they seem to be looking at parting out some other areas if i read correctly this AM - trust business - it's not too far of a leap to say they are trying to get back to basics, redeploy capital and cut costs in the meantime.
I do think the broader trend is for the obvious consolidation but also firms picking what they want to be. PNC divested it's funds business leaving them with what is, basically, an institutional focused customized SMA business. Morgan bought Eaton Vance - a bet on active management across the board + filling a gap in their fixed income business, with an especially strong muni/tax advantaged strategy business. Thus, you are seeing firms pick and choose where they want to be - moving away from simply having any, and every, option available.
Part of this is a change, and recognition, that one of the few ways to preserve fee levels is to offer something of value - that sounds silly, but a lot of firms got caught up in simply trying to package up any strategies they could and push them through sales channels to collect fees off them, with scaling per many other comments simply printing money for them. That saturation of options, and accessibility, obviously pushes down fee levels. Obviously - the highest performing funds will always be immune to any of this... people pay up, or should at least, for out performance.
I'd note that my experience is purely in the institutional space - most of the above pertains to that. Regardless - fee pressures are real. I do think that most banks are better off adding to their asset management arms, as they have a more broadly diversified revenue base - with some ability to mitigate the fee issues. Customized SMA's are also, most likely, coming back to the party as well - they never really left, but that to me is the most logical extension of this. You'll pay for customized, service driven advisory services and less for the rest.
Wells is really hurting and their $600 billion WFAM business is evidence of this. Bank almost never want to sell their asset management businesses and when they do they almost always regret it. Wells, Morgan Stanley, UBS, Deutsche, and even Goldman are trying to grow their capital light businesses and move away from the more capital intensive businesses like trading, while growing their investment banking businesses. Asset Management, Wealth Management, and investment banking advisory, i.e. the business of giving advice is what delivers the highest return on equity while also being friendly on the balance sheet. With asset management or wealth management, there's nothing quite like getting paid on the weekends or when you're sleeping.
More specifically to Wells, they are selling non core businesses and sticking back to their core US corporate and retail lending business. If you are not one of those then it will not be a fun time to be at Wells Fargo as they look to reduce their employee count of 275,000 down to 200,000.
Wells Fargo also operated what is called a "federated" business model. This essentially means that Wells Fargo operated as a financial conglomerate, the finance equivalent of General Electric, where rather than being one strong company like JP Morgan, was rather a collection of 90 or so difference companies also reporting revenues up to the colony or parent company. This led to no incentives on sharing clients between business lines, no incentives on sharing costs or vendors, etc. Charlie Scharf the new CEO has. essentially restructured the entire company from being 90 individual businesses to more like 5 large ones.
With regards to Wells Fargo Asset Management, Goldman Sachs Asset Management is one of the favorites to buy the company as well as TA Associates, which already owns Russell Investments and would essentially rip up WFAM into smaller businesses and try to sell to the appropriate investor in the long term.
Wells is an example on how to not run a company and the CEO is really just cleaning up the dirty work that was left for him. He was quoted as saying that the expenses and money wasted at the bank was "unlike anything" he has ever seen before. I think rather than do their own projects, they would spend like $2 billion a year to hire Mckinsey, Bain, BCG to do it for them.
It seems that GSAM is more political than WFAM. WFAM seems to be a little more nerdy and friendly place. How do they merge culturally?!
Who cares? It's an asset grab. You keep the autonomous investment teams and a couple of the rockstar sales people and layoff everyone else. Not every day that $600 billion is up for grabs. Yes, there may be some cultural differences, but these days a lot of asset managers let the investment teams operate independently with each team having their own culture/investment process, while the centralized compliance, sales, operation folks deal with the politics.
So do you think that IB at Wells Fargo is a core business and it’s not going to be impacted by the layoffs
yes Wells Fargo CIB is a core business. If you are looking to be placed there and measuring the opportunity against others just make sure that you are working in one of the IB coverage groups (i.e. the business of giving advice) or in one of the financing/lending groups within Wells Fargo CIB. Go on google and look it up but Wells just laid of 24 fixed income research analysts as well as laid of a good amount of their fixed income sales people. The head of fixed income research also left this summer. I'm sure the equities group and macro econ group will be next. Capital origination group or team will probably be a non core business. That being said Wells is in the business of lending and you will also need lending bankers within a capital markets franchise.
So in conclusion if you intern in one of the industry coverage groups providing advisory (M&A, recapitalization, etc.) or in one of the lending groups then it would be a solid place to be.
Also of note but Wells S&T program would probably not be a wise place to join, however as I previously stated their IBD teams will be ok.
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