Wells Fargo (WFC -0.02%) has never been known for its investment banking business. Some may have found this odd, given that most of its peers have large investment banking businesses, which served as a key source of revenue during the hardest months of the pandemic.

But that may now be changing. Bloomberg recently reported that in 2022, Wells Fargo ranked in the top 10 for mergers and acquisitions (M&A) advisory deals, one of the key business lines that falls under the investment banking umbrella.

This is the first time the bank has landed in the top 10, and it happened during a tough year for the industry. The move shows that Wells Fargo is making progress on new revenue initiatives, one of which could continue to make the bank perform better moving forward.

Picking up market share in a down year 

Wells Fargo has always had the smallest investment banking business compared to its peers. Through the first three quarters of 2022, the bank generated about $1.1 billion in investment banking fees, which includes fees from M&A advisory and equity and debt underwriting for events such as initial public offerings and fixed-income products.

Two people looking at a tablet.

Image source: Getty Images.

That pales in comparison to investment banking giants JPMorgan Chase (JPM -0.10%) and Goldman Sachs (GS -0.26%). It also lags behind other competitors such as Bank of America (BAC -0.26%), which generated $3.75 billion of investment banking fees through the first three quarters of the year, and Citigroup (C 0.39%), which generated $631 million. 

But Wells Fargo has fared much better in investment banking than its peers this year, with fees through the first three quarters of 2022 only down 27% in what was an off year. The bank advised on some big deals last year, such as Broadcom's (AVGO -1.98%) planned purchase of VMWare (VMW) and Kroger's (KR -0.55%) pending merger with Albertsons (ACI 0.86%).

In comparison, Bank of America saw investment banking fees fall about 43%, while Citigroup is down 64%.

Volatile market conditions and an uncertain future outlook took their toll on the industry in 2022. The size of the wallet, or the total amount of investment banking fees up for grabs, could end up being half of the wallet size in 2021.

Ambitions of the investment bank

Wells Fargo CEO Charlie Scharf has made it pretty clear that growing the investment bank is not about going after a new kind of customer. It's about more holistically serving customers that the bank already does a lot of business with, such as U.S. middle market customers in its strong commercial franchise.

At a conference in 2022, Scharf said that Wells Fargo already knows this cohort very well "because of the huge amount of credit exposures and exposures we have through our treasury management business to these customers."

But Scharf also said that Wells Fargo hasn't historically served a lot of these customers with investment banking products. Instead, the bank watches these customers go to other major Wall Street banks for most of their investment banking needs and pay them billions in fees. Scharf previously said he sees a $1 billion annual opportunity within its existing customer base alone.

More room to run

While the rest of the investment banks struggled, Wells Fargo grew total deal volume and tripled its market share. The bank also believes it can do more.

Jon Weiss, who runs Wells Fargo's corporate and investment bank, recently told Bloomberg that the bank's performance last year shows "a lot of progress, but I think until you stitch together several good years -- including in growth years as opposed to down years -- it's just a data point on a screen."

Still, the progress is encouraging, especially when you consider the depth of the bank's commercial client base. There should be plenty of opportunities moving forward. A stronger investment banking business should also ultimately make Wells Fargo more attractive because it adds revenue diversity -- and ideally in a fairly efficient manner, given that the bank already has the relationships.