Wells Fargo Surpasses Citigroup
Wells Fargo sees 6% growth in assets; Citigroup posts strong annual profit
Starting the new year, most big banks are touting their regimens to slim down: Wells Fargo & Co. just keeps growing.
The San Francisco-based bank surpassed Citigroup Inc. to become the third-largest U.S. bank by assets at the end of 2015, according to year-end figures released by the banks Friday. Wells Fargo’s total assets grew by 6% to $1.79 trillion in the fourth quarter from $1.66 trillion a year earlier. Meanwhile, Citigroup reported total assets shrunk by 6% to $1.73 trillion this quarter from $1.84 trillion a year ago.
The figures reinforce the differing trajectories for the two firms: Wells Fargo in recent years has thrived due to its Main Street focus and an ability to dodge the regulatory headaches that have dogged much of the industry. Citigroup, on the other hand, has only recently emerged from the punishing hangover of the financial crisis and continues to look for ways to get simpler and smaller.
Citigroup has “been telegraphing for a long time that they’re trying to shrink and we’ve had this very continuous, very reliable deposit growth, which is taking us down a path” of expansion, Wells Fargo Chief Financial Officer John Shrewsberry said in an interview Friday.
At Citigroup, finance chief John Gerspach said in a call with reporters that his bank was “very focused on running our balance sheet consistent with the strategy that we laid out several years ago.”
In some ways, Friday’s results showed positive results of that strategy. The New York-based bank earned $17.2 billion in 2015, its biggest annual profit since 2006.
For the quarter, profit was $3.34 billion, or $1.02 a share. That was up sharply from the $344 million, or six cents a share, it reported in the same period of 2014, when legal costs were high. Revenue edged up 3%, to $18.46 billion from $17.9 billion a year ago. It was the first revenue gain after four quarters of declines.
Wells Fargo reported a profit of $5.71 billion, or $1.03 a share. That compares with $5.71 billion, or $1.02 a share, in the same period of 2014.
The shares of both banks got clobbered in Friday’s market rout, with Citigroup falling 6.4% and Wells Fargo dropping 3.6%, even though both topped analyst expectations. Financial stocks fell sharply across the board.
Almost all big banks are actively trying to get smaller, in large part to minimize the impact of new capital requirements designed to make the firms safer.
Wells Fargo’s burden under those rules is less than its peers, which enabled the firm to acquire or finance about $47.5 billion of assets last year related to General Electric Co. unwinding its finance arm.
“For Wells Fargo, their strategy right now is to continue to grow the bottom line; that’s tough to do when your margins are shrinking,” said Ryan C. Kelley, a portfolio manager of Novato, Calif.-based Hennessy Funds, which holds 75,000 shares of Wells Fargo. “Growth is good, obviously.”
Mr. Kelley, whose investment firm also holds 88,000 shares of Citigroup, said he isn’t as interested in whether one bank is bigger than another compared to longer-term trends continuing.
Citigroup has been pruning its assets since 2007, when they hit a peak of $2.36 trillion.
The bank’s latest results were roughly in line with financial goals Michael Corbat laid out in early 2013, shortly after he became CEO, on return on assets and efficiency. Investors, however, may have been disappointed that those results slipped from the year-to-date results reported three months ago. And while those figures help affirm Mr. Corbat’s ability to cut costs, he will now have to pivot to proving that he can grow the bank responsibly.
As at many Wall Street firms, Citigroup’s trading businesses are struggling. Compared with the third quarter, trading revenue was down 21%. That was roughly in line with Mr. Gerspach’s December forecast of a decline of 15% to 20%. Trading was up about 11% compared with a year ago, though that was a dismal quarter for trading across the industry.
Citigroup has targeted a few small areas for growth, including stock trading, where it has traditionally been a bit player, and credit cards, where it has made high-profile investments like a partnership with Costco.
Source: WSJ – Wells Fargo Surpasses Citigroup
