Wells Fargo

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Wells Fargo & Co.
Image:Wflogored.gif
Type Public (NYSE: WFC)
Founded New York, New York (18 March 1852)
Location San Francisco, California
Key people Richard Kovacevich, Chairman and CEO
John Stumpf, President and COO
David Hoyt, head of Wholesale Banking Group
Robert Atkins, CFO
Dr. Sung Won Sohn, Chief Economist
Industry Finance and Insurance
Products Checking Accounts
Insurance Brokerage
Stock Brokerage
Asset Management
Asset Based Lending
Consumer Finance
Revenue $30,059,000,000 (U.S., 2004)
Employees 150,500 (2005)
Website www.wellsfargo.com

Wells Fargo NYSE: WFC is a financial services company in the United States, with consumer finance subsidiaries doing business in Canada, the Northern Mariana Islands and the Caribbean.

Headquarted in San Francisco, Wells Fargo is a result of the acquisition of California-based Wells Fargo & Co. by Minneapolis-based Norwest Corporation in 1998. However, whereas the acquired company usually takes the name of the acquirer, Norwest (the acquiring company) instead chose to change its name to Wells Fargo (the acquired company), to capitalize on the nearly 150-year history of the Wells Fargo name and trademark stagecoach.

As of 31 March 2005, Wells Fargo has 6,130 "stores," 23 million customers, and 150,000 employees. [1]

Contents

Lines of business

Wells Fargo offers a wide range of financial services. In addition, the company claims to be one of the most "integrated" of financial services companies. For example, instead of running a stock brokerage with separate branches and different customers, Wells Fargo stock brokers sit in retail branches, and generally only serve banking customers.

Despite this wide range of businesses, Wells Fargo only delineates three different business segments when reporting results: Retail Banking, Wholesale Banking, and Consumer Finance. This is unlike many other financial services companies which provide more detail about particular businesses or product lines. The reason for this is twofold: because it fits with Wells Fargo's philosophy of cross selling product lines, and because it would be difficult for Wells Fargo to "normalize" the results for comparison's sake, due to their particular buisness model.

The retail banking segment contains the community banking group, and card services consumer credit group and consumer deposits group.

Wells Fargo personal-account clients are encouraged to purchase multiple-product "packages" offering preferred-client discounts. Examples of such packages are:

  • "Wells Fargo Membership Account" tied to payroll direct deposit from a participating employer;
  • "Wells Fargo Advantage Account" tied to balances in multiple deposit accounts, loans, or a home mortgage;
  • "Wells Fargo Portfolio Management Account" tied to balances in brokerage accounts, IRAs, deposits, and loans.

Wells also has around 400 stand alone mortgage branches throughout the country. It also does mortgage wholesale lending through independant mortgage brokers. Wells Fargo generally has had a more unified computing system between states than comparable banks such as Bank of America.

Wells Fargo Financial is the consumer finance segment. It engages in sub-prime lending through over 1000 branches throughout the U.S. and in certain other countries. This division also engages in "indirect lending" for such organizations as furniture retailers.

The Wholesale segment contains products sold to large companies, as well as to consumers on a "wholesale" basis. This includes lending, treasury management, mutual funds, asset-based lending, commercial real estate, and some investment banking. Wells Fargo historically has avoided large corporate loans as stand alone products, and insisted that borrowers purchase other products with loans, which it sees as a loss leader. One area that is very profitable to Wells however is asset based lending: lending to large companies using assets not normally used in other loans. This can be compared to "sub-prime" lending, but on a corporate level. The main brand name for this activity is "Wells Fargo Foothill", which regularly publishes tombstone ads in the Wall Street Journal. Wells Fargo also owns the largest "real estate investment bank", which assists commercial property owners in obtaining funds in the capital markets, as opposed to direct lending by Wells Fargo itself.

Wells Fargo has historically had a large private equity business, which still retains the Norwest brand name. This was the most successful private equity company in 2003, although it was eclipsed by others who made substantial amounts of money in the Google IPO. This really doesn't fit in with Wells Fargo's stated busines model, but is retained because of its profitability.

Business Model

The present business model of Wells Fargo is summed up in its vision statement: "We want to satisfy all of our customers' financial needs, help them succeed financially, be the premier provider of financial services in every one of our markets, and be known as one of America's great companies."[2]

Wells Fargo's goal is to encourage its customers to buy all their financial products through Wells Fargo: "We want to earn 100 percent of our customers’ business. The more products customers have with Wells Fargo the better deal they get, the more loyal they are, and the longer they stay with the company, improving retention. Eighty percent of our revenue growth comes from selling more products to existing customers. Our goal: sell at least eight products to every customer."[3]

This is a concept known as "cross-selling", or as Wells Fargo refers to it "needs-based selling," which is popular in the financial services industry. While earlier companies, such as Prudential, pioneered the concept of selling a variety of products, they acted merely as holding companies and each product was sold through its own distribution channel. However, predecessor Norwest pioneered selling all its products through all its channels, with discounts given to those who purchase a larger variety.

The average "cross-sell ratio" for a financial institution is two (based on an average American consumer owning sixteen different financial products from eight different institutions). Wells Fargo purports to have a cross-sell ratio of 4.6, which is among the highest in the country.[4] ([[Washington Mutual was beating them at the end of 2003 with a 5.59 ratio.[5]) Achieving such a high cross-sell ratio would result in a financial services version of the "agglomerator" business model, most popular among the big-box retailers, such as Home Depot, Office Depot, and Wal-Mart. In order to facilitate achievement of this goal, Wells Fargo lobbied hard for deregulation of the banking industry, and for repeal of many of the laws that were passed during the Great Depression like the Glass-Steagall Act.

Corporate DNA

Wells Fargo & Company is the end result of more than 2,000 mergers. The holding company was previously known as Norwest Corporation and before that Northwestern National Bank (BANCO). Norwest was "one of the most acquistive banks of the 1990's...."[6] Most of the management and the business model of the present day Wells Fargo come from Norwest Bank, and the stock history of Wells Fargo is that of Norwest.

Selected Predecessor Companies

History

Henry Wells and William Fargo founded Wells Fargo & Co. in 1852 as a stagecoach and banking company during the California Gold Rush.[7] They ran the stages (as opposed to wagons) directly only from 1866 to 1869, when they allowed independent, locally-run stage lines to carry the express.[8] Its major focus was this express business until World War I, when the U.S. government nationalized the express business. The company then shifted its focus to financial services, starting from a single bank in 1918. The stagecoach still appears prominently in Wells Fargo advertising and brand image; Wells Fargo owns ten refurbished original stagecoaches and five replica stagecoaches that are featured in museums and several of its locations.

In 1996, Wells Fargo successfully acquired First Interstate Bancorporation through a hostile takeover; it was the largest bank merger in U.S. History at that time, costing Wells Fargo $11.6 billion, and creating the nation's eighth largest bank with $108 billion in assets.[9] First Interstate had operated successfully in many Western states. Merging First Interstate's operations, customer base, and management systems into Wells Fargo was far more difficult than Wells Fargo's management had anticipated. Wells Fargo's executives were so eager to quickly complete the re-branding and integration of the two banks that they failed to properly anticipate, strategize, and prepare for the immense amount of work required to integrate First Interstate's operational systems, management style and employee culture into Wells Fargo's systems.[10] Compounding these difficulties was the negative publicity Wells Fargo had received from some First Interstate shareholders, bank industry analysts, customers, consumer advocates, First Interstate employees, and news media regarding Wells' hostile takeover bid.[11]

The First Interstate acquisition was marred by technical glitches and numerous client complaints.[12] News media reported on dissatisfaction among some long-time First Interstate customers. The Wells Fargo brand reputation in the newly-acquired First Interstate markets was tarnished for a few years. The First Interstate franchisee for Montana and Wyoming negotiated to retain the rights to the First Interstate Bank brand and tradenames within those states. Visitors from other states are sometimes startled to see the First Interstate brand still in use years after the Wells Fargo acquisition.

In 1998, Wells Fargo and Company entered into a merger/acquisition agreement with Norwest Bancorporation. The combined company took on the Wells Fargo identity to capitalize on the nearly 150-year history of the Wells Fargo name. As such, Wells Fargo is among only a handful of publicly-traded companies to remain in its original business (financial services) using its original name. The new entity was careful to avoid the embarrassing technical and public relations mistakes which had marred the First Interstate acquisition. The management team of the newly-combined Wells Fargo, headed by CEO Richard Kovacevich, adopted a careful phase-in of Wells Fargo/Norwest integration over a two-year time frame.[13]

Controversy

Like many large scale companies, Wells Fargo has attracted many vocal detractors who protest their business practices [14], customer service [15], fee levels, website and browser support policies [16], and other aspects of the company. (For more examples and specifics, search Complaints.com.) There is even a Wells Fargo Watch project dedicated to tracking all alleged instances of corporate malfeasance, especially ongoing investigations into alleged predatory lending practices [17] in Wells' mortgage division.

In September 2003, New York State Attorney General Elliot Spitzer filed suit against Wells after numerous advocacy groups, including ACORN, began decrying what they claimed were racist lending policies. In late 2005, Inman News reported that a putative class action suit had been filed in Miami, Florida, accusing Wells Fargo Bank of using contests to provide kickbacks to business associate for referrals in violation of the Real Estate Settlement Procedures Act.[18]

External links

References

  1. ^ "Key Facts." Wells Fargo Today. URL accessed on 23 October 2005.
  2. ^ "Where We're Headed: Our Vision." Vision and Values. URL accessed 26 October 2005.
  3. ^ "How We Measure Success." Vision and Values. URL accessed 26 October 2005.
  4. ^ "Financial Review: Overview." Wells Fargo Annual Report 2004. San Francisco:Wells Fargo & Co., 2005. p. 35. URL accessed on 27 October 2005.
  5. ^ "2003 Highlights." 2003 Summary Annual Report. Seattle, Washington:Washington Mutual, 2004. p. 3. URL accessed 27 October 2005.
  6. ^ "Attractions in Denver Colorado: Wells Fargo Center." Denver Travel Guide. URL accessed 26 October 2005.
  7. ^ "Frequently Asked Questions." Wells Fargo History. URL accessed 26 October 2005.
  8. ^ "Is there a way to look up relatives who may have worked as stagecoach drivers for Wells Fargo?" Wells Fargo History. URL accessed 26 October 2005.
  9. ^ Mehta, Julie. "Merger means a bigger bank but uncertainty for employees." Cupertino Courier. 31 January 1996. URL accessed 26 October 2005.
  10. ^ Segal, Dave. "Both CB Bancshares' Ronald Migita and Central Pacific's Clint Arnoldus have been through bruising bank battles before." Honolulu Star-Bulletin. 13 July 2003. URL accessed 26 October 2005.
  11. ^ Svaldi, Aldo. "Wells Fargo learned hard way about deals." Denver Business Journal. 12 June 1998. URL accessed 26 October 2005.
  12. ^ Vault.com. "Wells Fargo Company Profile." Excite Careers. 2000. URL accessed 26 October 2005.
  13. ^ Baker, David R. "When hostile takeovers backfire." San Francisco Chronicle. 19 December 2004. p. C1. URL accessed 26 October 2005.
  14. ^ "Wells Fargo Sucks: No, they REALLY suck." URL accessed on 22 October 2005.
  15. ^ "Wells Fargo." Epinions.com URL accessed 22 October 2005.
  16. ^ "Supported Browsers." Wells Fargo Customer Service. URL accessed 21 October 2005
  17. ^ ACORN. "Under Pressure, Wells Fargo Makes Reforms." Press Release. 16 September 2005. URL accesed 19 October 2005.
  18. ^ Inman News. "Kickbacks claimed against Wells Fargo." Palo Alto Daily News. 20 October 2005. p. 54.
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