How Wells Fargo Became One of America’s Biggest Banks

Wells Fargo (WFC) is the third-largest bank in the U.S., after JPMorgan Chase and Bank of America, according to a ranking by the Federal Reserve released released in mid-2024. With some $1.7 trillion in assets, it operates out of 4,286 branches that serve 64 million customers.

Banking is the ultimate intangible industry, moving assets from lower-valued to higher-valued uses in the most impalpable of ways. But that still leaves plenty that distinguishes Wells Fargo from its major U.S. competitors, starting with its size and reach.

So how does the bank make money? Like any bank, it makes much of its money by borrowing money deposited by its customers for a low interest rate and lending it out to others at a higher interest rate.

But there’s more to it than just earning money in interest. This article looks at how Wells Fargo earned its spot among the biggest banks in the country.

Key Takeaways

• Wells Fargo is the third-largest bank in the United States.
• Wells Fargo operates four segments including Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management.
• Wells Fargo has been fined for several scandals involving fake accounts, mistreatment of loan customers, and more.
• It is still operating under a Federal Reserve-imposed cap on its assets.

Big, Regional Acquisitions

Wells Fargo was created with the merger of large regional banks. Founders Wells and Fargo created their namesake in 1852 to cater to the growing population of gold miners and related hangers-on in California, which was in the early stages of its transition from a distant backwater to the most populous and economically powerful state in the union.

After close to a century and a half of steady growth, Wells Fargo merged with Norwest Corp. in 1998. A decade later, Wells Fargo bought out East Coast giant Wachovia. Add them all together, and Wells Fargo can now claim 64 million customers from coast to coast. 

Wells Fargo officially divides its operations into three categories for management reporting purposes: Investing and wealth management, wholesale banking, and community banking.

Investing and Wealth Management

This segment serves business clients and high-net-worth individuals (HNWIs), offering them wealth management services as well as investment and retirement products. Some of these services include financial planning, credit, and private banking.

Wells Fargo’s investment services division allows clients to choose automated self-directed trading and investing or a full-service financial advisor. The wealth management division provides team-based management solutions or a one-on-one approach with a dedicated financial professional.

Wholesale Banking

Wells Fargo’s wholesale banking division tends to the financial needs of U.S.-based and global businesses. There are 13 business lines that fall under this category including:

• Business banking
• Corporate banking
• Commercial real estate
• Insurance
• Credit risk

Community Banking

This part of the bank’s operations serves retail and small business clients with their everyday banking needs. Services include checking and savings accounts, loans, and mortgages.

Wells Fargo also provides its retail clients with investment services such as certificates of deposit (CDs). The bank serves these clients in its branches, through its automated teller machines, and via its online banking platform.

Serving the Rich and the Mass Market

Investing and wealth management means financial services for rich people.

This end of Wells Fargo’s business doesn’t just dispense advice, it also helps in other ways such as setting up foundations or solving inheritance issues before they arise. Everyone with a high net worth knows that preserving one’s affluence can be almost as much work as it was to get wealthy in the first place.

The word wholesale has a slightly different meaning in banking than it does elsewhere. Plenty of banks don’t even use the term. But at Wells Fargo, it’s a catch-all for underwriting and selling asset-backed securities along with other types of banking for large corporations and even other banks. 

Not Just Retail Banking

This doesn’t even begin to cover it. For instance, wholesale banking includes equipment financing. So if you want to buy a dragline for your surface mining project but don’t have the $35 million or so on hand to pay for it with cash, Wells Fargo can front you the money.

Wells Fargo also handles crop insurance, commercial real estate, energy-syndicated loans, and more. Many Fortune 500 companies do some wholesale banking with Wells Fargo.  

$10 million

The amount you would need in annual revenues to become a Wells Fargo wholesale customer.

When a multinational with tens of millions of dollars in cash on its balance sheet needs somewhere to store that cash, Wells Fargo’s wholesale division is where they do business. To be a Wells Fargo wholesale customer, you need annual revenues of at least $5 million.

Wells Fargo’s wholesale operations have an even greater reach than its community operations. The bank has wholesale offices in 42 states that are manned by more than 30,000 employees.

Corporate ‘Simplification’ Efforts

Wells Fargo has recently sold off a number of divisions, presumably to concentrate on more lucrative areas of business.

In 2023 alone, the bank sold Wells Fargo Asset Management, its Corporate Trust Services business, and its student loan portfolio, among lines of business. It also stopped originating personal lines of credit.

The sale of Wells Fargo Asset Management does not mean that the bank is out of the wealth management business. It retains services including one-on-one and team-based financial management services.

Community Banking and Lending

If you’ve ever been skeptical of how you can be a profit center to a bank, consider that community banking is more than just people depositing their paychecks and maybe arranging for a car loan.

The community banking segment at Wells Fargo includes checking and savings accounts, credit cards, mortgages, home equity loans, and small business loans.

2023 Financial Results

In its 2023 annual report, Wells Fargo reported about $19.1 billion in net income, up from about $13.7 billion for the previous year. Its total revenue was about $82.6 billion, compared to about $74.3 for the previous year.

Its current assets, at about $1.7 trillion, are arguably pretty close to the cap that the Federal Reserve slapped on Wells Fargo in 2017 in response to what it called the bank’s “unprecedented consumer abuses.”

Scandals 

The Federal Reserve, in an unprecedented action in 2017, imposed a cap on Wells Fargo’s assets at about $1.95 trillion due to its “widespread consumer abuses.” The cap caused the bank to lose hundreds of billions of dollars in stock market value.

The cap was still in place as of late September 2024.

What happened? Here’s a long, but not exhaustive, list of the company’s scandals.

Fake Accounts

In December 2013, the Los Angeles Times reported that branch employees desperate to meet their sales quotas routinely opened fake accounts and credit cards. At the time of the story, the bank denied all the claims. Only three years later, the company admitted that more than 3.5 million accounts were opened without permission from the bank’s customers.

Here’s why: To get bonuses, Wells Fargo employees needed to hit huge sales goals that many felt were unrealistic. Instead of finding real customers, employees created accounts for unwitting Wells Fargo customers. The employees even used fake email accounts and personal identification numbers (PINS) to sign them up, apparently hoping no one would notice. Small amounts of money were even transferred to these accounts to make them look real.

Wells Fargo fired 5,300 employees and promised to refund customers who had been charged improper fees. The bank’s chief executive officer (CEO) stepped down. According to The New York Times, Wells Fargo paid “more than $1.5 billion in penalties to federal and state authorities and $620 million to resolve lawsuits from customers and shareholders.” 

Lending Scandals

Wells Fargo has been the subject of a series of lending scandals, including:

• The mistreatment of its auto loans and mortgage consumers. In April 2018, the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency fined Wells Fargo $1 billion after the scandal came to light.
• The Securities and Exchange Commission (SEC) found in June 2018 that Wells Fargo supported active trading by brokerage clients on high-fee debt products that were supposed to be held to maturity. Without admitting or denying guilt, the bank settled and repaid $1.1 million in gains and interest as well as a $4 million penalty.
• The company paid a penalty of $2 billion in August 2018 for allegedly misrepresenting the quality of its residential mortgage loans a decade earlier.
• The CFPB fined the bank another $1.7 billion in December 2022 for unfair practices relating to consumer loans. According to the release, the bank not only misapplied its customers’ loan payments but also charged the wrong amounts in fees and interest. The CFPB also found that the bank repossessed some properties by mistake.

Is the Asset Cap on Wells Fargo Likely to be Lifted?

Wells Fargo executives don’t expect the asset cap on the bank to be lifted until at least 2025, according to Reuters. The order limiting Wells Fargo to a maximum of $1.9 trillion in assets was imposed by the Federal Reserve in 2016. It will stay in place until regulators deem that the bank has corrected the problems that led to the fake accounts scandal.

How Is Wells Fargo (WFC) Stock Doing in 2024?

Wells Fargo (WFC) stock has moved upwards in 2024, from about $48.68 at the start of January to $55.90 at the end of September. As of that date, its 52-week high was $62.55 and its 52-week low was $38.38. Its market cap was $190.27 billion.

What Were the Wells Fargo Stagecoaches?

The Wells Fargo stagecoaches were grand horse-drawn vehicles that carried up to nine passengers on long-distance trips to cities across the U.S. from 1866 to 1869. They also carried money and other valuables for customers of Wells Fargo, which was then an express delivery service as well as a bank. By 1869, the expansion of the transcontinental railroad offered a quicker and more efficient means of transport. The stagecoaches were sold off for use in local transportation services.

The Bottom Line

Well Fargo has a storied history dating back to 1852 but a more troubled recent history of financial scandals dating from 2013 to 2022. It is still operating under an unprecedented cap on its assets, ordered by the Federal Reserve and in place until it can prove it has cleaned up its act.

Despite it all, Wells Fargo remains the third-largest bank in the U.S., with about 64 million customers.

Read the original article on Investopedia.