Four months after Vanguard shuttered three muni bond ETFs due to their “high level of volatility” which began in 2010 and continues today, Wells Fargo’s head of public finance announced Wednesday that the bank would be “shaking up the department” by dismissing several senior bankers who worked on the bank’s shrinking muni business.
All told, Wells has fired 15 employees from its public finance department, according to a person familiar with the matter. Meanwhile, the department’s new leader, Stratford Shields, has hired six bankers and may continue hiring, according to company spokeswoman AnneMarie McDonald. Shields is reportedly bringing in people from his former employer, Morgan Stanley, where he ran public finance for five yeas before he joined the Royal Bank of Canada in 2014. Wells has fallen in the muni bond deal rankings. It was the eighth largest municipal lender this year, down from seventh last year, according to Bloomberg.
The change comes after Wells Fargo’s share of the municipal-bond underwriting business has shrunk as some governments have cut ties with the bank following a series of scandals, including the infamous Wells Fargo cross-selling scandal. Competition for deals has also increased as the number of deals has fallen 20% this year after Congress got rid of a popular refinancing tactic.
While Bloomberg described the cuts as the result of shrinking business, less public finance lending could benefit Wells in the long run. When public pensions implode, triggering a full-blown public debt crisis, Wells might find itself with less exposure, and thus, less damage to its balance sheet. But in the near term, municipal bonds could take a hit as tax reform hurts property values in blue states. Though this same provision could make exposure to tax-free investment income even more valuable.
Of course, munis aren’t the only business where Wells is hurting. Wells’s mortgage lending business, once the company’s “bread and butter”, reported its worst residential mortgage applications number since the financial crisis last month.