Among its many services, Wells Fargo provides financial services. The company has its corporate headquarters in San Francisco and operational headquarters in Manhattan, as well as managerial offices throughout the United States and abroad. In addition to its corporate offices, the company also has local branches, international operations, and other facilities worldwide. Read on to learn more about the company’s history, products, and services. You’ll also learn how it’s helped millions of customers and businesses.
Background
The banking industry is a highly volatile sector, with many complex issues. The risk of bankruptcies increases yearly. Diversifying into other, more stable industries is a good way for Wells Fargo to protect its interests. The bank dominates the most important cities in the world, but is also expanding its services to smaller towns. However, its history is tainted by scandals and controversies.
In the past, the company has been found liable for deceiving some borrowers by placing them into subprime loans. However, in a recent case concerning refunds for borrowers who filed bankruptcy, Wells Fargo agreed to issue refunds. However, in many instances, this case resulted in a settlement that resulted in millions of dollars being repaid to the debtors. While the company did not admit guilt, the court ordered it to pay back the loans.
Business model
While it’s true that Wells Fargo has a unique business model, it isn’t the only one. Its competitive advantage is derived from cost advantages in its core banking operations, customer switching costs, and wealth management. A key source of its competitive advantage is its low funding cost: 20% of its tangible assets come from deposit accounts bearing no interest expense. Wells Fargo has a large branch network, which helps it maintain top market share in one-third of its markets and a second or third-place position in the other third. And since deposit market share has grown rapidly in the past three decades, it pays to retain salespeople and advisors.
The business model of Wells Fargo is focused on a few core values. The company seeks to be a trusted advisor and ally to its customers by using its resources to help meet their financial needs. The company wants to retain and grow its customer base by offering services that cater to the diverse needs of its customers. It has a proven track record of providing financial services, which has helped it to become one of the most recognizable companies in the financial sector.
Legal settlements
Earlier this year, Wells Fargo entered into a $3 billion legal settlement to settle claims made by victims of the bank’s illegal practices. The bank’s employees allegedly forged signatures, opened millions of accounts in other people’s names, and fraudulently transferred money from existing customer accounts into new ones. The company has admitted to these violations, and will be returning at least $500 million to investors. However, you should not make your decision based on this information alone.
The Consumer Financial Protection Bureau is currently investigating Wells Fargo for improper account closing and wrongful fees charged to its wealth management customers. The settlement is separate from a criminal investigation involving former executives. While the bank is facing numerous lawsuits, former executives are facing fines from the Office of the Comptroller of the Currency, including former chief executive John Stumpf. A former retail banking head, Maxine Waters, is contesting the fine of $25 million.
Acquisitions
As a result of its recent acquisitions, Wells Fargo has diversified its business and improved its profitability. The company reaped the benefits of higher-return investments and has been able to shed many of its toxic assets. The company has been able to expand into wholesale banking, thereby attracting companies in both the United States and Canada. In addition, the acquisition of General Electric’s vendor finance and commercial-distribution units has increased its Canadian head count to 600.
One of Wells Fargo’s largest acquisitions was of a rival bank in the United States, Crocker National Corporation, from Britain’s Midland Bank for $1.1 billion. This acquisition expanded the Wells Fargo branch network in southern California by nearly two-thirds and doubled the bank’s consumer loan portfolio by 85 percent. The company acquired Crocker at a price of 127 percent of its book value, a relatively low figure compared to the 190 percent American banks paid for the bank. The deal included several questionable loans, but remained the most profitable transaction for Wells Fargo.
Asset cap
The government imposed an asset cap on Wells Fargo last February, causing the bank to lose $220.1 billion in stock market value. This loss is far less than that of its rivals, Bank of America, JPMorgan Chase, and Citi. These three banks have collectively lost $134.5 billion in stock value since the asset cap was instituted. But even though the bank’s asset cap has led to a decline in share value, it has also cost investors billions of dollars.
Moreover, the asset cap on Wells Fargo implies that the bank is unlikely to ever regain its previous growth in the short term. The company’s CEO, Bob Scharf, has less than a year’s experience to grasp such a massive organization. He has indicated that the bank will spend a good part of this year reexamining its businesses and budget. Thus, the asset cap is likely to remain a drag on earnings in the long term.
Future plans
One of the main factors determining the financial stability of Wells Fargo is the amount of money it has to lend. In the current environment, the bank is under pressure to make more loans, but its future plans are largely unknowable. In addition to boosting its revenue, the company plans to reduce its expenses. It will also increase its funding for the Credit Builders Alliance consumer loan program, which helps low-to-moderate income people meet their short-term cash needs.
The company is currently testing the Control Tower, a proprietary banking experience that aims to help customers manage their complex financial lives. With this new system, customers will be able to manage everything from recurring payments to their accounts. Wells Fargo plans to make this experience as seamless as possible for its customers, and it hopes to achieve this goal by 2020. Its innovation plan is far from perfect, but it’s certainly worth keeping an eye on.
