By Telis Demos
Wells Fargo is finally ready to level up its Wall Street trading business. While it won't be matching the titans of this industry overnight, there is plenty of money to be made.
Following its release from a Federal Reserve-imposed asset cap last year, Wells Fargo has joined its peers above the $2 trillion total asset mark. And in particular, it has been adding the kinds of assets that are fuel for the business of Wall Street. In the first quarter of this year, Wells Fargo's average trading-related assets were up by more than 40% from the same time last year, the company reported.
Shareholders should be watching this closely. Trading has been a booming business for the biggest banks in recent years. Revenues of the five largest Wall Street giants across fixed-income, commodities, currencies and equities trading rose more than 15% in 2025. Wells Fargo, meanwhile, saw just a 3% gain in its markets unit in 2025.
Now, though, it is free to resume its longtime quest to take a bigger slice of the Wall Street pie. Wells Fargo may be best known for Main Street banking, but it is hardly a tourist in key Wall Street businesses such as asset-based financing, where it has long been a major player.
Still, it has been undersize in the trading business in some key ways. In its corporate-and-investment-banking segment, it reported trading-related assets of just under $400 billion on average in the first quarter. That is just over half what Bank of America reported in its global markets unit. These types of assets were particularly difficult to grow during the cap years, the bank has said.
Being able to provide clients with "balance sheet" is a crucial part of the Wall Street business model. Hedge funds, for instance, utilize repurchase agreements to amplify their bets on Treasurys. Trading firms use prime brokerage financing to try to make big money off small price movements.
Of course, trading empires aren't built in a day. And a lot of this financing activity on its own doesn't generate a high return on assets. It is more like table stakes. What makes it profitable is all of the other kinds of business and income those clients also eventually bring in, like trading commissions or investment-banking fees.
So for now, Wells Fargo is in catch-up mode.
The bank grew its quarterly average companywide assets that include trading accounts, repurchase agreements and securities borrowed by more than 40% in the first quarter year over year, which was paired with a 19% rise in combined equities and fixed-income, currencies and commodities trading revenue. Across its rivals Bank of America, Citigroup and JPMorgan, those companywide asset categories collectively grew under 20%, matched with 17% higher trading revenues.
While it bulks up, the expansion in its markets' business balance sheet also weighed on Wells Fargo's net interest margin in the first quarter, the bank told analysts. But it is too soon to judge the results. As more big clients get fully onboarded, the bank should see more returns and revenue from this investment.
On the first-quarter call, executives didn't back away from the bank's medium-term target of a 17% to 18% return on tangible common equity. It was 14.5% in the first quarter.
"We're either going to get the increased flows at a strong [return], or we're not going to use the balance sheet for it," said Chief Executive Charlie Scharf. "And we're very confident at this point that we will get the returns for it, based on the conversations and the things we've seen with our clients so far."
Factors outside the bank's control could prove a challenge in the coming quarters. There are market conditions to consider. For example, the conflict in the Middle East, were it to reignite and cause further disruption, could go from driving trading activity to forcing traders to the sidelines.
Beyond that, the competition among banks isn't getting any less intense. Rivals have been using their excess capital to continue to bulk up their already-big businesses. Analysts at Truist Securities estimate that the collective trading assets of large Wall Street banks grew by almost a trillion dollars from the fourth quarter of last year to the first quarter of this year. "It doesn't seem like there is an upper limit to how big the Street's balance sheet can get, at least anytime soon," the analysts wrote in a recent note.
Against this backdrop, clients such as hedge funds are already borrowing at record levels by some measures. If there is deleveraging among them at some point, it could shrink the opportunity set that banks are competing over.
But regardless of what happens in the next couple of quarters, in the long run there is plenty of room for Wells Fargo to reap benefits from one of banking's biggest and most profitable businesses. As the adage goes, time in the market is better than timing the market.
Write to Telis Demos at Telis.Demos@wsj.com
(END) Dow Jones Newswires
April 29, 2026 05:30 ET (09:30 GMT)
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