JPMorgan calls growing M&A chatter around Wells Fargo 'a non-starter' as stock trades near 2008 levels
Wells Fargois now the subject of merger speculation, as its stock trades nearly 70% off its 2018 high and is trading back to levels not seen since the Great Recession.
- In a tweet, Fox Business Senior Correspondent Charles Gasparino speculated that
Goldman Sachsand Wells Fargo are considering a merger to better compete against JPMorgan.
- But in a note published Thursday morning, JPMorgan called the speculation a "non-starter" due to deposit regulation and Wells Fargo's asset cap.
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Wells Fargo shares have cratered 66% from their 2018 high, trading at levels not seen since the 2008 and 2009 financial crisis.
As Wells' stock trades at an 11-year low, media speculation about the
Fox Business Senior Correspondent Charles Gasparino tweeted on Wednesday that Goldman Sachs is considering acquiring Wells Fargo.
Gasparino tweeted, "Background on @WellsFargo - @GoldmanSachs possible merger. High-level banker speculation combining a big commercial bank w top investment bank to compete w @jpmorgan. Wells CEO Charlie Scharf a close associate of Jamie Dimon. @DavidSolomon needs a deal $GS $WFC more as I get it"
But in a JPMorgan analyst note published Thursday morning, analysts called the merger-and-acquisition speculation "a non-starter due to deposit regulation [and] Wells Fargo's asset cap."
By law, Wells Fargo would not be able to merge with any bank because it already exceeds the 10% deposit market share limit.
As of December 31, Wells Fargo's deposit market share was 10.3%, while Goldman Sachs' is estimated to be 1.2%, putting a combined entity well above the 10% limit.
Additionally, "this deal would be blocked by Wells Fargo's asset cap, which is already constraining growth," JPMorgan said.
In response to the 2016 Wells Fargo account opening scandal, the Fed imposed an asset cap of $1.952 trillion for the bank, meaning its assets cannot exceed that level until the asset cap is lifted.
With $1.981 trillion in assets as of March 31, Wells Fargo doesn't have any room left to add assets. Instead, it needs to shrink assets by about $30 billion to get back under that $1.952 threshold.
There is no room for Wells Fargo to add Goldman's $1.1 trillion in assets.
And aside from the asset cap imposed by the Fed, there are still a number of legal and regulatory issues Wells Fargo has to resolve stemming from the consumer abuse scandals revealed in 2016, where representatives at the bank opened numerous accounts for clients without their knowledge to meet sales targets.
At yesterday's close, Wells Fargo had a market value of $92 billion, versus Goldman's market value of $59 billion.Read the original article on Business Insider
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