Wells Fargo has lost about $2 Billion a year of fee income thanks to Congress. Making up for this in a transparent way is subject to a ton of negative scrutiny and is essentially impossible, unless Wells and other banks are a bit sneaky going about it. Here's how Wells Fargo can make up for all the lost fee income bestowed on it by Congress:
- 9 more points on loan originations (including homes)
- 9 more points in interest; and
- 90 cents per month more fees per customer
With a run rate of $140 billion a Q for home loan originations, a 9 basis point increase in fees ($180 on a $200,000 loan) would yield $126 million a Q in fee income that is generated below the radar of bank critics, including Congress. Add a simlar increase to all loans originated and I believe Wells generates about $200 million a Q in added revenue...without complaints.
If Wells simply increases interest rates on its loan book of $$900 billion by 9 basis points over the next 3 years relative to historical levels, it drops an added $810 million/year in undetected revenues.
Next, figure out how to nickel and dime its 45 million customers to the tune of $.90/month in terms os processing fees, minimum account balances, money orders, etc. In fact, just dropping rewards on debit cards would probably come close to doing this. Net result: $486 million/year in added revenue.
The total of these items is $2.1 billion a year.
What's my point?
Let's draw an analogy to the insurance industry after a natural disaster. Premiums go up for a period of years thereafter and it's pretty much accepted.
In the case of banks, we've just been through a perfect storm of losses, largely caused by huge pass-thrus of costs to banks (on top of direct loan losses). Furthermore, the government has said banks can't charge for lots of things in a traditional manner and banks must exit traditional and profitable investment bank businesses to wit: Prop trading, derivatives and hedging.
In short, all banks need revenues and they all know it. The environment for raising fees of all sorts has never been better.
Contrast Wells with BAC and JPM. Both the latter have been vastly more impacted by the loss of investment bank sorts of revenue than Wells. Additionally, they are vastly shrinking their home lending businesses, making their revenue base even smaller relative to Wells. Net reult: Other banks need to raise revenues much more than Wells does because Wells had no investment banking business to lose and it is growing in home lending.
I believe bank margins (on all products that are not directly quantifiable by bank gadflies) are skyrocketing, especially for Wells. Let's call it the "9-9-9-9-9-9-9" program. Not only is Wells vastly increasing its market share in all categories, but its margins are going thru the roof IMHO.
Disclosure: I am long WFC.