Introducing 'Behind the Money': Can Wells Fargo make it in investment banking?

0:00Hey, listeners. Unhedged is on a break today, but we wanted to introduce you to another FT podcast, Behind the money. Every week on the show, the host, Michaela Tindera, takes you inside one of the biggest stories in finance and business with help from FT reporters from around the world. The episode you're about to hear is all about the US-based bank, Wells Fargo. Wells Fargo built a reputation as a Main Street lender. And now it's pursuing something that many other Main Street banks have tried and failed to do. That is successfully push into investment banking. Can Wells Fargo pull it off? McKellar has more.

0:42Over the past couple of months, one of the biggest questions in media deal-making has been, who's going to buy Warner Brothers Discovery? Today, Netflix announcing a blockbuster agreement to buy Warner Brothers. Not so fast, Netflix. Paramount launching a hostile takeover bid for Warner Brothers. There's been so much going on, it's enough to make your head spin. Netflix has revised its offer. Netflix and WBD hope that the amended plan will help fend off Paramount's hostile takeover bid for all of Warner Bros. You have three of the biggest names in Hollywood in Netflix, Paramount, Warner Bros. Discovery, and it's really going to be a deal that's going to settle what the entertainment industry looks like.

1:24Whichever way the dust settles, it'll be monumental for Hollywood. But this process also represents a key moment in one pocket of Wall Street that you might have missed in all the back and forth. So late last year, it came out that the U.S. Bank, Wells Fargo, had agreed to pay half of a$59 billion bridge loan to Netflix to help them buy Warner Brothers. That is nearly$30 billion of loans. The bank claims it's the largest financing of its kind ever, and it really signals a significant shift in Wells Fargo's overall ambitions. That's because Wells Fargo has been working on a Hollywood makeover of its own sort.

2:02It has a new appetite for mega deals. And that's a big break from its reputation as an all-American consumer bank. Wells Fargo is known in the U.S. for its retail franchise primarily. It's one of the oldest tourist banks, and it for a long time kind of predated itself in being a main street, not Wall Street lender. But now that's changing, and it wants to push further into investment banking and go head-to-head with its Wall Street rivals. But many banks have tried and failed to do this. Even the CEO of Wells Fargo himself has talked about the graveyard full of investment banking hopefuls on Wall Street.

2:38You think of the likes of Credit Suisse, Deutsche Bank, RBS. They've all tried to go up against the likes of Goldman and JP Morgan. And what banks often find is it's a very different business. So there are cautionary tales. And if this goes south for Wells, it could end up being an expensive mistake.

2:58I'm Michaela Chendera from the Financial Times. Today on Behind the Money, Wells Fargo has a new plan to push into investment banking. But can they surpass or even compete with their Wall Street rivals?

3:31I'm here with the FT's U.S. banking correspondent, Akilah Quino, and U.S. banking editor, Josh Franklin. Josh, Akilah, welcome to the show. Thanks very much. Thanks for having me. So we're talking about Wells Fargo today, as we've established. Now, I have to say this bank is old by American standards. It was founded over 170 years ago. And, you know, back in the day, it really pushed out this image of being pretty folksy. Their ads leaned quite heavily on symbols of the Old West. I am arriving by Wells Fargo with my grandson, a sturdy infant with a fine pair of lungs. Over the years, more people have trusted more things they really value to Wells Fargo than to anyone else.

4:19So could you tell me just briefly about Wells Fargo's history and its brand? You know, what is it known for? So Wells Fargo, unlike some of its Wall Street rivals, was founded in the west coast of the U.S. in San Francisco. And it became known for financing the gold rush, you know, 173 years ago is when it was created. And since then, it's been known as a very American retail bank. So, you know, serving everyday people on Main Street.

4:49It's about time, about convenience, about letting our customers bank wherever and whenever they choose. It's anytime, anywhere banking from Wells Fargo. Like other U.S. banks, they grew by acquisitions and they went from being a purely West Coast bank to a coast-to-coast bank and the fourth largest U.S. bank by assets. So that was made possible with the acquisition of Wachovia in 2008. Yeah. And, you know, being a kind of Main Street bank wasn't just a part of identity for Wells Fargo, it was part of its selling point. You know, it won't surprise listeners to hear that Wall Street isn't very popular across the wider United States.

5:29And so being disassociated from that is actually seen as being a virtue, not a liability. And it's actually something that we saw play out in movies as well. You might remember a scene from the 2011 movie, Too Big to Fail, where all the big bank CEOs are meeting with the Federal Reserve chair and the Treasury secretary during the financial crisis. Everyone will be better off with more capital in the system. And that is why all nine of you will participate in the program. And you've got the CEO of Wells Fargo in the movie talking about, why do I need to take government money? I'm not one of you Wall Street guys.

6:04Some of us don't need any capital. You all need capital. You have no idea what the market's going to look like in a year. Neither do you. I'm not one of you New York guys with your fancy products. Why am I in this room talking about bailing you out? So Wells Fargo projected this reputation of being a dependable Main Street consumer bank, and they more or less thrived off that image for many, many years. That is until about a decade to go. Massive fraud at Wells Fargo Bank. Employees under pressure to meet sales goals created millions of fraudulent bank accounts between 2002 and 2016. They were hit with a huge scandal that had enormous ramifications for the bank.

6:48They were found essentially to have inflated their growth by pressuring staff to move customers' money into unauthorized accounts, forge signatures, open accounts without their consent for years. Wells Fargo is suspected of creating nearly 2 million bank and credit card accounts without customer approval. Fees from those accounts topple$3 million.

7:15So, you know, Wells Fargo's reputation was very damaged. Customers lost a lot of trust in the bank, which is quite essential when you're dealing with people's money. And they had this massive punishment from regulators. So they had to pay a lot of fines and remediations. These totaled to nearly$8 billion. But then there was the strongest punishment, which is very rare in banking. The U.S. Federal Reserve placed an asset cap of nearly$2 trillion on the bank. So that basically kept them from growing their assets. So their loans passed the size that they were at in 2017. It's extremely rare to see a bank limited in this way by regulators.

7:54especially a bank of this size. And it's certainly nothing that we've seen since Wells Fargo's asset cap was put in place. So post-scandal, Wells Fargo serves out this punishment from the Fed. And for the next several years, the bank is essentially stuck in the mud. It meant their growth was restricted. They couldn't lend more. They kind of had to stick to what they were doing. Meanwhile, all the other banks grew. It impacted their earnings. but it also changed their strategy. The bank had to work really, really hard to fix all of the compliance issues that had led to the scandal in the first place and to prove to regulators that they could get that asset cap lifted and that they were, you know, in a good position to be free from that.

8:39Meanwhile, their competitors in the U.S. start to pull far ahead of them. So if you think back to this period, to 2017 when all of this happened, J.P. Morgan and Wells Fargo in terms of profits were about the same size. J.P. Morgan earned about$24 billion that year and Wells Fargo about$22 billion. Now you fast forward to 2025 and Wells Fargo's profits are still about the same, roughly$21 billion for all of last year. J.P. Morgan, in the meantime, reported profits of$57 billion for 2025. So that just shows you how much more profitable other banks have become in the meantime. Coming up, Wells Fargo gets a second chance and plots a new path.

9:27We'll be right back.

9:51to grow in a different way. Wells Fargo CEO Charlie Scharf spoke about this in an interview on CNBC. Well, honestly, yesterday versus today, the only thing that's different is the perception of Wells Fargo, which is incredibly important because we've always been perceived as being in the penalty box, being behind the eight ball in terms of what we can do. So Wells Fargo CEO Charlie Scharf, he even said himself that, you know, before the asset gap was lifted, he was hesitant to do too much media because people would always ask and ask and ask about this asset cap. But now we've seen a lot more of him, you know, touting Wells' new strategy.

10:27But the reality is, going forward, as time evolves and as the world evolves, we have the opportunity to expand in ways in a very methodical way, built on the processes that we built, but think about ideas and expand in ways that we wouldn't have been able to do it when the cap still existed. Akilah tells me that Scharf, who's been the bank's CEO since 2019, is particularly well-positioned to push into the area you heard about at the beginning of the show, investment banking. So the CEO, Charlie Scharf, is a 60-year-old banker who's a very different type of banker to the ones that preceded him at Wells.

11:04He was involved in some of the biggest bank mergers in the 90s with Jamie Dimon. He was a sort of protégé of Jamie Dimon. And he was involved in some of the big deals that led to what we now know as JPMorgan Chase and Citigroup. He then went on to lead Visa and then BNY before taking the job at Wells. And, yeah, he's very much a kind of a dealmaker and a Wall Street banker. OK, Akilah, so let's talk more about this new strategy. Part of that is that Wells Fargo and Scharf want to have a much bigger presence in investment banking. So how are they aiming to do that? So a big part of the strategy is making this huge push into investment banking, which is basically the business of advising and underwriting corporate transactions.

11:50So for the investment bank, they've set some goals. They said they want to become a top five global investment bank, which means competing with a lot of those banks that are already, you know, very well known in investment banking like JP Morgan and Goldman Sachs. There's no clear timeline on that top five goal, but they have also set a wider profitability target for the whole bank. So the CEO, Sharf, he's actually set that after the asset cap was lifted. And I think the hope for the investment bank is that it can be a profitability engine and help with that wider target. Now, we've seen other banks try to push into investment banking, and it hasn't always gone so well for them.

12:28So what are some of the challenges that newer players have faced trying to break into this space? So investment banking is risky. So especially when you're providing debt financing for deals, the debt deals cannot go as expected. So you can suffer loss there. They're also expensive in terms of hiring people. You really have to go out and pay a lot of people millions of dollars in guaranteed salaries in the hope that they're going to eventually more than justify that with the deals that they're going to bring in. And that requires a strong stomach to do that. But within that, you also get big egos, especially when you have a kind of more retail banking culture doesn't necessarily mesh with the bank that you have already there.

13:08What Wells is trying to do here is basically the mirror image of what Goldman Sachs tried to do a few years ago when the quintessential Wall Street Bank tried to become a Main Street Bank, and that failed pretty spectacularly. The bank lost billions of dollars and just found it very hard to dislodge the Main Street Banks, one of which is Wells Fargo, and now has very much decided to stick to its knitting and just be a major player on Wall Street. And so what Wells is trying to do is really the opposite of that is to go from Main Street to Wall Street. And what that showed you is just how hard a pivot that is to make.

13:43Huh, that's a really interesting point. So we know that Scharf has this Wall Street background, but what about the rest of the bank? Yeah, I think what they have going for them is you have a lot of people in senior positions who aren't cut from the Wells Fargo cloth. You have a lot of ex-JP Morgan people in there. So I think they understand the culture of the business. they're trying to expand into, which I think is certainly helpful. And JP Morgan is probably like the best example of a bank that's been able to be profitable both on Main Street and Wall Street. One of the other things Wells has going for it is the fact that it is an American bank.

14:18Often a lot of these firms that have come in to try to succeed on Wall Street, they're often foreign banks that want a piece of the US market. And that just brings its own challenges. You're You're seen as you're not a local player. Wells is a local American bank and then crucially also is a top three player in U.S. retail banking, which is a fantastic market to be a scale player in with over a trillion dollars in deposits. So they can use that to try to bankroll their expansion on Wall Street. OK, so they've built up a solid team and they have this advantage of being a domestic bank, too. But they have some big goals.

14:54What's Sharf's strategy to really make this a reality and compete with the top players? So really, there are two ways to succeed in investment banking. In blunt terms, you can lead with your brain or with your balance sheet. So for the brains, you can be someone's go-to financial advisor where you pitch them on smart ideas, can be like a close confidant to lead CEOs through complicated transactions, and they pay you a fee for doing that because they think you're smart. The other way is to be a big lender to fund deals and to kind of put your money where your mouth is and commit financing for these deals using your balance sheet.

15:29So those are really the two main ways in which you can grow in investment banking. And I'd say Wells Fargo is probably trying to do a mix of the two. But like you see in the Netflix deal where they're really leading with the balance sheet first, that's a great way to show that you're serious about this effort and that you're willing to commit capital to help clients do what they want to do. Okay. Now, Josh, what about timing? Investment banking is pretty hot right now. You reported that 2025 was the sector's best year since the pandemic. But will there be enough deals to go around as Wells Fargo's trying to break in among its more seasoned competitors like JP Morgan or Goldman?

16:10No, I think there's not at all anxiety. I think that there's not going to be enough deals to go around. I think a lot of people on Wall Street think that the next couple of years are going to be an investment banking super cycle. They've been saying that for a couple of years now that that was eventually going to come. So we'll see if it actually ends up materializing in 2026. But people feel like things are just set up so perfectly for the next couple of years, for there to be a lot of deals. And also the Trump administration is taking some of the shackles off of the US banking industry that were imposed after the 2008 financial crisis.

16:42So I think for someone like Wells Fargo that wants to grow, the environment actually couldn't be much better for what they're trying to do. All right. So a lot of factors are working in Wells Fargo's favor, actually. But I've been thinking here because a lot of our conversation has been about the bank's brand and image it projects, you know, from the reliable Old West Main Street lender and then the impact that the fake account scandal had on their reputation. I mean, how might this new move impact their brand? And can they make that work in their favor? You know, even again, if you look at JP Morgan, they actually pretty much have two distinct brands.

17:20On the retail side, you've got Chase. And on the investment banking side, you have JP Morgan. And they're pretty distinct, not quite two separate companies, but certainly two separate identities. Wells, at least right now, is doing this all under the Wells Fargo umbrella. And so it's not to say that they can't do it. It's just what you go to Wells Fargo for. Do you go to them because you need a loan for something or do you go for them because you want cutting edge advice about what I should do to deal with AI and manage that transition for my company? And so it's really kind of trying to show that the brand, what they are traditionally known for, now they're more than that.

17:56Yeah. So how is it going so far? Are they securing deals and clients? We talked about Netflix a little bit already, but what else have they got going on? So 2025 was certainly Wells Fargo's best year ever for investment banking. In total, Wells generated over$3 billion in investment banking fees across M &A equity and debt underwriting. And that's the seventh highest of any bank, according to LSEG, which is the London Stock Exchange Group. It's just outside the kind of big five that Charlie Scharf has talked about breaking into. But I think it's important to also caveat that with the fact that it's coming from a pretty modest base.

18:35It's a little bit like saying you're the third biggest football team in Manchester. The fact's really true, but not as impressive as it sounds. That being said, it advised on two of the biggest deals of 2025, the Netflix Warner Brothers Discovery, although that's still pending, and then a major railroad deal in the United States, Union Pacific, Norfolk Southern. So it has really kind of shown that it can be competitive. And now it's just a question of how high they can rise. Well, what will you both be watching for in the coming year as Wells Fargo moves into its first year into second year without this asset cap?

19:12So I think, you know, any more blockbuster deals that they're on, big hires, big names, and then the rankings at the end of the year, you know, whether they've gone up in terms of dealmaking, M &A and fees and whether they can continue in that push that we've seen in the last quarter or so. And in particular, I'm going to be looking to see whether or not they manage to win any clients that have been with other banks for a long time. So often these relationships tend to last for long periods, many years, and companies and private equity firms turn to the same bank or advisor repeatedly. So we're really going to get a sense in the next few years whether or not Wells is able to dislodge any of those relationships to show that they can be serious players in investment banking.

19:56Akilah, Josh, thanks for coming on the show. Thank you. Thanks very much.

20:25FT's global head of audio. Thanks for listening. See you next week.