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| align="center" style="background:#f0f0f0;"|'''Market Share'''<ref name=FDICQuarterly2009>[ FDIC Quarterly- Highlights from 2009 Summary of Deposits]]</ref> | align="center" style="background:#f0f0f0;"|'''Market Share'''<ref name=FDICQuarterly2009>[ FDIC Quarterly- Highlights from 2009 Summary of Deposits]]</ref>
|- |-
-| Wells Fargo (WFC)||759.7||10+| Wells Fargo (WFC)||759.7||10%
|- |-
-| [[Bank of America (BAC)]]||907.4||12+| [[Bank of America (BAC)]]||907.4||12%
|- |-
-| [[JP Morgan Chase (JPM)]]||639.8||9+| [[JP Morgan Chase (JPM)]]||639.8||9%
|- |-
-| [[Citigroup (C)]]||317.5||4+| [[Citigroup (C)]]||317.5||4%
|- |-
|} |}

Revision as of 22:46, May 17, 2010

Wells Fargo & Company (NYSE:WFC), with $1.2 trillion in total assets as of December 31, 2009, is the fourth largest bank holding company in the United States.[1] Wells Fargo & Company is best classified as a diversified financial services company, and with over 80 distinct businesses, Wells Fargo offers a full range of financial products and services and targets all types of clients, from individuals to large corporations in all 50 states as well as the District of Columbia. During 2009, Wells Fargo posted a $12.3 billion net income on total revenues of $99 billion.

Wells Fargo became the nation's largest mortgage lender and the second-largest diversified financial services firm in the United States in term of deposits after acquiring Wachovia (WB) on December 31, 2008.[2][3] Wells Fargo's sold $12.6 billion in common stock and $25 billion in preferred stock to the US Government through former U.S. Treasury Secretary Paulson's $700B Troubled Assets Relief Program (TARP) as part of the deal to raise enough cash for the acquisition.[4][5][6]

On December 15, 2009, Wells Fargo raised $12.25 billion in a stock sale to help repay the $25 billion in Troubled Assets Relief Program (TARP) money that it received from the government during the 2008 Financial Crisis.[7] Although this diluted Wells Fargo's shares by approximately ten percent, it allows the bank to avoid paying an annual dividend to the government of $1.25 billion and frees it of government oversight, making it more flexible.

Company Overview

Like virtually all major banks, Wells Fargo has been negatively impacted by the 2007 Credit Crunch and the subsequent economic decline. However, unlike many other banks, Wells Fargo has not been forced to write down large losses on its assets.[8] Despite this, the Standard & Poor's Rating Service downgraded Wells Fargo from its AAA rating to AA+ after its acquisition of Wachovia.[2] During the first quarter of 2009, Berkshire Hathaway (BRK) manager Warren Buffett raised his stake in Wells Fargo by 12 million shares, signaling Buffett believes the company's performance will continue to do well.[9] During the third quarter of 2009, Buffett further increased his stake in Wells Fargo by more than 10 million shares in another show of support for Wells Fargo.[10]

On September 25, 2009, Newsweek magazine ranked Wells Fargo the "Greenest Bank" in America, having helped environmentally friendly businesses with over $5.0 billion in financing.[11] With growing concern about global climate change and other environmental issues, Wells Fargo's initiative and lead among financial companies may give it an advantage in the future among its potential clients.

Business and Financial Metrics

Wells Fargo Financials (In Millions) 2007[12] 2008[13] 2009[13]
Net Interest Income16,0359,16424,656
Total Non Interest Income18,54616,73443,362
Total Non Interest Expense22,74622,59849,020
Net Income8,0572,65512,275

Business Segments

Wells Fargo separates its businesses into three main segments for revenue reporting purposes: i) Community Banking, ii) Wholesale Banking, and iii) Wealth, Brokerage, and Retirement. Prior to 2009, the Brokerage and Retirement segment was named Wells Fargo Financial.

Community Banking ($8.6 billion in Net Income, 63.7% of 2009 Total Net Income)

Wells Fargo's Community Banking business serves small business clients (with up to $20 million in annual sales) as well as retail customers and high-net-worth individuals, providing them with a wide range of services such as investment, insurance and trust services, among others. It offers its products through a variety of channels, including the company's regional banking branches, over 6,700 ATMs, website, and telephone banking service. In 2009, Wells Fargo began reporting Wells Fargo Financial under Community Banking.

Wells Fargo's substantial credit card business now lies under Community Banking, and it has issued over 7.7 million credit cards and over 20 million debit cards, making it the second largest debit card issuer in the U.S.[14] As a credit card issuer, it charges interchange fees (fees charged to merchants who accept credit cards), interest on outstanding customer balances, and a variety of other fees charged to customers, such as late or missing payment fees, exceeding the card's credit limit, and monthly or annual membership fees. Wells Fargo also has costs related to credit cards, such as interest expense (Wells Fargo generally borrows the money that it lends to credit card customers), fraud, and rewards (in order to compete with each other, banks offer cash-back rewards and bonus point systems to lure customers; these generate costs that the credit card issuer must bear).

Wells Fargo's Community Banking segment earned $8.6 billion in net income from its $59 billion in revenues during 2009.[15] This represented a substantial increase from its 2008 earnings of $2.1 billion on revenues of $33 billion in 2008.[15] Wells Fargo attributed the strong growth to a large increase in mortgage originations, as they increased from $230 billion in 2008 to $420 billion in 2009.[15]

Wholesale Banking ($3.9 billion, 28.9%)

Wells Fargo's Wholesale Banking Group serves the company's business clients with annual sales exceeding $10 million. Wholesale Banking is responsible for a line of corporate, commercial, and real estate banking products and services, including institutional investments, employee benefit trusts, investment banking, construction loans, and insurance. After the Wachovia Bank acquisition, Wells Fargo was able to expand its product services to include investment banking, equity trading, fixed-income sales and trading, and equity and fixed-income research, among others.

Net income for Wholesale Banking grew from $1.4 billion in 2008 to $3.9 billion in 2009, as its revenues also increased from $8.2 billion to $20.3 billion.ref name=WFCAR2009Pg45 /> Wells Fargo attributed this increase to broad based growth across its many businesses as well as stabilizing capital markets. Also, with over 750 offices world wide, its Wholesale Banking segment saw significant growth in the number of middle market companies that got loans.

Wealth, Brokerage, and Retirement ($1 billion, 7.4%)

Wells Fargo's Wealth, Brokerage, and Retirement segment provides a full range of financial services to high net worth and affluent individuals. The products offered by this segment include financial planning, private banking, credit, investment management, trust and estate services, and business succession planning, among others.[16]

During 2009, this segment had a net income of $1 billion from its revenues of $11.5 billion.[15] Wells Fargo believes earnings were hurt by the extremely low yield on U.S. Treasury Bills and the low interest rate environment in general.

Trends and Forces

Effects of housing market slowdown

The U.S. housing market had a slowdown that began in 2007, and as it continued into 2008 and 2009, Wells Fargo's mortgage lending business was hit by slow growth and falling residential real estate prices. The economy as a whole experienced the "home equity effect", where homeowners perceive their house values to be lower than they anticipated, and therefore perceive themselves to be relatively less wealthy. As a result, consumers spend and consume less. The number of total housing starts has fallen 63% since peak levels during the end of the housing boom.[17] During the last quarter of 2008, the nation's banks recorded a total of $26.2 billion in losses and faced a weighted average of 94% fall in profits.[18] Wells Fargo Home Mortgages have taken a setback, with higher provisions for credit losses offsetting revenue growth in 2008. However, Wells Fargo has been dealing with the mortgage setbacks relatively well due to its wide diversification in product offerings, which allows the company to compensate for poor performance in the home mortgage business.

Subprime bust avoidance

The housing slowdown is often attributed to the collapse of the subprime lending market. Subprime lending, or lending money to customers with poor credit scores (riskier borrowers), can lead to higher loan losses in harsh economic climates or during periods of stagnant or falling housing prices. As customers find themselves unable to make their debt payments, which are higher than average to begin with, defaults rise.

Wells Fargo has fared better than most competitors in the mortgage business, mainly because its mortgages are predominately prime and near-prime. As a result, Wells Fargo has not experienced high rates of default seen in the subprime market. Wells Fargo has avoided much of these losses by deciding not to extend or purchase option adjustable rate mortgages (option ARMs). However, Wachovia Bank, which was acquired by Wells Fargo, took part in Option ARMs and subprime lending. Wachovia has $122 billion in outstanding subprime loans and a loan loss of 29% or $36 billion is expected.[19] Despite this prediction, the changing economic situation has made existing models unreliable and it is unclear what Wachovia's assets actual default rate will be.

Exposure to U.S. Economic Cycles

Its heavy concentration in the U.S. makes Wells Fargo more dependent on U.S. economic conditions than some of its more internationally diverse peers. Global gross domestic product increased by an estimated 4.9% over the course of 2007, though the U.S. GDP growth rate was notably lower.[20] As the world economy continues to expand, consumers and firms have more wealth to spend and invest, which translates into increased revenue for Wells Fargo. At the same time, widespread economic weakness that extends beyond the United States can severely impact Wells Fargo's earnings. For instance, the international economic downturn that occurred after the 2007 credit crunch and the 2008 Financial Crisis considerably lowered Wells Fargo's earnings.

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U.S. interest rates over time

Interest Rates Sensitivity

The Federal Reserve increased the federal funds rate from 4.25% to 5.25% early in 2006, which put upward pressure on interest rates. This had the effect of slowing economic growth and lowering inflation, which partially offset the effects of strong economic expansion (discussed above). Higher interest rates tend to discourage consumer spending and investment, which impacts Wells Fargo in the form of lower balances charged to credit cards, fewer loans and deposits, and reduced business loans. At the same time, higher general interest rates allow WFC to charge its customers higher interest on their loans, which could increase the company's revenue from the loans that customers do take out.

In late 2007 and early 2008, the Fed implemented a series of interest rate cuts, reducing the rate from 5.25% in September of 2007 to 0-.25% in December 2008.[21] These measures were largely aimed at stimulating economic activity in the face of a recession caused by fallout in the subprime lending industry and the 2008 Financial Crisis. Wells Fargo will benefit from these cuts if they have the desired effect of stimulating consumer spending and encouraging businesses to expand.

Potential implementation of "Financial Crisis Responsibility Fee"

Obama announced in January of 2010 a plan to tax the largest banks and financial institutions to recover TARP funds that the government used to bailout many of the banks. The proposed plan calls for a 0.15% tax on each firm's liabilities, excluding Tier 1 capital and those already insured by the FDIC, with the goal of raising $90 billion over ten years.[22] However, the financial institutions subject to this fee are limited to only those with over $50 billion in assets. If this plan gets passed into law, it could represent a substantial cost to Wells Fargo for up to ten years.


With 6,795 branches and $760 billion in total domestic deposits, Wells Fargo has the most offices and the second most deposits in the United States.[23] Since Wells Fargo focuses its business operations on the domestic U.S. market, its major nationwide competitors include Bank of America (BAC), JP Morgan Chase (JPM), and Citigroup (C). Wells Fargo's lack of international exposure contrasts with these top competitors. Although Wells Fargo holds assets overseas, its remains strongly focused on the United States domestic market. While this does allow Wells Fargo to focus its resources on gaining greater market share within the U.S., Wells Fargo is thereby more vulnerable to the U.S. economic cycles, as it does not have foreign markets to buffer domestic performance.

2009 Domestic Deposits Total Deposits (In Billions) Market Share[24]
Wells Fargo (WFC)759.710%
Bank of America (BAC)907.412%
JP Morgan Chase (JPM)639.89%
Citigroup (C)317.54%


  1. WFC 10-K 2009 Item 1 Pg. 1
  2. 2.0 2.1 Trading Markets "Wells Fargo and Wachovia Merger Completed" 1 January 2009
  3. Forbes "Bank of America drops Countrywide name" 27 April 2009
  4. Wachovia Chooses Wells Fargo, Spurns Citi -
  5. Board of Governors of the Federal Reserve System "Press Release" 12 Oct 2008
  6. Forbes: Business Finance "UPDATE 3-Wells Fargo to raise $10 bln to fund Wachovia deal" 5 Nov 2008
  7. Wells Fargo sells $12.25 billion in stock to exit TARP. Elinor Comlay. Reuters.
  8. Buffett lifted Berkshire stake in Wells Fargo. Alistair Barr. MarketWatch.
  9. Berkshire raised Wal-Mart, Wells stakes in third quarter. Alistair Barr. MarketWatch
  10. Newsweek Ranks Wells Fargo Greenest Bank in U.S. Business Wire.
  11. WFC 10-K 2008 Item 6 Pg. 48
  12. 13.0 13.1 WFC Annual Report 2009 Pg. 90
  13. Wells Fargo Today
  14. 15.0 15.1 15.2 15.3 WFC Annual Report 2009 Pg. 45
  15. WFC Annual Report 2009 Pg. 46
  16. Housing Economics "Housing Starts State & Metro Forecasts for 2008-2009"
  17. Star Tribune "FDIC says US banks posted $26.2 billion loss at end of 2008, first quarterly loss since 1990" 26 Feb 2009
  18. Mortgage Statistics "Wells Fargo/Wachovia Option Arms" 28 Dec 2009
  19. IMF World Economic Outlook (WEO) - Housing and the Business Cycle, April 2008
  20. Federal Reserve Board "Open Market Operations" 16 Dec 2008
  21. Obama proposes special fee on financial companies. Rex Nutting & Robert Schroeder. MarketWatch.
  22. 23.0 23.1 23.2 23.3 FDIC Summary of Deposits: June 30, 2009
  23. FDIC Quarterly- Highlights from 2009 Summary of Deposits]
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