Why Wells Fargo Stands Out From Every Other Mega-Bank (In 6 Charts)

The United States has four mega-cap banks: Bank of America Corp BAC, Wells Fargo & Co WFC, JPMorgan Chase & Co. JPM and Citigroup Inc C.

The four banks hold over $8 trillion on their balance sheets, which is about half a large as the entire U.S. GDP. While the "big four" are commonly referred to as a group, it turns out there may be two groups: Wells Fargo…and everybody else.

Let's start with the types of loans each of the banks make.

This first chart compares total assets on the x-axis and consumer debt on the y-axis.

Wells Fargo has by far the lowest consumer loans relative to total loans than any of the "big four," at below 15 percent. The rest of the "big four" range between 29 percent and 38 percent.

Now let's turn to commercial loans (y-axis) and again, compare that with assets on the x-axis.

Not only does Wells Fargo have a smaller proportion of its loans in consumer debt, but also in commercial debt. O.K., so what realm is Wells Fargo loaning in?

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Let's put real estate loans over total loans on the y-axis this time.

It's clear Wells Fargo towers above the other "big four," with nearly 55 percent of its total loan base sitting in real estate. None of the other peers are above 35 percent, when looking at observable loans and assets (those with market price). 

There is a category of assets classified as “level 3,” which represents unobservable, but significant assets. Some people refer to these as book-to-model.

Let's plot "level 3" assets on the y-axis.

This is actually weirder than first blush.

Yes, Wells Fargo has larger "level 3" assets than the other "big four," but it also has smaller total assets.

So, as a percentage of total assets, Wells Fargo is a wild outlier.

And what about the performance of loans?

Let's next put non-performing loans on the y-axis.

It's clear that not only does Wells Fargo have the largest non-performing loans, but again, the firm also has the smallest asset base. When taken as a percentage of the total, it's even a larger outlier.

So, is all hope lost?

No, not really.

If one really wants to see a measure where Wells Fargo is head and shoulders above the peers, look no further than the critical cost of funds.

On the y-axis, the chart below displays the average cost of funds for Wells Fargo and its competitors.

Wells Fargo has substantially lower cost of funds.

In fact, Citigroup is nearly three times larger. This low cost of funds means that if the loans remain in good standing, Wells Fargo earns the largest spread.

Of course, the “if” is not a trivial one.

Image credit: Ken Teegardin, Flickr