Wells Fargo (NYSE:WFC), one of the most rock-solid banks in the financial sector, had a great 2014, doubling the return of the S&P. The company is also one of the few U.S. banks that pay a substantial dividend, putting it on the radar of many income-seeking investors. What was the reason for the great performance in 2014, and could the bank have another great year in 2015?
Why Wells Fargo did so well in 2014
A lot of banks did very well in 2014 because of great investment banking performance in areas such as M&A advisory revenue and equity underwriting. However, Wells Fargo isn't like most banks. In fact, Wells Fargo's business model looks more like an old-fashioned savings and loan than one of the biggest financial institutions in the world.
Basically, Wells Fargo did very well this year because it grew its market share in a lot of the key areas of its business. For instance, the company experienced double-digit growth rates in commercial loans, credit cards, and auto lending, an area where the company just took over the No. 1 market share.
What could make 2015 even better?
The company has pretty ambitious goals for next year and beyond, including getting a Wells Fargo-issued credit card into the wallet of every one of its banking customers. As of the third quarter, less than 40% of Wells' banking households have a credit card with the bank, so that's definitely an area of great potential.
The bank has also been very successful at cross-selling its products. Currently, the average Wells Fargo customer has about six products with the bank, and the company aims to get this number to eight.
The brokerage business is another area that has a lot more potential. Virtually nonexistent before the Wachovia acquisition, the company has grown Wells Fargo Advisors into one of the largest brokerage firms in the United States. And there is still room to grow.
In fact, the company recently announced the Wells Fargo Investment Institute, which is intended to produce the best market research for Wells' clients. With the company's recent track record, I wouldn't be too surprised if the brokerage division took over the No. 1 market share spot eventually.
On the other hand, Wells Fargo's mortgage business was one area of weakness in 2014. Mortgage activity was very high throughout much of 2013, but it dropped off as rates rose from record lows and homes became more expensive. While most of Wells Fargo's lending business has grown at an impressive rate, the residential mortgage portfolio has barely increased, up by less than 1% year over year. The mortgage business is definitely an area that could improve substantially and produce a great 2015 if home sales rise.
What could stand in the way?
As long as the economy continues to improve like it has been, it's tough to make the case that Wells Fargo will have a bad 2015.
When the economy improves and the stock market is doing well, people tend to do things that make Wells Fargo more money. They buy houses and cars, charge purchases on their credit cards, and invest their money to try to make even more.
On the other hand, when the economy is doing very well, interest rates tend to rise. If the Fed raises rates, it could put a damper on Wells Fargo's thriving lending business.
In a nutshell, the biggest threats to Wells Fargo in the coming year are a slowdown in U.S. economic growth and a possible spike in interest rates. I personally don't think either of these is very likely, and Wells Fargo is a dividend stock I would be glad to own going into 2015.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Wells Fargo. 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.