Wells Fargo loses advisors, gains profits in Q4

Wells Fargo heading into 2022 with fewer advisors, more confidence after big Q4 earnings

January 18, 2022 4:37 PM

Wells Fargo ended 2021 with fewer advisors in the room, more cash in its coffers and a whole lot of confidence heading into the new year.

The bank’s Wealth and Investment Management unit lost a total of 1,146 registered representatives from either Wells Fargo Advisors or its Private Bank over the past 12 months, according to the firm’s fourth-quarter earnings statement released Jan. 14.

But client assets and annualized revenue per advisor both increased, continuing a trend of growing while shrinking that Wells Fargo maintained throughout 2021.

“As I look back on my slightly more than two years at Wells Fargo, I’m incredibly proud of what our team has accomplished as we remake this incredible franchise,” CEO Charlie Scharf said in a statement. “We have made sweeping changes to the leadership and culture, made significant progress on our risk, regulatory and control work, improved the efficiency of the company while investing in our business in a more holistic and aggressive way, and have taken a different approach to our customer- and community-facing responsibilities as a large public company.”

Smaller, but bigger

In the fourth quarter alone, the total number of financial and wealth advisors at Wells Fargo dropped by 185, or 1.5%, to 12,367 people. It’s the smallest quarterly drop for the firm in a year where many have jumped ship as it moved away from international business in wealth management. Year-over-year, Wells Fargo has seen its wealth management arm shrink by 8% from the 13,513 reps it rang in 2021 with. But fewer bodies doesn’t mean sagging production. Annualized revenue per rep climbed 16% from the year-ago period to $1.17 million, and client assets rose 9% to $2.18 trillion.

Profits on the rise

Wells Fargo reported net income of $5.8 billion, up 86% when compared to the fourth-quarter of 2021. The firm’s revenue settled at $20.86 billion, a 13% increase from the year before. Scharf said as the economy recovered, the firm saw increased consumer spending, higher investment banking fees and higher asset-based fees in its Wealth and Investment Management business. He added that he remains “incredibly optimistic” about the future.

“The changes we’ve made to the company and continued strong economic growth prospects make us feel good about how we are positioned entering 2022,” Scharf said in a statement. “But we also remain cognizant that we still have a multiyear effort to satisfy our regulatory requirements — with setbacks likely to continue along the way — and we continue our work to put exposures related to our historical practices behind us.”

Gains and losses

A big sale and a recovering economy played a significant role in Wells Fargo’s fourth-quarter success. During a Friday morning earnings call, CFO Mike Santomassimo said the company enjoyed a $943 million net gain thanks to the sales of its Corporate Trust Services business and Wells Fargo Asset Management. “There could be future gains related to these sales due to post-closing adjustments and earn-out provisions,” Santomassimo said, according to a transcript by the website The Motley Fool.

The company also had a $875 million reserve release set aside for protection against pandemic losses. Santomassimo said if the economic recovery continues, the company expects additional reserve releases.

Managing expenses

Wells Fargo leaders also credit part of their growth to running a leaner, more efficient operation as credit quality improved for consumers. Scharf said overall expenses declined 1% from the third quarter and 11% from a year ago, and the company generated positive operating leverage over both periods. Wells Fargo’s loan charge-off ratio declined from 35 basis points in 2020 to 18 basis points in 2021, and the firm’s allowance for credit losses declined by $5.7 billion. Deposits, meanwhile, increased by $78 billion or 6%, and loans grew 1% with drops in the first half of the year offset by a 5% increase in the second half.

“Most importantly, we continued to prioritize our risk and control work. And the strong economy continues to positively impact our customers and our results,” Scharf said during the earnings call. “Consumers continue to have more liquidity than prior to the pandemic, though we do see this declining as the median balances today are 27% higher than pre-pandemic levels but are down 10% from the third quarter.”