Why JPMorgan and Wells Fargo are diverging

In a match of Wall Street swagger vs. Midwestern sensibility, a clear winner is emerging.

By MSN Money Partner Apr 14, 2014 1:26PM
Caption: The J.P. Morgan headquarter in Canary Wharf in London. Credit: © Piero Cruciatti/Demotix/Corbis
Wells Fargo Home Mortgage center in Pittsburgh
© Gene J. Puskar/APBy David Weidner, MarketWatch

Wells Fargo & Co. (WFC) had a great quarter. JPMorgan Chase & Co. (JPM) had a lousy one.

There are fundamental financial reasons why two of the biggest U.S. banks turned in such equally opposite results Friday. Wells Fargo is enjoying improving credit in its mortgage portfolio. JPMorgan suffered from lower trading revenue in its fixed-income, currency and commodities arm.

But in this post-crisis environment, there is a deeper division between the institutions that’s driving the bottom line. Culturally, these institutions could hardly be further apart. JPMorgan and its brash, risk-taking Wall Street swagger, Wells Fargo and its West Coast cool with roots in Midwestern sensibility.

It begins in the executive suite. JPMorgan’s Jamie Dimon remains undeterred in challenging regulators, as evidenced by his annual letter to shareholders issued Wednesday, in which he said the bank was under tremendous regulatory pressure and that compliance costs would hurt the poor. And John Stumpf of Wells Fargo? His most controversial comment was probably this statement he gave to USA Today.

"There is more regulatory certainty today than there was in the last five years," Stumpf said. "On top of that, at least in our company, we have gotten a lot of litigation done and have dealt with the issues."

It's also important to note that Dimon and Stumpf are paid on dramatically different scales. Both are well-compensated by Wall Street standards -- both were awarded about $20 million in compensation -- but Stumpf's pay was more modest given that his bank produced more profit, better return on equity and had a better stock performance than its New York rival.

To put it bluntly, one could argue Dimon is being paid on a Wall Street scale and Stumpf is closer to Main Street, if only by an inch or two.

And, finally, there is a stark contrast in what the banks do and why they do it. JPMorgan was created from the merger of two New York mega banks, JPMorgan & Co. and Chase Manhattan Corp. Wells Fargo is the product of three of mergers: Charlotte, N.C.,-based Wachovia Corp. in 2008, Minneapolis-based Norwest in 1998 and prior to that, Los Angeles-based First Interstate in 1995.

It's these strands of banking DNA that have shaped the banks today. Wells Fargo with its concentration on traditional mortgage lending and stable management, and JPMorgan with its revolving-door management and smorgasbord of products -- everything from credit cards to synthetic derivatives.

While neither JPMorgan nor Wells Fargo resembles the Bailey Building and Loan, Wells Fargo’s emphasis on fewer, more traditional products and the disciplined management of them has proven to be a better model in the current era in which complexity and risk-taking are under fire.

More from MarketWatch

Apr 14, 2014 8:54PM
JP Morgan gambles in a rigged marketplace, while Wells Fargo has an actual "portfolio" it builds its future on. Morgan has begun its death throes with Goldman Sachs close behind. The problem is- dead banks like Citi can still sway Wall Street, but it's dead. 
Apr 15, 2014 6:43AM
"wells fargo is winning because JPM had a bad quarter. Seriously? Wonder what you'll say when JPM has a better quarter in the future."

Neither bank is winning. JPM is a conglomerate. Dimon tapped data warehousing to gain enough information about us to attempt pre-anticipation of needs and be ubiquitous to and for them. When the markets crashed in 2008-09, JPM and Goldman Sachs had the lion's shares of derivatives and failed assets. They truly were-- Too Big To Fail and thus, financial wrangling grew out of control. It has to make sense that our current Administration got whammied by what these two crooked banks and Dubya's preemptive strike against free enterprise set up prior to Obama. That said-- Wells Fargo became a much larger bank when they absorbed Norwest. It gave them actual lenders and portfolio expertise. Few know that Wells had to literally write off all of the Junior Lien Products they amassed as other banks crashed. Instead of cornering the nickel market or making whales that fail or putting their alumni in the Treasury, Wells simply went to work-- LENDING. If we had a real Congress who threw the Ivy League out of high places and focused on forcing banks to be what they are SUPPOSED to be and have them do it-- they'd resemble Wells Fargo, not JPM or be a fake bank in the Dow Industrial- like Goldman Sachs. 
Apr 14, 2014 2:20PM
JP Morgan is an investment bank first and foremost while Wells Fargo is a commercial bank.
Apr 14, 2014 11:31PM
What's the point of this article, simply that Wells Fargo is a better bank after pointing out they are competing with different products? Seems like they are only partially competing then and you should have compared apples to apples, but instead you just pointed out the differences and said wells fargo is winning because JPM had a bad quarter. Seriously? Wonder what you'll say when JPM has a better quarter in the future.
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