⚠ Balance Sheet Is Easy to Rent OutModerate threat

Wells Fargo (WFC) — threat to the moat

Wells Fargo's new trading balance sheet earns well only while markets are busy.

The trading business Wells Fargo is building competes on price and capacity. Its CIB Markets loans were $111.2 billion on average in the second quarter of 2026 against $79.0 billion a year earlier1, and every large bank offers that kind of financing.

CIB return on allocated capital (%)13.8%202315.7%202415.6%202519.2%Q2 2026Wells Fargo Form 10-K FY2025; Q2 2026 earnings presentation
A good return in a strong market.

Nothing about a trading desk is protected by the checking accounts in the consumer bank. When markets are quiet, the revenue falls and the assets remain.

The segment still earned a good return: 19.2% on allocated capital in the second quarter2. But that was in a strong market, and the chief executive himself spoke of taking risks prudent "through economic cycles, not just the strong environment we see today"3.

The same growth pushed the leverage ratio down. The supplementary leverage ratio was 6.2% at the end of 2025 and 5.8% in June 20264, and trading assets use leverage capacity even where they use little risk capital.

The wholesale bank now moves group earnings. Corporate and Investment Banking earned $2,329 million in the second quarter of 20265, more than the consumer bank, so a weak trading quarter would show in the group result more than it used to.

The capital behind it is large: Corporate and Investment Banking was allocated $44.0 billion at the end of 20256, and every rise in trading assets draws on it.

A fall back in the segment's return on allocated capital to the 13.8% of 20237 with the larger balance sheet would mean the growth had lowered the return.

References
  1. ReportedIts CIB Markets loans were $111.2 billion on average in the second quarter of 2026 against $79.0 billion a year earlier, and every large bank offers that kind of financing.
    Wells Fargo second-quarter 2026 earnings presentation, Form 8-K exhibit 99.3 - segment returns, deposit cost, market shares and the 2026 outlook - segment returns, average balances and business highlights. — Q2 2026 · publ. 14 July 2026 · source ↗
  2. ReportedThe segment still earned a good return: 19.2% on allocated capital in the second quarter.
    Wells Fargo second-quarter 2026 earnings presentation, Form 8-K exhibit 99.3 - segment returns, deposit cost, market shares and the 2026 outlook - segment returns, average balances and business highlights. — Q2 2026 · publ. 14 July 2026 · source ↗
  3. ReportedBut that was in a strong market, and the chief executive himself spoke of taking risks prudent "through economic cycles, not just the strong environment we see today".
    Wells Fargo second-quarter 2026 earnings release, Form 8-K exhibit 99.1 - consolidated results, credit quality, capital and the chief executive's comments. — Q2 2026 · publ. 14 July 2026 · source ↗
  4. ReportedThe supplementary leverage ratio was 6.2% at the end of 2025 and 5.8% in June 2026, and trading assets use leverage capacity even where they use little risk capital.
    Wells Fargo Form 10-Q for the quarter ended 30 June 2026 - balance sheet, capital requirements, interest rate sensitivity, segment assets, headcount and legal actions. — Q2 2026 · publ. 28 July 2026 · source ↗
  5. ReportedCorporate and Investment Banking earned $2,329 million in the second quarter of 2026, more than the consumer bank, so a weak trading quarter would show in the group result more than it used to.
    Wells Fargo second-quarter 2026 earnings release, Form 8-K exhibit 99.1 - segment results and business descriptions. — Q2 2026 · publ. 14 July 2026 · source ↗
  6. ReportedThe capital behind it is large: Corporate and Investment Banking was allocated $44.0 billion at the end of 2025, and every rise in trading assets draws on it.
    Wells Fargo 2025 Annual Report to Shareholders (financial statements, MD&A and segment note), part of the Form 10-K for fiscal 2025 - operating segment note and segment tables (Table 19.1, revenue by line of business, selected metrics). — FY2025 · publ. 24 February 2026 · source ↗
  7. ReportedA fall back in the segment's return on allocated capital to the 13.8% of 2023 with the larger balance sheet would mean the growth had lowered the return.
    Wells Fargo 2025 Annual Report to Shareholders (financial statements, MD&A and segment note), part of the Form 10-K for fiscal 2025 - operating segment note and segment tables (Table 19.1, revenue by line of business, selected metrics). — FY2025 · publ. 24 February 2026 · source ↗
Sources
Generated September 28, 2026