Wells Fargo's Wealth profit driven by loans, managed accounts

By Jed Horowitz

NEW YORK (Reuters) - Wells Fargo Corp (WFC.N) showed again in the first quarter why it and other big banks want their financial advisers to sell fee-based products.

Profit in the "Wealth, Brokerage and Retirement" sector of the San Francisco-based bank rose 18 percent from the previous year's first quarter to a record $561 million, more than double the sector's 8 percent revenue growth to $3.7 billion (3 billion pounds), Wells Fargo said on Tuesday.

Like other bank-owned brokerage firms, Wells encourages its financial advisers to sell "managed accounts," where a fee is charged for allocating client money among mutual funds, investment managers and other sources. Managed account assets at the Wells Fargo Advisors brokerage business grew 12 percent, or $46 billion, to $435 billion in the three months ending March 31. In the year-earlier quarter such assets were up 13 percent.

Banks promote fee-based accounts because they provide more profitable and consistent revenue than traditional commission accounts that ebb and flow with market sentiment.

Wells' wealth management results bode well for other large bank-owned brokerages such as Merrill Lynch (BAC.N) and Morgan Stanley (MS.N) that are reporting quarterly results later this week. Although Wells' brokerage force fell by 53 advisers from a year earlier, to 15,134, it prospered in another area dear to bank-owned brokerages, cross-marketing loans to traditional brokerage clients.

Average loan balances rose 13.9 percent in the first quarter to $56.9 billion, as brokers and private bankers sold clients' jumbo mortgages and loans collateralised by securities portfolios, Wells said. The lending surge escalated the sector's net interest income by 12.1 percent to $861 million.

In another sign of cross-marketing success, wealth sector clients used 10.44 Wells Fargo products or services per household as of the end of February, the most of Wells' three businesses. In 2014, Wells' bank branches referred more than $1 billion of business a month to the wealth unit, Chief Financial Officer John Shrewsbury said in a conference call.

Expenses in the wealth sector rose 4 percent to $2.83 billion, the highest in at least five quarters, reflecting costs for increased trading volume.

The wealth sector remains Wells' smallest business. Its $561 million of quarterly profit compares with $1.8 billion from investment banking and trading activities in its Wholesale Banking sector and to $3.7 billion reaped from branch banking and credit card activities in its Community Banking sector during the first quarter.

(Editing by Ted Botha)