Wells Fargo Grows Bond Underwriting

Wells Fargo & Co. is seizing a bigger share of U.S. corporate bond sales, underwriting its highest portion of deals on record this year as the bank climbs the ranks after buying Wachovia Corp. in 2008.

Wells Fargo, the fourth-largest U.S. bank by assets, has underwritten 5 percent of this year's sales, excluding self-led deals, up from 3.6 percent in 2009, according to data compiled by Bloomberg. The bank has aided borrowers from Clorox Co. to Newfield Exploration Co. in sales of $48.3 billion, ranking it as the eighth most active underwriter of the debt. That's up from 11th in 2010.

The lender has sought to expand its investment banking business after acquiring much of the operation from Wachovia. An early target for expansion was debt underwriting, in units from investment-grade and high-yield corporate bonds to leveraged loans. The bank has built market share since the financial crisis, taking advantage of its large deposit base and limited presence in Europe.

“Reputation is as important as it's ever been in that business,” Jennifer Thompson, an analyst at Portales Partners LLC in New York, said in a telephone interview. Wells Fargo “came through the financial crisis in very good shape: well capitalized, high liquidity,” she said. “They are probably picking up market share from some other larger entities that maybe have had a tougher time.”

Wells Fargo helped underwrite 4.1 percent, or $29 billion, of investment-grade sales this year, up from 2.5 percent, or $21.2 billion, in 2009, according to Bloomberg data. In high- yield, the bank has helped manage 6.7 percent, or $14.3 billion of issuance in 2012, an increase from 5.8 percent in 2009, or $9.3 billion.

“It hasn't been an overnight success story; you've seen our momentum accelerate,” Gary Wolfe, head of high-yield capital markets at Wells Fargo, said in a telephone interview. “We're starting to see the fruits of what has been a multi-year effort.”

The cost to protect against losses on Wells Fargo's debt is the lowest among its U.S. peers, with credit-default swaps tied to the bank at 76.2 basis points yesterday, compared with an industry average of 148 basis points among the six- biggest U.S. banks.

Chairman and Chief Executive Officer John Stumpf, and his predecessor Dick Kovacevich, built Wells Fargo into one of the largest U.S. banks by focusing on consumers and avoiding riskier trading and underwriting, the same businesses that hobbled some of the biggest U.S. investment banks during the financial crisis.

Changed Strategy

The bank's strategy changed after it acquired Wachovia in December 2008 as the Charlotte, North Carolina-based lender neared collapse. Wachovia underwrote 2.6 percent of investment- grade deals and 2 percent of high-yield transactions in 2008. Wells Fargo executives liked what they saw in Wachovia and tapped John Shrewsberry to oversee an expansion of the investment-banking unit.

Wells Fargo added a total of 21 managing directors and directors to the corporate bond team this year, following an addition of 26 executives last year, according to John Hines, head of investment grade syndicate. San Francisco-based Wells Fargo serves more than 70 million retail and corporate customers, Chief Financial Officer Timothy J. Sloan said Sept. 11 at an investor conference.

The merger “certainly gave the investment bank a chance to expand its client base,” Hines said. “Over the past four years, we've been rewarded with more book-running roles and been able to build on that momentum.”

Still, Wells Fargo ranks seven places behind JPMorgan Chase & Co., the No. 1 underwriter, which has helped sell $118.8 billion in debt this year, or 12.3 percent of the market. Bank of America Corp., ranked No. 2 and based in Charlotte, has sold about $103 billion in bonds for 10.7 percent market share, according to Bloomberg data. JPMorgan is based in New York.

Wells Fargo served this week as one of the bookrunners on a $600 million offering from Clorox and on a $1.05 billion, three- part sale by Dominion Resources Inc., Bloomberg data show. The bank led a $1 billion debt sale for Newfield Exploration Co. in June.

Wells Fargo is one of the “firmer financials,” said Anthony Valeri, market strategist at LPL Financial in San Diego. “They have less financial markets exposure, certainly less exposure to Europe, and are better capitalized with a less market-sensitive model.”

The bank's price-to-earnings ratio of 11.6 times compares with an industry average of 14.9 among the largest U.S. banks, Bloomberg data show. The lender holds almost $930 billion in customer deposits.

“Clients are eager to partner more with Wells Fargo given the stature and financial strength of the company,” Hines said.

Bloomberg News

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