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The Basics of Wells Fargo

By Amanda Alix
September 13, 2012

For well-nigh 20 years now, the Motley Fool has been here to help you invest better and smarter, using spot-on analysis and razor-sharp wit. To celebrate Worldwide Invest Better Day on September 25, we're taking some time to get back to the basics -- of investing, that is. In that spirit, I have rounded up some sweet financial sector stocks that have been showing some real investing mojo lately.

Without further ado, let me introduce you to the focus of this particular article:  longtime banking icon, Wells Fargo(NYSE: WFC  ) .

A bank with historical perspective and a drive to succeed
Founded in 1852 in New York by Henry Wells and William Fargo, Wells Fargo & Co. provided express mail and banking services to frontier California. Originally employees of the American Express Company, the two men saw gold in their futures, and formed their own business to cater to gold miners. The first office out west was housed in San Francisco, and soon spread to other boom towns.  When Wells was purchased in the late 1990s, the new owners obviously felt the tug of history, keeping the name of the company the same, and re-situated their main offices to San Francisco.

Although the big banks have enjoyed somewhat of a rally in recent weeks, the four years since the financial crisis has definitely cramped their style. Where some have pulled back from some lucrative aspects of banking, Wells has jumped right in. As big boys Bank of America (NYSE: BAC  ) , JP Morgan Chase (NYSE: JPM  ) , and Citigroup (NYSE: C  ) have retreated from writing mortgages in the years since the meltdown, Wells has corralled a full one-third of this market for itself. Although the bank has attracted criticism for its heavy involvement in the mortgage business from both regulators and lawmakers, Wells recently defended its position, noting that they have worked hard for their piece of the pie. Managers have even used the Old West motif at sales meetings to push for more loan business -- by dressing up as cowboys.

Wells is pushing its way into other loan markets, too. Noting the increase in housing activity, it has opened new loan offices in Bank of America’s hometown of Charlotte, North Carolina. The bank is not only ready and willing to loan to home builders, but is actively seeking out new business in the area.

Likewise, Wells has been tapped by General Motors (NYSE: GM  ) to service the financing needs of GMC, Chevy, Cadillac, and Buick dealers in the western United States, causing troubled Ally Financial, which already has a relationship with GM, to shake in its boots. Spurred by this recent success, Wells is pushing GM for an even larger share of its loan business.

The bank’s Q2 report showed only a slight increase in revenues year over year, but deposits were up, and loan activity strong. In addition, Wells recently paid out a nice $0.22 per sharedividend, which shows signs of trending upwards again, after a slowdown last year.

A bank that sticks to its roots
The Wild West spirit is still part and parcel of the Wells Fargo mystique, and the drive to prosper helps explain why this bank has weathered so many storms throughout its long history, and has become a favorite of well-regarded investors, like Warren Buffett. When it comes to staying power, it’s hard to beat this company -- something that long-term investors can tip their hats to.

http://www.fool.com/investing/general/2012/09/13/the-basics-of-wells-fargo.aspx

Wells Fargo & Company Company Snapshot

Business Description: Wells Fargo & Company operates in the National commercial banksonline bookonline book sector.  Company with three other companies in this sector in the United States: JPMorgan Chase & Co. (2011 sales of $110.91 billion of which 24% was Retail Financial Services), Bank of America Corporation ($107.24 billion of which 22% was Global Banking & Markets), and Citigroup Inc. ($103.31 billion of which 32% was Consumer Banking). 

Sales Analysis. Wells Fargo & Company reported sales of $88.31 billion for the year ending December of 2011. This represents a decrease of 6.2% versus 2010, when the company's sales were $94.19 billion. Contributing to the drop in overall sales was the 7.3% decline in Community Banking, from $54.70 billion to $50.70 billion. There were also decreases in sales in Wholesale Banking (down 2.5% to $21.67 billion) . However, these declines were partially offset by the increase in sales of Wealth, Brokerage and Retirement (up 3.9% to $12.19 billion) .

Investor's Checklist: Banks

The business model of banks can be summed up as the management of three types of risk:  credit, liquidity, and interest rate.

Investors should focus on conservatively run institutions.  They should seek out firms that hold large equity bases relative to competitors and provision conservatively for future loan losses

Different components of banks' income statements can show volatile swings depending on a number of factors such as the interest rate and credit environment.  However, well-run banks should generally show steady net income growth through varying environments.  Investors are well served to seek out firms with a good track record.

Well-run banks focus heavily on matching the duration of assets with the duration of liabilities.  For instance, banks should fund long-term loans with liabilities such as long-term debt or deposits, not short-term funding. Avoid lenders that don't.

Banks have numerous competitive advantages.  They can borrow money at rates lower than even the federal government.  There are large economies of scale in this business derived from having an established distribution network.  the capital-intensive nature of banking deters new competitors.  Customer-switching costs are high, and there are limited barriers to exit money-losing endeavors.

Investors should seek out banks with a strong equity base, consistently solid ROEs and ROAs, and an ability to grow revenues at a steady pace.


Comparing similar banks on a price-to-book measure can be a good way to make sure you're not overpaying for a bank stock.


Ref:  The Five Rules to Successful Stock Investing by Pat Dorsey


Read also:
Investor's Checklist: A Guided Tour of the Market...

Buffett Says U.S. Banks a Class Apart From Europeans

Bloomberg News

By Noah Buhayar, Andrew Frye and Hugh Son on May 05, 2012

 

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Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) (A) has more than $19 billion invested in U.S. banks, said the lenders have ample liquidity and are a class apart from European rivals.

“I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chairman and chief executive officer, said today at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” before getting assistance from the European Central Bank.

Wells Fargo & Co. (WFC) (WFC) and JPMorgan Chase & Co. posted record profits last year and their CEOs are contesting efforts by U.S. policy makers to strengthen banking regulations. European banks have struggled amid the continent’s sovereign debt crisis and turned to the ECB, starting in December, for extraordinary three-year loans at interest rates of 1 percent.

“I’d like to have a lot of money for three years at 1 percent, but I’m not in trouble,” said Buffett, 81. U.S. banks have “liquidity coming out their ears.”

Berkshire, which Buffett has led for 42 years, is the biggest shareholder of San Francisco-based Wells Fargo, with a more than $12 billion stake. Buffett injected $5 billion into Bank of America Corp. (BAC) (BAC) last year in exchange for preferred stock and warrants. Berkshire’s shareholding of U.S. Bancorp (USB) (USB) was valued at $2.2 billion as of yesterday.

http://www.businessweek.com/news/2012-05-05/buffett-says-u-dot-s-dot-banks-a-class-apart-from-europeans
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Firing John Thain Should Be Ken Lewis's Last Act At Bank Of America (BAC)

Firing John Thain Should Be Ken Lewis's Last Act At Bank Of America (BAC)

Posted Jan 22, 2009 02:07pm EST by Henry Blodget in Newsmakers, Banking
Related: BAC, MER, ^DJI

From Clusterstock, Jan. 22, 2009:

Ken Lewis has now successfully focused some of the outrage about the destruction of Bank of America (BAC) on John Thain.
Thain was the one responsible for that $15 billion loss. Thain was the one who approved $15 billion of bailout-funded bonuses. Thain was the one who spent $1.2 million decorating his office. And now, a month after the bonus and loss outrages, Ken Lewis has finally fired John Thain.
As he should have. Someone has to take direct responsibility for that loss, the taxpayer-funded bonuses, and the humiliation of Ken Lewis. And John Thain's that man.
But don't let this distract you from who is ultimately responsible.
No one forced Ken Lewis to buy Merrill Lynch--the decision that, more than any other, destroyed Bank of America shareholders. No one forced Bank of America to approve the $15 billion in bailout-funded bonuses Merrill just paid to its workforce.
John Thain isn't responsible for those decisions. Ken Lewis is. If Bank of America's board doesn't finally acknowledge this and throw him out, the board should be thrown out, too.
For more news, go to Clusterstock.

http://finance.yahoo.com/tech-ticker/article/162333/Firing-John-Thain-Should-Be-Ken-Lewis