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The ultimate sign that Wall Street's pecking order has been totally upended
(Trading Places screenshot ) Talking about changing the pecking order in the classic film "Trading Places."
If Wells Fargo becomes a bank where Wall Street's top talent wants to work, then financial-crisis-era regulators really would have pulled off something.
They will have at least partly changed the calculus Wall Street bankers make from one that looks like a risk-reward culture to one that looks more like safe and secure.
We already know there has been a seismic shift on Wall Street since the financial crisis. Big banks are getting smaller and simpler to deal with new regulation. The question is whether that will really change the pecking order of where people want to work.
Before the crisis, the pecking order was clear. Traders were on top, and so were banks with storied trading operations. That meant everyone wanted to work at those shops — places like Lehman Brothers, Bear Stearns, Goldman Sachs, and JPMorgan.
Now trading — and other risky operations — are hamstrung by regulations, so simpler banks are doing well. Wells Fargo, once derided in Wall Street circles for not even having an investment bank, is now looking really good.
In terms of assets, it is about to catch up to the US' third-largest bank, Citigroup; it has grown its assets by 20% in two years; and it is also about to purchase a bunch more in the GE Capital fire sale.
Wells Fargo could continue to expand its traditional lines of business — such as its retail banking division — picking up retail assets being peeled off international firms like Credit Suisse, or, potentially, HSBC, as foreign banks appear increasingly willing to throw in the towel on US expansion plays.
Of course, this is Wall Street, and this revolution will not really be complete until top talent heads to Wells — until the stigma of Wells being a simple retail bank has faded away.
We did a quick fly around of the Street to see what people are saying about that. Here's what we found on the pro-Wells side:
Some Wall Street vets think Wells is doing an excellent job of marketing to young people. Millennials like that it is focused on the US and that it has a relaxed culture that doesn't resemble a big institution.
And it's not just young people. Bankers who have left brand-name banks are loving it over at Wells. A perfect example is Wells' 2012 acquisition of Merlin, a prime brokerage. A bunch of bankers from a bulge bracket we will not disclose moved over there, and they're loving it.
If that continues, Wells could be a big contender to fellow big bank JPMorgan in the coming years.
The again, some say that stigma reigns:
While some bulge-bracket bankers agree that Wells has gotten its business model right in terms of playing ball with regulation, it will still always be a second-tier bank. "Not sure who they paid off in government to keep such a low profile, but it's working," one banker said.
Wells Fargo's banking operation still lags other bulge-bracket banks in terms of sophistication. To Wall Street vets, it sounds as if Wells Fargo is trying to raise a boutique within a grown institution, rather than buying one.
Big bulge brackets could eat Wells' lunch when interest rates rise and the market normalizes — but who knows when that will be.
Stigma or no stigma, Wells is going to continue growing at an amazing clip. The bank is stepping up lending and getting into larger credits, and it has grown investment securities as well.
So maybe at a certain point Wall Streeters will not be able to resist looking at Wells.
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