00:00 Speaker A
The Fed's decision to remove Wells Fargo's $1.95 trillion dollar asset cap is not significant to the bank, according to my next guest. We've got Chris Whalen, he's Whalen Global Advisors chairman. Chris, great to speak with you this morning. Talk to me about your view on the lifting of this asset cap. You don't see it as a huge lift for Wells Fargo.
00:22 Chris Whalen
Good morning.
00:23 Speaker A
00:24 Chris Whalen
Well, I think it's going to be a lift for the bank as it is today. Wells Fargo has exited some very significant businesses over the past five years. They have withdrawn from residential third-party lending. In other words, they're not buying loans from other lenders. They're going to simply originate inside their footprint. They have a big branch network. So they're a significant seller, but I would tell you Jamie Diamond is now the biggest bank servicer. They've taken over from Wells. Wells has also exited commercial real estate to a large degree. They have sold their servicing business to Trimont. So the bank has changed a lot and yes, they're going to grow. They may see assets grow, but all the banks are going to see assets grow, particularly when the Fed starts buying securities again, because that will make deposits grow. But they're not going to be the same business they were in 2008, for example, when Wells saved the residential mortgage industry. Wells also supported the commercial mortgage industry through that whole decade. So they're not there anymore and the business they do is going to look more like Bank of America than it does like JP Morgan. So
02:05 Speaker A
Yeah, I understand what you're saying that that kind of competitive advantage isn't going to look the same. What might it look like if they called you up for a private chat after this call, what would you tell them that their competitive advantage could look like in this environment?
02:24 Chris Whalen
Well, they got to get their operating efficiency in line. They're still way above JP Morgan and some of the other banks in terms of cost. They're also competing with US Bank now, which bought Union Bank in California, picked up millions of customers. So the competitive landscape has changed and I think if they're talking about taking share, they're talking about trench warfare with branches and kind of traditional banking, but it's not going to be the wholesale bank that we saw for the last 15 years. That bank is gone.
03:07 Speaker A
If if that bank is gone, then it's interesting. I was reading a story in the journal this morning about how Wells Fargo is well-positioned amid this news to take market share from regional banks. Would you agree with that assertion?
03:22 Chris Whalen
Yeah, yeah, if if you're going to take share, that's who you're going to take it from. You're not going to take share from Jamie Diamond in in wholesale lending to mortgage lenders, both commercial and residential. You're going to go after the smaller regionals. You're going to open more branches. You're going to do wealth management, although only domestic. Wells sold their foreign wealth management business. Basically wrote it off. So there's been some really significant changes in their strategy and we'll have to see. They could change again. It may be that they will look at some of these businesses again, but right now, I I would say, you know, more shrinkage on the wholesale side and maybe growth on the retail side would be the way I would put it.
04:45 Speaker A
How are you thinking about any trading revenue opportunity?
04:52 Chris Whalen
Well, the the capital markets business of Wells is a second tier business. It's not really competitive with the top firms. They had AG Edwards out in St. Louis. Um, you know, again, retail wealth management type of business. Could they acquire some assets and some businesses in that vertical? Yes, they could, uh but that would be expensive. I think to me, you know, the real question is not going backwards, but going forward. So yes, we're going to go after share and retail markets. We're going to be a commercial lender to big corporations, but I think that's about it for now until we hear Mr. Sharp talk a little bit more about what his personal strategy is going forward.
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