Wells Fargo's CEO on Market Share, Repurchase Risk

It pays to listen to your quarterly conference calls. When Wells Fargo (NYSE: WFC  ) held its fourth-quarter presentation on Wednesday, CEO John Stumpf offered two golden pieces of news to his patient followers.

First, the new Wells Fargo continues to take market share. When Wells Fargo combined with Wachovia in 2008, it doubled the size of the company and extended its reach across the nation. But it also significantly expanded the bank's capabilities and created a company with significantly greater distribution and scale.

Now two years out from the merger, we're starting to see some excellent growth opportunities pop up. For example, investment banking by commercial customers has risen by 44% this year, in large part because of the underwriting skills brought over from Wachovia. And the Global Remittance business, a Wells Fargo specialty, has seen growth of more than 30% just from sales in its converted Wachovia stores.

In fact, a similar picture is emerging across the board. Since its first quarter as a combined company, Wells Fargo has seen its market share of loan syndications double and its share of private student lending go from 16% to 25%. It has also captures significant percentage points of market share in trust and investment fees, mortgage originations, insurance, and municipal bond issuances.

Wells Fargo wasn't the only bank that used the recession to strengthen its offering and reach. Think Bank of America (NYSE: BAC  ) and Merrill Lynch, or JPMorgan Chase (NYSE: JPM  ) and Bear Stearns. Several years from now, we may find out that these acquisitions made their companies both bigger and better.

What about the repurchases?
Investors are spooked that the major banks will see a lot of securitized loans come back their way. Some particularly extravagant loss estimates haven't helped, and the issue has depressed the shares of banks from Bank of America to Citigroup (NYSE: C  ) .

CEO John Stumpf addressed the matter for his company on the call Wednesday. Turns out that of the $1.8 trillion in loans Wells Fargo has serviced, only $63 billion represent private securitizations with traditional representations.

Still too large for you? Well, for any of those loans to become a repurchase loss, Wells Fargo would have had to materially misrepresent the borrower's qualifications and recognize a large loss on that loan. And that's the thing: A vast majority of these were high-quality prime loans, and most were written before 2006.

Stumpf estimated that the "at-risk groups" were 2006 and 2007 vintages of subprime mortgage securitizations, with combined loan to values approaching 100%. For Wells Fargo, that's $7.56 billion of exposure, before taking into account how many of those loans have defaulted and how many are misrepresented.

The company repurchased only $137 million of private securitization loans in the fourth quarter, and that was the third consecutive quarter of repurchase declines.

Enough said.

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Fool contributor Nick Nejad owns shares of Wells Fargo. The Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Through different portfolios in its "Rising Stars" series, the Fool is both long and short Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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