1 More Reason to Be Optimistic About Wells Fargo & Co

Wells Fargo made a big announcement last fall -- and investors who've forgotten it may be missing out on the potential for big returns. 

Last fall Wells Fargo and American Express announced a partnership which would in turn allow customers to receive American Express cards issued by Wells Fargo by the middle of 2014. It has immense benefits for both firms as it broadens the network of American Express card users, and it will in turn draw in customers to Wells Fargo to tap another source of income from its wide customer base.


"We are delivering on our strategy to expand our credit card business," noted the Chairman and CEO of Wells Fargo John Stumpf, in the announcement of the partnership. "Our goal is to offer Wells Fargo customers a suite of cards that help them meet their financial goals. We're proud to have American Express as a partner in this effort - a great company with a proven brand for customer service."

And while Bank of America is largely the dominant bank in the credit card industry -- it added a staggering 3.9 million new credit card accounts in 2013 alone -- this move at Wells Fargo could mean big things for it and its investors.

The dramatic difference
At the end of 2013, Wells Fargo reported it had watched its credit card loans outstanding grow by 9%, or $2.2 billion. By comparison Bank of America watched its loans fall by $2.9 billion. However it is critical to note Bank of America has a staggering lead in the actual amount of credit card loans that are extended, as it had a nearly four times higher number:


Source: Company SEC Filings.

Yet one of the most curious things about the Wells Fargo credit card portfolio is while it is often perceived to be the safest bank around with the least risky asset base, it brought in a staggering $3.1 billion in interest income on its $27 billion of credit card loans, meaning those loans had a yield of 12.5%. By comparison Bank of America earned $10 billion from its credit card portfolio with an average yield of 9.9%.

And while that doesn't sound like a wide disparity, had Bank of America been able to earn at 12.5%, it would've meant an extra $2.6 billion to its bottom line.

Why it matters
At a recent presentation to investors, the CFO of Wells Fargo, Tim Sloan, provided the following charts which provide unique insight into just how well the credit card business at the bank is doing:


Source: Wells Fargo Credit Suisse Presentation.

As you can see, it has done remarkably well at growing this pivotal business since the end of 2011, and 2014 is seemingly poised to be another year in which the growth continues.

Wells Fargo has long been a model of both success and safety in the banking industry, and it appears its newest efforts to expand into the credit card landscape could only be further evidence of this reality. With the partnership of American Express to soon be rolled out in its fullness, it could mean big things to the bank and its bottom line.

The biggest change you never saw coming
Think changes are coming in the credit card world? You have no idea what'll happen next. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

The article 1 More Reason to Be Optimistic About Wells Fargo & Co originally appeared on Fool.com.

Patrick Morris owns shares of Bank of America. The Motley Fool recommends American Express, Bank of America, and Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

What Is Your Risk Tolerance?

Answer the question "What type of investor am I?".

View Course »

Investing Like Warren Buffett

Learn from one of the world's best investors.

View Course »

Add a Comment

*0 / 3000 Character Maximum