The defining character of bank results up until Wells Fargo was (a) rapidly improving credit and (b) declining revenue.
When I state that bank credit in the US is clearly and unambiguously improving my email runs hot with people arguing that the banks are faking it. But they are not – and there are lots of tests of that. The problem was and remains revenue – the extreme out come is the Japanese outcome – banking without revenue, credit losses, glamour or highly paid bankers.
But the Wells Fargo result was different. Revenue was flat. That result is so much stronger than the competition it is silly. Moreover interest margins were up. Again – this differs sharply from the competition. One correspondent wrote to me and tells us that Wells Fargo shows how it is done. However that does not do the problem justice. The numbers do not tell you how it is done – they just tell you that it is being done (provided the numbers are not faked).
My best guess is that Wells is using its (legendary) ability to extract revenue from a customer base to either service better or screw over (depending on your perspective) the customers of Wachovia. This quote I think is the story:
The merger integration activities are proceeding on track and the combined company continues to produce financial results including revenue synergies better than our original expectations.
Now I have seen a lot of banking mergers with dodgy estimates of “revenue synergies”. After all revenue synergies means extracting more financial services revenue from customers than they were previously paying – and – as even the most casual observer has noticed – most Americans pay a lot of revenue to financial institutions.
But in this case they are ex-post claiming “revenue synergies” and – the numbers show – are probably achieving them.
So this is a call to former Wachovia customers. What is it that Wells Fargo has changed so that you pay more money to the bank?
PS. Obviously this is part of it – but it does not explain all the numbers:
Year over year, CDs declined $63 billion, primarily the result of $57 billion of higher-cost Wachovia CDs maturing, yet total core deposits were down only $3.9 billion from a year ago. Checking and savings deposits represented 88 percent of total core deposits. Our average deposit cost was 35 basis points.”