Wells Fargo Bank
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.
Lines of business
Wells Fargo CEO Richard Kovacevich has commented often that Wells Fargo contains "more than 80 lines of businesses". Kovacevich is, most likely, calling each individual product it offers a "line of business". Wells Fargo offers many 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 to "normalize" the results for comparisons sake since any particular product is often not sold in the same way it would be for a standalone company.
The retail banking segment contains the community banking group, and card services consumer credit group and consumer deposits group. Wells has 3094 branches in 23 states.
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 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 of Wells Fargo. It engages in sub prime lending through 1284 branches throughout the country and in certain foreign countries. This division also engages in "indirect lending" for things such 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, which is 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 tomb stone ads in the Wall St. Journal. Wells Fargo is the largest asset based lender of this kind. 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 a few other product sets which it sells nationally and directly. One is auto finance, which is indirect lending through car dealers. Another major one is large business property and causualty insurance brokerage, though the Wells Fargo subsidiary Acordia. In addition Wells brokers crop insurance. All together, Wells Fargo has the largest insurance brokerage operations amongst banks. It also has a national institutional asset management business called Peregrine capital. It also lends nationally to small businesses via mail solicitation. In addition, Wells Fargo runs an organization called H.D. Vest, which allows tax advisors to sell Wells Fargo products.
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, as Kovacevich has said, "these guys make a lot of money for us".
The present business model of Wells Fargo is summed up in its vision statement: "We want to satisfy all the financial needs of our customers, help them through our advice to succeed financially, be known as the premier provider of financial services, and be one of America's great companies".
Wells Fargo's goal is to encourage its customers to buy all their financial products through Wells Fargo. This is a concept known as "cross-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 4.5, and has a ratio goal of eight. 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 achieve the high goal ratio, 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.
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 numerically the most acquistive bank in the 1980's. 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.
Henry Wells and William Fargo founded Wells Fargo & Co. in 1852 as a stagecoach and banking company during the California Gold Rush. Its major focus was its 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 whopping one 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. 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. 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.
The First Interstate acquisition was marred by technical glitches and numerous client complaints. 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 1999, 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.