Company: Wells Fargo & Co.
CEO: Charles W. Scharf
Founders: Henry Wells, William Fargo
Year founded: March 18, 1852
Headquarters: San Francisco, California, United States
Employees (FY2021): 249,435
Ticker Symbol: WFC
Type: Public
Annual Revenue (FY2021): US$78.4 Billion
Profit | Net income (FY2021): US$21.5 Billion
Products & Services: Banking | Loans | Credit Facilities | Online Banking Services | Merchant Services | Insurance | Payroll | Investing | Retirement Plans | Wealth Management | Rewards and Benefits.
Competitors: JPMorgan Chase | Bank of America | Citibank | Goldman Sachs | Morgan Stanley | U.S. Bank | UBS | HSBC
Fun Fact: Did you know that Wells Fargo was the first bank to introduce online banking way back in 1995? It also rolled out online money-management services by 2005, making one of the first.
Wells Fargo is one of the most revered financial institutions globally. It operates competitively in community banking, wholesale banking, investment management, retail banking, commercial banking, corporate banking, online services, and many more.
With over 150 years under its belt, we can learn a lot from Wells Fargo. Here is an in-depth Wells Fargo SWOT analysis.
Wells Fargo’s Strengths
1. Global Presence
Operating globally is a major strength since the company gets access to a deeper pool of potential customers. Wells Fargo operates globally from America to Europe, the Middle East, Africa, and Asia.
2. Strong Brand Recognition
Wells Fargo serves one out of three U.S households and over 10% of small businesses in its domestic U.S market. It shows Wells Fargo has a loyal customer base and strong brand recognition.
3. Strong Financial Position
Having immense financial capability allows companies to acquire all they need to compete more effectively. Post- pandemic Wells Fargo has been strengthening its financial position. After a sudden decline in 2020, Wells Fargo has bounced back and has substantially increased its profitability (net income) from $3.3 billion in FY20 to $21.5 Billion in FY21.
3. Part of the Big Four
The US banking sector is dominated by the four largest financial institutions consisting of
- JPMorgan Chase & Co
- Bank of America
- Citibank, and
- Wells Fargo as the nation’s fourth-largest bank.
Members of the big four influence policymaking immensely.
4. Leader in Middle Market Segment
Wells Fargo has the #1 banking share in the middle market companies (with $25 to $500 Million in annual sales) in the United States. Small and medium enterprises are drivers of economies. Wells Fargo has captured this segment and enjoy all benefits of vast financial resources that flow in and out of the US middle market segment.
5. America’s Largest Corporation
Since it was founded, Wells Fargo focused on working for small and medium businesses and journeyed with them to the peak of their respective. This enabled the bank to build a highly valuable brand and is ranked # 41 on Fortune’s 2022 America’s Largest Corporations.
6. Highly Valuable Global Banking Brand
In Brand Finance 2022 report, Wells Fargo was ranked #8 most valuable global banking brand with a brand value of $30.1 billion, behind its competitors such as
- # 1 – Industrial and Commercial Bank of China
- # 2 – China Construction Bank
- # 3 – Agricultural Bank of China
- # 4 – Bank of China
- # 5 – Bank of America
- # 6 – Citi Bank
- # 7 – JP Morgan Chase
7. Exemplary Performance
Wells Fargo is one of the high performing banks and recently received an “outstanding” rating for community lending.
8. Variety of Services
The bank offers a wide variety of segment-specific services that cater to the entire market. It offers banking, loans, merchant services, online banking services, investing, and so on catering to the following segments:
- Consumer banking and lending – is the largest segment of Wells Fargo, representing about 44% of total revenue. It provides services such as loan lending to consumers and small businesses, home lending, credit card, and auto loans.
- Commercial Banking – represents about 11% of total revenue. It includes middle market banking and asset-based lending and leasing.
- Corporate and Investment banking – represents about 18% of total revenue. It provides banking services on mergers and acquisitions, IPO, commercial real estate, markets sales & trading, risk management, and financing services to corporations.
- Wealth and investment management – represents about 18% of total revenue. It provides asset management services through Wells Fargo Advisors and Wells Fargo Private Bank.
- Corporate and reconciliations – represents about 9% of total revenue. This is the central-function segment of the whole bank, including revenues from the corporate treasury, the group’s investment portfolio, affiliated venture capitals, private equities, and non-strategic businesses.
Segments | FY 21 Revenue ($Billion) | % Share |
Consumer banking and lending | 34.9 | 44% |
Commercial banking | 8.5 | 11% |
Corporate and investment banking | 13.8 | 18% |
Wealth and investment management | 14.8 | 18% |
Corporate and reconciliations | 6.9 | 9% |
Total | 78.5 | 100% |
Wells Fargo’s Weaknesses
1. Fake Accounts Scandal
In 2016, it emerged that Wells Fargo’s employees opened millions of fake accounts using the names of customers without their consent to meet sales quotas. The bank eventually agreed to pay a $3 billion fine as settlement.
2. Missed Opportunities
As punishment for the fake account scandal, Federal Reserve capped how many loans Wells Fargo could give out. The bank reached its limit quickly during the distribution of PPP with most of its small business clients missing out on billions in aid.
3. Aging Systems
For years, Wells Fargo has struggled to update its antique banking systems, which is making it harder for the bank to satisfy regulators. Also, the old systems break down more often hampering key operations and inconveniencing their customers.
4. Negative Publicity
Even the most loyal customers can migrate to competitors if their bank is accused of exploiting relief aid for profit during a crisis. Wells Fargo is under investigation for its distribution of PPP intended to help small businesses affected by the pandemic. The bank has to put in some effort to regain their trust or risk losing them to competitors.
5. High Operational Costs
With billions of dollars either lost due to aging machines or being paid as settlement, Wells Fargo’s self-inflicted wounds have increased its operating costs. This undermines profitability and long-term sustainability.
Wells Fargo’s Opportunities
1. Expansion of Investment Banking Business
Wells Fargo is planning to expand its corporate and investment banking business and sees a $ 1 billion opportunity. Historically, the bank has focused on retail and small businesses.
Charles Scharf – CEO of Wells Fargo said:
“We always told people we’re Main Street. We’re not Wall Street. It’s about kitchen tables, not league tables,”
Now, Charles Scharf plans to grow its Wall Street business i.e. investment banking, advisory, and underwriting business to its existing customer base.
2. Strengthen Commercial & Industrial Lending
Even though the bank is a leader in SME lending, it can also strengthen and regain its leadership of commercial and industrial (C&I) lending. It was the largest C&I lender but lost market share and leadership of the sector to competitors.
3. Digital Infrastructure Strategy
Wells Fargo has partnered with Microsoft Azure and Google Cloud to move from traditional mainframe to multi-cloud technologies, thereby accelerating its digital transformation journey. The transformation will provide easier-to-use products, enhanced customer experience, sophisticated artificial intelligence, analytics, and increased employee collaboration.
4. Diversify Portfolio
The banking sector is extremely volatile to a wide range of complex and overlapping issues. The risk of going bankrupt is much higher than in other sectors. Wells Fargo can protect its interest by diversifying into stable and growing industries.
5. Focus on Smaller Towns
Having captured and dominated most major cities across the world, Wells Fargo can grow by focusing on providing its services in smaller towns.
6. Expand Operations in Emerging Economies
Wells Fargo has branches in more than 40 countries and operates in five regions outside the U.S., including the Asia Pacific, Canada, and Latin America; Europe, Middle East, and Africa; India and the Philippines.
However, around 95% of Wells Fargo’s assets are still in the U.S., while all the other countries account for the remaining 5%. The bank can expand its operations in emerging economies such as Africa and Asia to exploit growth opportunities.
Regions | FY 21 Assets ($Trillion) | % Share |
United States | 1.84 | 94.9% |
International | 0.1 | 5.1% |
Total | 1.94 | 100% |
Wells Fargo’s Threats
1. Global Recession
With the devastation and destruction of economies with millions of jobs wiped off, a severe global recession is already evident in many countries across the world. Global recession can adversely affect Wells Fargo as customers default on their loans and mortgages.
2. Public Perception
It is very difficult to regain the public’s trust once it has been lost. With so many scandals dogging Wells Fargo, the bank can lose most of its customers along with billions of dollars in deposits in case of even unproven allegations.
3. Global Pandemic
The stability and success of the banking sector rely heavily on businesses and ordinary individuals. Wells Fargo’s profits dropped by 89% after the job losses and collapse of small businesses due to the pandemic led to the accumulation of unpaid loans.
4. Capped Loans
As part of the punishment for the fake account scandal, the Federal Reserve limited Wells Fargo’s lending ability. This is a major threat to growth since it cannot exploit the demand for loans or participate in the government’s small business relief program.
5. Ongoing Investigations
Whenever a company is found guilty for malpractice, regulatory bodies tend to scrutinize its operations more vigorously. Although Wells Fargo had limited participation in the distribution of the government’s PPP, it is already under investigation for malpractice.
6. Intense Competition
The banking sector is highly competitive and dynamic with players moving up and down regularly as competitors grow stronger. Wells Fargo lost its market share in lending to commercial and industrial customers to JP Morgan and Bank of America.
References
- Koigi, B. (2019, May 22). Wells Fargo names John Langley Regional President for Africa, Europe, and the Middle East. Africa Business Communities.
- Sarhan, A. (2020, April 13). Earnings Preview: What To Expect From Wells Fargo On Tuesday. Forbes
- O’Neil, E. (2019, November 20). The Biggest Banks in the United States. The Balance
- Gidulyan, A. (2016, June 8). Wells Fargo Works for Small Business. SME Banking
- Lake, R. (2020, March 09). Wells Fargo Bank Review. The Balance
- Forbes Ranking (2020). Companies Profile: Wells Fargo. Forbes
- Nivedita, C. (2020, May 4). Wells Fargo receives an ‘outstanding’ rating for community lending. Reuters
- Williams, P. (2020, February 22). Wells Fargo to pay $3 billion over fake account scandal. NBC News
- Weinstein, A. (2020, April 8). Wells Fargo small business clients miss out on billions in aid due to scandal punishment. The Charlotte Observer
- Ensign, R. L. (2020, January 11). ‘We Need to Be a Technology Company.’ Wells Fargo Struggles With Aging Systems. The Wall Street Journal
- Glazer, E. (2019, January 30). Wells Fargo Is ‘Working Hard’ to ‘Rebuild Trust.’ The Wall Street Journal
- Moise, I. (2020, January 14). Wells Fargo’s new chief pledges more cost cuts as profit slumps. Reuters
- Great Speculations (2018, June 7). Largest U.S. Commercial Banks Continue To Lose Market Share In The Mortgage Industry. Forbes
- Rothnie, D. (2020, January 17). Wells Fargo is building out its investment bank in Paris. E Financial
- Cox, J. (2018, April 13). Here’s why bank stocks are getting hit even after their earnings beat the Street. CNBC
- CSR (2019, January 25). Wells Fargo Launches Recovery and Rebuilding Effort in Paradise, California, and Surrounding Towns. WF Newsroom
- Benoit, D. (2020, April 15). JPMorgan, Wells Fargo prepares for flood of defaults and deep recession. Financial News
- Egan, M. (2018, October 10). Wells Fargo customers are fed up. They could yank billions of dollars in deposits. CNN Business
- Eisen, B. (2020, April 14). Wells Fargo Profit Drops 89% as it Girds for Soured Loans. The Wall Street Journal
- Ackerman, A. (2020, April 8). Fed Eases Wells Fargo’s Asset Cap to Lend to Small Businesses Harmed by Coronavirus. The Wall Street Journal
- Gandel, S. (2020, May 6). Wells Fargo faces government investigations into its PPP loans. CBS News
- Henry, D. (2018, April 17). Wells Fargo loses steam in commercial lending as rivals pounce. Reuters.
- Featured Image by Jack Cohen
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