Case Study_Wells Fargo Bank

              Wells Fargo Bank & Company is noted to be among the more stable highly diversified financial services company not only in the United States, but worldwide. Originally established in 1852, the bank is into a highly diversified financial services business which includes banking, insurance, investments, mortgage and consumer finance, among others. As of the year 2008, the bank registered a resource base of USD$1.42 trillion, $39.4 billion in revenues and $8.0 billion net income.  Wells Fargo Bank, N.A. is reportedly the only bank in the United States and among the two banks worldwide with highly regarded credit rating from both Moody’s Investors Service and Standard ; Poor’s Ratings Services. (Annual Report, 2007)
             Wells Fargo is one big company, it being the largest financial institution based in the western United States, with a service area pning all of North America. With an estimated stock market value of $100 billion, Forbes (2008) ranks the bank among the world’s top 50 companies; in fact number 41 overall based on a composite of sales, assets, profits and market value. In the United States, Wells Fargo is among the top 20 companies in terms of income and market value. Employing more than 168,000 with about 6,000 service branches and units, it is now one of America’s 30 largest private employers. In 2007, it reported $8.0 billion net income out of $39.4 billion of revenues. As of October 2008, Wells Fargo reported a Net Income of $1.64 Billion, or $0.49 Per Share.

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                During the year, it merged with the Wachovia acquiring all of the latter’s banking operations for $15.1 billion. Earlier in it corporate life, it merged with First Interstate Bank and in 1998 the Minneapolis-based Norwest Corporation.
Liquidity Analysis
Liquidity enhanced through acquisition of $370bn of core deposits. This was further reinforced by a series of retail lending operations and strategic acquisitions that enabled it to generate a total of $772 billion in liquid deposits making it number 2 in the funds market for deposits. With 51 per cent of its lending operations devoted to the cash-rich retail sector such as the Community Banking and Home Mortgage and Equity Financing, its strong liquidity position enabled it to position itself rationally in terms of resources and market positioning, either through mergers and acquisitions and opening of mortgage service units to strengthen its cash generating activities.
Table 1
Liquidity Ratios

Free Cash Flow Margin
Free Cash Flow Margin 5YEAR AVG
Cash-Flow pS
Free Cash-Flow pS

Table 1 indicates a healthy cash position for Wells Fargo Company with its free cash flow margin over payments and expenditures a surging to a high 53.36 per cent during the last five years despite a modest edge during the current term. Its core retail business in good market areas are the stabilizing factors for its steady free cash flow during the five year period.
With its wholesale banking group limited to just less than 10 percent of its credit markets, it insulated itself from wild market fluctuations haunted by huge corporate bankruptcies. Earlier in 2006, it further generated $12.6 billion funds from its commons stock offering.    This composite set of balanced strategies further enabled Wells Fargo to identify and acquire potential liquid sources of funds for further strategic positioning. Its more than 150 years in the industry has enabled it to adopt a more visualized direction aimed at growth as well as risk management.

Credit Analysis
             Along the area of credit risk, Well Fargo has been quite successful in insulating itself from the volatile and risky credit market by concentrating its lending operations to a wider market along retail banking which can be called a core source of stable income and deposit base compared with a more wild-fluctuating corporate accounts which can put Wells Fargo to a riskier position during difficult times.  Its broad diversification into 80 plus businesses provided Wells Fargo with the financial muscle to utilize these target areas into fresh growth opportunities which is the bank’s identified core competence and advantage over its peers and competitors.
             Wells Fargo has a relatively good credit profile in its $63 billion portfolio.  Its huge focus on the retail sector assisted by its 6,000-strong servicing branches and even 9,000-strong mortgage service centers enable it to closely monitor credit operations with a high 44 percent first lien position. About half of its credit exposure is on fixed rate, hence protected from both low and high-end fluctuations in the highly volatile credit market.
           With the acquisition of Wachovia, Wells Fargo was able to double its retail customer base to 16 million and its retail distribution system through stores, ATMs and commercial lending offices. With its strong online retail baking, it is able to intensify its collection. On the other side of the credit picture, Wells Fargo is rated high by the both Moody’s and Standard and Poor. Investors Service as well as the Fitch’s Ratings. Some sectors even as Wells Fargo Bank as the world’s safest US bank (WP, 2008). This is reasonably due to its conservative credit and operations control policy structure adopted by management.
           With $1.42 trillion in resources, Well Fargo is able to leverage positively its position vis-a-vis its liability component with the Wachovia acquisition which further strengthened its cross-selling potential in various areas such as non-interest bearing deposits amounting to $89 billion which was further strengthened to $145 billion with the Wachovia equivalent.  Mortgage origination reached $225 billion and credit card penetration to 50 per cent total.
Table 2
Leverage Profile

Financial Leverage Ratio (Assets/Equity)
Debt Ratio
Total Debt/Equity (Gearing Ratio)
LT Debt/Equity
LT Debt/Capital Invested
LT Debt/Total Liabilities


Based on Table 1, Well Fargo’s stable leverage position is provided by its long-term position that enables it to take advantage of it debt/equity resources to the maximum with plenty to spare. There are a number of factors that further contribute this favorable leverage position. Among them the significant retail component of its portfolio and its noninterest bearing deposits providing the solvency muscle towards the long term.
            In addition, the above figures put Wells Fargo a strong leverage position against its debt primarily due to the exceptional capability to generate cash through acquisitions, retail banking and even preserving its cash position through a series of stock dividend distribution that further reduced its reliance on its core liability position in favor of equity positioning.

Table 3
Resource Base
Balance Sheet (at a glance) in Millions
            The above table shows the component of the balance sheet which implies a stable leverage position for the company over the long-term.

           Wells Fargo’s strong credit control policy enables it to avoid factors of inefficiency in its operations. Being able to utilize its 6,000 branches in its, retail and wholesale banking, cross-selling and other consumer banking services.
Table 4
Efficiency Ratios

Revenue per Employee – LTM
Net Income per Employee – LTM
Assets/Revenue – LTM
Assets/Revenue – 5YEAR AVRG.

Table 4 shows the productivity and efficiency factor in terms of gross and net revenues generated per employee. This indicates the depth by which employees of Wells Fargo participate in revenue generating activities which can likewise be benchmarked along the compensation factor the bank is providing each employee. On a comparative basis, this will showcase the degree of annual productivity and contribution by each employee towards the total income produced by the company, This is helpful in determining and comparing the efficiency factors of various units of the bank toward identifying which units and branches are able to produce more in terms of revenues and other forms of business.
                        Wells Fargo’s philosophy of control priority before integration remains stable and creates the efficiency factors along with other operational interventions and policy structure such as due diligence mindset of its top management careful planning of integration processes along liquidity, credit granting, trading among others, rather than just mere integration acceleration. Industry best practices wherever these come from, will continue to pervade its operations to ensure customer satisfaction henceforth growth and profitability. These efficiency packages are what Wells Fargo calls the go-forward systems configurations and best of breed approach. Fortunately, Wells Fargo and Wachovia each possess excellent systems assuring its customers with excellent services and its shareholders value in their investments with bank management expected to generate significant savings in the strategic period.

         The following tables show the five-year profitability trend of Wells Fargo along the Pre-Tax Pre-Provision aspect. It can be determined from the table the series of effective measure and decision made by the Wells Fargo management in terms of the strategic directions it has set for the bank during the last five years. This likewise implies the careful planning Well Fargo undertakes to achieve its corporate goals and objectives.

Table 5

Wells Fargo Bank
Pre-Tax Pre-Provision Earnings
(In Billions US Dollars)


               Note: Revenue less noninterest expense
  *2008 annualized based on $15.6bn YTD 9/30/08; not forecasted 2008 PTPP. CAGR based on 2008 annualized PTPP

        From Table 1, earnings of Wells Fargo Bank steadily increased strengthened by its profitable retail operations throughout its service areas jumping from US$11.2 billion five years ago to a current US$20.8 billion pre-tax earnings annualized for the year 2008. These figures indicate a stable stream of revenues to sustain expansion along chosen market positions and the distinct services Wells Fargo Bank is well-known for; keeping the customers satisfied with the bank’s whole array of retail banking services only Wells Fargo can provide. This is the market niche for which the bank has been working hard during the last several decades.
            From the table below, Wells Fargo’s return on equity is pegged at 17 per cent, which if compared to the five-year trend of 18 percent strongly indicates a stable return on equity over the years.  Growth rate of its capital likewise recorded a modest 5 per cent which is also indicative of the five-year growth period of 6 percent. Because of the huge asset base of Wells Fargo, its recorded return on assets remained stable at 1.4 per cent. Other profitability indicators show a consistent stable operations as earnings before taxes similarly approximated its five-year average including the aspect of pre-tax profit margin.
            On the overall, the profitability of Wells Fargo Bank is simply indicative of its stable operations.
                                                                 Table 6
                                                       Profitability Ratios

Return on Equity (ROE)
Return on Equity (ROE) – 5YEAR AVRG.
Return on Capital Invested (ROCI)
Return on Capital Invested (ROCI) – 5YEAR AVRG.
Return on Assets (ROA)
Return on Assets (ROA) – 5YEAR AVRG.
EBIT Margin – LTM
Pre-Tax Profit Margin
Pre-Tax Profit Margin – 5YEAR AVRG.
Net Profit Margin
Net Profit Margin – 5YEAR AVRG.
Effective Tax Rate
Effective Tax Rate – 5YEAR AVRG.
             Strategies adopted to enhance profitability include a credit-strong retail market, selective lending, strong customer service leading to increased customer patronage, a high volume of non-interest bearing deposits reaching $89 billion creating a vast opportunity for high return investments and strong cash flow.
Table 7
Growth rates
R² of 5-Year Growth
Capital Spending
Normalized Inc.
            In addition, Wells Fargo’s strong shareholder relationships enable it to preserve its cash cow position being plowed back into operations.


            Dividends per share have been restated for the corporation’s two-for-one stock splits originated since 1959 resulting in an almost yearly 2 for 1 stock splits effected in the form of a
100 percent stock dividend, distributed starting October 10, 1997 with subsequent declaration up to August 11, 2006. This history of stock and cash dividend payments steadily increased from a mere $0.15 cents per share quarterly allocation back in 2003 to a current $0.34 cents per share, more than double during a five-year period. With a recorded 0.49 earnings per share already being generated from its operations, Wells Fargo Bank continues to dominate the market with its conservative but profitable operations assured by its excellent systems efficiency configurations.
Table 8
Dividend Information

Dividend Declared Date
Dividend Ex-Date
Dividend Record Date
Dividend Pay Date
Dividend Amount
Type of Payment
Cash Payment
Dividend Rate
Current Dividend Yield
5-Y Average Dividend Yield
Payout Ratio
5-Y Average Payout Ratio

          Primarily due to its strong attractiveness to investors, Wells Fargo Bank is able to take advantage of the opportunities provided by the market even in its volatility and series of meltdowns during the current period.   In this regard, Wells Fargo encourages its shareholders to reinvest their cash dividends in anticipation of bigger returns later. The bank provides stability to its investors through regular dividend payouts in the first business day of March, June, September and December. In addition, Table 8 shows a very encouraging dividend payout ratio of 45 per cent during the five year period.
Stock Price Performance
            The following latest stock data for Wells Fargo indicates the following characteristics:
                            Table 9
       Latest Stock Data – Wells Fargo Bank
          Stock Data

Market Cap(Mil)……………  88,850.52
P/E Ratio…………… ………         13.18
Dividend Yield …………….            5.25%
Latest Dividend …………….         $0.34
Latest Dividend Pay Date…..     12.01.08
Last Stock Split……………… 100% stock dividend
Date of Last Split……………    08.14.06
Outstanding Shares………….    3,325.24 million
Public Float………………….    3,319.20 (Mil)

Source: The Wall Street Journal,;symbol=wfc

Figure 1
Stock Performance – 2008

               Source: The Wall Street Journal,;symbol=wfc

Figure 1 shows a one year volatile progression of Well Fargo’s stock as provided in the chart for the period January to November 2008. Generally, stock performance during the period is good.
Figure 2
Share price performance previous 3 years

              Source: The Wall Street Journal,;symbol=wfc

   Figure 2 illustrates the general optimistic trend of Wells Fargo stock despite being affected by the July 1008 crash which did not spare even the best stock around the world. This shows the stability and strength of Wells Fargo shares.

Wells Fargo Performance Influences, Overall Strategy and Conclusion
            In terms of its resources and assets, Wells Fargo made good strategic decision at acquiring several dozen financial services institutions which further strengthened its position in the market culminating in the acquisition of Wachovia, becoming one of its prized units. The merger with Wachovia further strengthened the balance sheet and income potential of Wells Fargo considering the virtual doubling of the customer base and the retail business of both banks. Cross selling as a result became one big opportunity for Wells Fargo as it increased the number of growth areas in strategic positions around the continent.
            Along the Liability area, Wells Fargo further enhanced its deposit liability position with the significant addition of the noninterest bearing deposit and strong retail base provided by Wachovia as well as its own large base of interest-free funds. The consolidated debt position however remained within stable proportions as these are backed up by a large percentage of retail and community banking business which is in themselves less volatile compared with big corporate accounts which are very vulnerable and sensitive to internal as well as external crisis factors or extreme influences. Comparatively, Wells Fargo fares so well among its competitors in terms of return on asset as shown in Table 10.
Table 10
Comparative Return on Assets (ROA)

Wells Fargo
JP Morgan Chase
Peer Average

Sources: SNL Financial and Bloomberg
Note: Financial data as of September 30, 2008
1 Total shareholder return through September 30, 2008
*Includes BAC, JPM, C, BBT, COF, RF, STI, USB

            Table 11 indicates the relative attractiveness of Wells Fargo stocks even as independent

credit providers are too conservative to provide credit rating which nevertheless has shown double

digit enhancements over forecasts.

Table 11
Comparative Return to Stockholders (ROE)

Source: Reuters All data updated daily before market opens

            In terms of capital risk, Wells Fargo’s stable solvency figures and ratios provide some form of assurance and comfort to its shareholders as this becomes a critical manifestation of the control philosophy of management especially in cases of acquisitions and mergers. While being conservative in this regard, Wells Fargo carefully considers stringent planning before embarking on expansion through this area. Its conservative stance is among its strength.
             Operational decision making at Wells Fargo, although turning more complex and risky as shown by the regulatory issues affecting, has been thorough, effective and cost-effective as it foresees managed cost reduction by about $3 billion over the next three years even after factoring merger and integration expenses. This is expected considering the synergy of the bank’s retail services and Wachovia’s service experience. Such issues as overlapping manpower and corporate structures will contribute greatly to the saves factors,
             However, overall strategies will prevent or correct certain risk, even success factors/forces that could lead to deterioration or means to outperform its peers. These factors include current crimes that have victimized similar financial institutions – full automation to avoid frauds, scams, identity theft and similar financial acts of terrorism which might undermine its big corporate control system. A tight accounting and control functions will help check and mitigate check frauds, increase cash control, enhancing customer access to services but closely monitoring ACH transactions through pre-authorizations as well as de-risking the financials especially the balance sheet with low-return or non-performing items, stabilize and spread loan losses provisions to prevent stock market shocks and speculative attacks. Other operating measures will include funds marketing that will increase the core deposit base as this will increase liquidity and boost solvency further to favorable proportions.
These measures, coupled with the organization control and culture adopted throughout the years has proven to protect the bank’s performance along operational, lending, noninterest income, asset-liability management, organizational expansion risks present in the industry. Wells Fargo will strongly benefit from focusing itself on the consumer, small and middle market relationships, broad diversification, further increasing its 80 plus businesses and growth opportunities, cross sell synergies, strengthening its community and regional banking advantage as well as its distinct specialization for excellent services.
            Well Fargo is expected to perform, even outperform its peers during the next five years as it continues to exceed industry standards with its best practices philosophy and control mindset pervading its human resource thinking and operational character through value-added financial advise making its people its real competitive advantage. This vision has passionately guided the bank over the last sixteen years and which can be attributed to its growth ten times over. And if its people continue to improve through learning and sharing with each other, learning to continue to listen to their customers—then solving every problem, seizing every opportunity, and making every decision will be relatively easy.

Reference list

Wells Fargo Financials, Retrieved December 13, 2008, website:—C_NYSE_WFC.html
Annual Report 2007, Wells Fargo; Retrieved December 14, 2008, Website:
Presentation /slides, 2008, CEO John Stumpf, Goldman Sachs US Financial Services Conference, Retrieved December 13, 2008, websites:{9AC08C59-F8B7-45AB-B2DB-24ADC8BC866A};dist=TQP_Mod_pressN
The Wall Street Journal, Retrieved December 14, 2008, website:;symbol=wfc

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