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3 Reasons America's Biggest Bank Will Keep Getting Bigger

Wells Fargo & Co. (NYSE: WFC  ) is getting very close to eclipsing the record for the largest market cap for a U.S. bank, which currently stands at $282.75 billion, attained by Citigroup in 2001. Not only is it simply a matter of time before Wells Fargo breaks the record, but there could be a lot more room to grow from here.

Wells Fargo still has some tremendous opportunities for growth in areas such as cross-selling to existing customers and expanding its wealth management business. Plus, the new venture with American Express (NYSE: AXP  ) could prove to be very lucrative to both companies. It is not too far-fetched to imagine Wells Fargo doubling in size again if it takes advantage.

Cross-selling could jump to the next level
Wells Fargo is already considered to be the master of cross-selling its products, but it keeps getting better and better.

Each household that currently banks with Wells Fargo has an average of 6.17 different products with the company, such as checking and savings accounts, mortgages, credit cards, and more. This is improved from 6.1 last year, but the company wants to really step up its efforts.

Wells Fargo calls its strategy "going for gr-eight" to emphasize its ultimate goal of selling eight different products to each household. The average U.S. household has 16 banking products, so shooting for 8 doesn't seem that unreasonable.

If Wells Fargo succeeds in reaching its goal of eight products per household, it could, in theory, increase their business by about one-third, since their average customer would have about 30% more products than they do now.

The young brokerage business has plenty of room to run
Growing the brokerage business is a big priority for Wells Fargo for one simple reason: The brokerage customers are some of the company's best.

The average brokerage, or wealth management customer has even more products with the bank than Wells' goal, averaging 10 per customer. However, there is still tremendous room for growth here.

Only 7% of Wells Fargo's retail banking customers have an IRA or brokerage relationship with the company, leaving tremendous room for expansion. Of course, not every customer wants or needs a brokerage account, but I think doubling the current amount to 14% of the customer base is a reasonable and attainable goal for the next decade or so.

Credit cards
Not only has Wells Fargo been pushing to sell its credit card products to existing customers, it is also following one of the most important rules of cross-selling. The bank is actively trying to figure out what its customers want and develop new products accordingly.

Take Wells' new partnership with American Express, which consists of two new credit cards issued by the bank. One is geared specifically for travelers, with some of the best airline and hotel reward earning opportunities of any credit card, while the other is meant to provide the best benefits for everyday expenses like gas and groceries.

I have written about how this could catapult American Express to the next level, but it could also help Wells Fargo reach its goal of having a credit card in the wallet of every customer. The bank has a wide variety of credit card products already, and won't stop until it has one that meets every customer's needs. Even if a customer has poor credit, Wells has a product for them in its secured card, so it could potentially reach its entire customer base.

Currently, only one-third of the bank's customers has a Wells Fargo-branded credit card, so there is tremendous room for growth here, especially if the new American Express products catch on like I think they will.

The most impressive statistic
Perhaps the most interesting piece of data is that while Wells Fargo is the largest U.S. bank by market cap, it is the smallest of the "big four" banks in terms of asset size.

What this tells us is Wells Fargo's earnings power and assets are of a quality that's simply on another level than its peers. If Wells Fargo just keeps doing what it has been doing, this milestone could just be the tip of the iceberg.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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8/31/2015 11:29 AM
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