Wells Fargo Dominates as Rivals Fall Behind

Wells Fargo Dominates as Rivals Fall Behind
By The original uploader was Henry W. Schmitt at English Wikipedia (Transferred from en.wikipedia to Commons.) [Public domain], via Wikimedia Commons

Wells Fargo Dominates as Rivals Fall Behind

Wells Fargo & Company (NYSE:WFC) is the 160 year old stagecoach that has evolved into a super speedy ride today. The market cap of the bank is well above $178 billion which beats out the other major players like, Citigroup Inc. (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) easily. While its competitors have been busy fighting trade scandals like Liborgate and London Whale, WFC has consistently moved up on the ladder of home lending and mortgages. Wells has managed to outperform the analysts expectations every year, and it continued this tradition in the earnings report of second quarter of 2012.

The quick roundup of WFC’s recent achievements:

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  • More than $ 1.3 trillion in assets
  • The largest real estate lender of the US, shares 34% of mortgage origination, which triples JPM’s share
  • Serves every one in three houses in US
  • Fourth largest bank by actual assets
  • WFC stock gives an attractive 2.7% dividend yield for investors
  • Wells collected $4.62 billion in profits for this quarter or earnings of 82 cents per share
  • WFC generated $21.3 billion in revenues
  • Total losses incurred in this quarter were $524 million, which look like nothing when compared to JPM’s losses
  • Q2 2012 marks the tenth quarter in which WFC has shown consistent EPS growth
WFC has managed to defy the horrors of financial meltdown by developing a  policy that prioritizes on consumer relationships, as opposed to trading and investments. This strategy might seem dull to many, but has resulted in long-lasting rewards for the bank which now sits with the highest market cap in the banking sector.

WFC and Competitors

Wells has benefited hugely from the new world trade order in banking by expanding its market in traditional lending and borrowing. Over the past year, WFC’s stock performed well with a 23% increase while Citigroup’s fell by 17%.

WFC has slowly and patiently bided its time behind the big guns, and refrained from dipping into retail banking with opaque Wall Street trading operations. WFC was only half the worth of the Bank of America Corp (NYSE:BAC) and Citi, in real estate, during the housing boom in mid of 2000’s. Today experts and analysts commend Wells business strategy which saved it from getting over-zealous about mortgage market. Hence WFC did not experience the losses that other Wall Street banks suffered when the housing bubble burst in 2007-2008. While Bank of America ended up buying the battered Countrywide Financial Corp., and reducing its worth to less than $8 per share, Wells bought Calabasas mortgage giant which increased the bank’s international market.

“We saw many of our competitors tending to subordinate the rest of the customer relationship to whatever was sexy or exciting about investment banking,” said Tim Sloan, WFC’s Chief Financial Officer. “We looked at that and said, ‘Boy, this doesn’t feel right.'”

BofA has also failed in receiving positive responses to its offer of helping customers with cutting down about one-third of their loans, the reason being that consumers are just tired of foreclosures, paying mortgages, and don’t trust the system anymore. While borrowers are losing faith in Bank of America, Wells Fargo is getting much better response. WFC succeeds in working together with 80% of homeowners who are defaulters.


Wells Fargo has stacked up on acquisitions by buying London-based asset lender Burdale Financial Holdings and North American energy lending business from BNP Paribas. It also bought $3.3 billion in loans from Anglo-Irish Bank.
It is not that WFC was not affected by the economic crisis, it received equal amounts of bailout money back in 2009, if not more, than other banks.

Settlements and Fines

The bank has had its share of problems; it has paid $5.3 billion on settlements of mishandled foreclosures — problems that were laid out in blunt detail in a report from the Department of Housing and Urban Development. Wells has also faced heat for introducing a $7 monthly fee for basic checking accounts in some states.  The bank paid $175 million just a day before the quarterly earnings were announced, to settle Justice Department allegations that it discriminated against 34,000 black and Hispanic mortgage borrowers between 2004 and 2009.

Warren Buffet on Wells Fargo

Warren Buffet, the CEO of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B”) and the largest shareholder of Wells Fargo believes that WFC’s major stake in the housing industry will generate huge revenues once the market rebounds to its previous prime. He expects Wells mortgage origination to go above 40%. WFC’s popularity in the housing finance sector attributes to its having the lowest interest rates.

“Wells did the best job of the big players in the mortgage market, and therefore they’ve garnered a share as the other fellows have fallen by the wayside,” Buffet, the most successful investor of 20th century, said in an interview with Bloomberg.

While WFC is enjoying the profits, more than a dozen banks are being investigated for their roles in setting Libor, including Citigroup, JPMorgan Chase & Co, Deutsche Bank   (NYSE:DB), HSBC Holdings Plc (NYSE: HBC), UBS (NYSE:UBS) (FRA:UBRA) and Royal Bank of Scotland (LON:RBS) (NYSE:RBS) (PINK:RBSPF).

Wells Fargo has had a great couple of years, and is riding the wave of mortgage refinancing very well so far. The concept of community based banking and financing has increased the loyal customer base of WFC. Wells has also changed the concept that big banking is done from Wall Street only. The bank’s stock is currently trading at $33.9.


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