Wells Fargo & Co. (NYSE: WFC) is a financial services company in the United States with consumer finance subsidiaries doing business in Canada, the Northern Mariana Islands and the Caribbean.

Headquartered in San Francisco, California (its bank, Wells Fargo Bank, N.A., is legally chartered in Sioux Falls, South Dakota but is also operated from San Francisco), Wells Fargo is a result of the acquisition of California-based Wells, Fargo & Co. by Minneapolis-based Norwest Corporation in 1998. Though unusual for a business acquisition, in this case Norwest chose to change its name to that of the acquired company, to capitalize on the 150-year history of the Wells Fargo name and trademark stagecoach. After changing its name to Wells Fargo, it moved its headquarters from Minneapolis to San Francisco, where the old Wells Fargo Bank had been based. Thus, both before and after the transaction, "Wells Fargo Bank" was based in San Francisco, so that a misimpression was created that Wells Fargo Bank had acquired Norwest.

As of September 30, 2005, Wells Fargo has 6,250 "stores", 23 million customers, and 153,000 employees. ^[1]

Lines of business

Wells Fargo offers a wide range of financial services, claiming in its investor presentations to operate over 80 divisions while being somewhat ambiguous over just what constitutes a business divisions in that context.^[2] In addition, the company claims to be one of the most 'integrated' of financial services companies. For example, instead of running a stock brokerage with separate branches and different customers, Wells Fargo stock brokers sit in retail branches, and generally only serve banking customers.

Despite this wide range of divisions, Wells Fargo only delineates three different business segments when reporting results: Retail Banking, Wholesale Banking, and Consumer Finance. This is unlike many other financial services companies which provide more detail about particular businesses or product lines.

Retail banking

The Retail Banking segment contains the Community Banking, Card Services consumer credit, and Consumer Deposits groups. Wells Fargo personal-account clients are encouraged to purchase multiple-product "packages" offering preferred-client discounts. Examples of such packages are:

• "Wells Fargo Membership Account" tied to payroll direct deposit from a participating employer;
• "Wells Fargo Advantage Account" tied to balances in multiple deposit accounts, loans, or a home mortgage;
• "Wells Fargo Portfolio Management Account" tied to balances in brokerage accounts, IRAs, deposits, and loans.

Wells Fargo also has around 400 stand alone mortgage branches throughout the country. It also does mortgage wholesale lending through independent mortgage brokers.

Internet services

Wells Fargo launched its PC banking service in 1989 and was the first bank to introduce access to banking accounts on the Web in May 1995. Using Wells Fargo’s Online Banking, consumers can pay bills to anyone in the U.S., trade securities, view their account information, and transfer money between their Wells Fargo accounts. In addition to banking and trading online, customers can apply for new accounts and products, find the nearest ATM or branch, change their address, view cancelled checks, enroll in account alerts and track their spending habits through Wells Fargo’s My Spending Report. http://www.wellsfargo.com

Wells Fargo's Business Online Banking gives small business owners all the services available to consumers plus convenient access to powerful reporting tools and services to help them manage their business finances. New offerings, such as account-based alerts, check images, spending reports, delegation and new payment suite functionality have been designed specifically for businesses.

Wholesale banking

The Wholesale Banking segment contains products sold to large companies, as well as to consumers on a "wholesale" basis. This includes lending, treasury management, mutual funds, asset-based lending, commercial real estate, and some investment banking. Wells Fargo historically has avoided large corporate loans as stand alone products, and insisted that borrowers purchase other products with loans, which it sees as a loss leader. One area that is very profitable to Wells however is asset-based lending: lending to large companies using assets not normally used in other loans. This can be compared to "subprime" lending, but on a corporate level. The main brand name for this activity is "Wells Fargo Foothill", which regularly publishes tombstone ads in the Wall Street Journal. Wells Fargo also owns the largest "real estate investment bank", which assists commercial property owners in obtaining funds in the capital markets, as opposed to direct lending by Wells Fargo itself.

Wells Fargo has historically had a large private equity business, which still retains the Norwest brand name. This was the most successful private equity company in 2003, although it was eclipsed by others who made substantial amounts of money in the Google IPO. This is purportedly out of line with Wells Fargo's stated business model, but is supposedly retained because of its profitability to Wells Fargo.

Consumer finance

Wells Fargo Financial is the consumer finance segment. It engages in sub-prime lending through over 1000 branches throughout the U.S. and in certain other countries. This division also engages in "indirect lending" for such organizations as furniture retailers.

Business model

The present business model of Wells Fargo is summed up in its vision statement: "We want to satisfy all of our customers' financial needs, help them succeed financially, be the premier provider of financial services in every one of our markets, and be known as one of America's great companies."^[3]

Wells Fargo's goal is to encourage its customers to buy all their financial products through Wells Fargo: "We want to earn 100 percent of our customers’ business. The more products customers have with Wells Fargo the better deal they get, the more loyal they are, and the longer they stay with the company, improving retention. Eighty percent of our revenue growth comes from selling more products to existing customers. Our goal: sell at least eight products to every customer."^[4]

This is a concept known as "cross-selling", or as Wells Fargo refers to it "needs-based selling," which is popular in the financial services industry. While earlier companies, such as Prudential, pioneered the concept of selling a variety of products, they acted merely as holding companies and each product was sold through its own distribution channel. However, predecessor Norwest pioneered selling all its products through all its channels, with discounts given to those who purchase a larger variety.

The average "cross-sell ratio" for a financial institution is two (based on an average American consumer owning sixteen different financial products from eight different institutions). Wells Fargo purports to have a cross-sell ratio of 4.6, which is among the highest in the country.^[5] (Washington Mutual was beating them at the end of 2003 with a 5.59 ratio.^[6]) Achieving such a high cross-sell ratio would result in a financial services version of the "agglomerator" business model, most popular among the big-box retailers, such as Home Depot, Office Depot, and Wal-Mart. In order to facilitate achievement of this goal, Wells Fargo lobbied hard for deregulation of the banking industry, and for repeal of many of the laws that were passed during the Great Depression like the Glass-Steagall Act.

Corporate predecessors

Wells Fargo & Company is the end result of more than 2,000 mergers. The holding company was previously known as Norwest Corporation and before that Northwestern National Bank (BANCO). Norwest was "one of the most acquisitive banks of the 1990's...."^[7] Most of the management and the business model of the present day Wells Fargo come from Norwest Bank, and the stock history of Wells Fargo is that of Norwest.

Selected predecessor companies

• Crocker National Bank
• First Interstate Bank
• Norwest Corporation

Norwest history

During the generally prosperous 1920s, the nation's agricultural sector did not share in the good times. Many smaller banks that had overextended credit to farmers ran into serious trouble. In the Upper Midwest alone, 1,500 banks became insolvent from 1920 to 1929. It was with this backdrop that in early 1929, just months before the stock market crash, two banking associations were formed in the Twin Cities of Minnesota: Northwest Bancorporation and the First Bank Stock (later known as First Bank System Inc. and then U.S. Bancorp). The Northwest cooperative, known more simply as Banco, initially included Northwestern National Bank of Minneapolis and several other Midwestern banks. Banco acquired stock in the affiliated banks and served as a mutual protection association for the beleaguered banks. Another 90 banks joined Banco in its first year of operation and by 1932 there were 139 affiliates.

During the Great Depression, numerous additional banks failed, another 700 in the Upper Midwest by 1932. None of the Banco members went under--and no depositor lost any savings--because the group was able to move liquidity around the system and in some cases, inject new capital into troubled banks. The number of members did decline, however, as some units in the group merged while others were sold off. Membership fell to 83 by 1940, then to 70 by 1952.

One of Banco's strategic advantages in the long run was its ability to operate in multiple states. The McFadden Act of 1927 had prohibited banks from operating branches across state lines. Banco was one of three major banks (the others being First Bank System and First Interstate Bancorp) that was allowed to conduct interstate banking under a grandfather clause in the 1927 act. This advantage was tempered somewhat by the emergence of bank holding companies in the late 1960s, but under the holding company arrangement, a subsidiary bank in one state was a separate entity from a subsidiary bank in another state. Prior to the 1970s, the affiliated members of Banco were largely autonomous. But during that decade, Banco began adopting a more unified structure in terms of systemwide planning, marketing, data processing, funds management, and loan syndication. By the end of the decade, Banco consisted of 85 affiliates in seven states: Minnesota, Wisconsin, Iowa, Nebraska, South Dakota, North Dakota, and Montana. Total assets had reached $11 billion, ranking Banco as the 20th largest bank in the United States. Banco was also active on the international banking scene through its lead bank, Northwestern National, which controlled Canadian American Bank, a merchant bank with offices in Winnipeg, London, Nassau, and Luxembourg.

Banco was beset by a series of major setbacks in the early 1980s. The troubles actually began in late 1979 when Richard H. Vaughan, the president and CEO, died by electrocution when he touched an electrical wire that had fallen during a storm. This set off a management crisis. Chester Lind stepped in as a caretaker leader until a more permanent successor could be found. In October 1981 John W. Morrison was named chairman and CEO. The new leader began centralizing the still loosely knit confederation. In 1982 the 80-odd affiliates began to be grouped into eight regions reporting to a corporate vice-chairman. Plans were also laid to unify all the affiliates and Banco itself under a new name. The change occurred in 1983, when Northwest Bancorporation became Norwest Corporation. Tellingly, the new name did not include 'bank' or some variant thereof because Morrison aimed to create a diversified financial services company. To that end he had engineered the acquisition of Dial Corporation in September 1982 for $252 million. Based in Des Moines, Iowa, Dial had more than 460 offices in 38 states offering consumer loans for everything from cars to sailboats. It was considered one of the top consumer finance firms in the country and had a $1 billion consumer loan operation. Dial was renamed Norwest Financial Services Inc. in 1983.

While these restructuring initiatives were being carried out, the bank suffered another blow during the 1982 Thanksgiving weekend when the downtown Minneapolis headquarters burned to the ground. It would be six years before Norwest would be able to move into its new quarters at the Norwest Center, during which time the corporate staff was scattered around 26 different sites in the city, leading to numerous logistical difficulties. Meanwhile, with the farm economy going into a tailspin starting in 1981, Norwest began feeling the effects because it had a heavy farm loan portfolio--$1.2 billion, or seven percent of its overall loan portfolio. Norwest had another $1.2 billion in loans in foreign markets, which caused additional problems in the early 1980s as Norwest, like most U.S. banks, had made many bad loans overseas. As a result, Norwest saw its nonperforming loans increase 500 percent from 1983 to 1984, to more than $500 million. Further trouble came from the bank's mortgage unit, Norwest Mortgage Inc., which had been quickly built into the second largest holder of mortgages in the United States. In the summer of 1984 Norwest Mortgage lost nearly $100 million from an unsuccessful effort to hedge its mounting interest-rate risk on adjustable-rate mortgages. The loan losses and the mortgage debacle led to a drop in net income from $125.2 million in 1983 to $69.5 million in 1984.

In August 1984 the head of Norwest Mortgage was fired because of the hedging losses. By early 1995 substantial portions of Norwest Mortgage were divested, including operations involved in servicing mortgages and buying mortgages from other lenders for resale. The unit now focused strictly on originating mortgages. In the wake of Norwest's poor performance in 1984, Morrison resigned and was replaced by Lloyd P. Johnson, former vice-chairman of Security Pacific Corp. Johnson soon brought on board Richard M. Kovacevich, who was hired away from Citicorp to become vice-chairman and CEO of Norwest's banking group in early 1996 (he was named to the additional posts of president and COO of Norwest Corp. in January 1989). The new managers began slashing away at Norwest's bloated bureaucracy. They drastically curtailed the bank's agricultural and international loan portfolios, the former being reduced to $400 million by early 1989, the latter to $10 million. By December 1988, the nonperforming loan total stood at just $150 million. To help prevent future calamities, Norwest instituted tighter lending criteria.

On the banking side, Kovacevich continued the process of standardizing the operating methods of the various Norwest banks, increased marketing efforts, and expanded the services offered. He also began seeking acquisitions, particularly aiming to bolster Norwest's presence in key cities; in 1986, for example, Norwest acquired Toy National Bank of Sioux City, Iowa, which had assets of $145 million. At the same time came the pruning of some rural operations, including eight banks in southern Minnesota and seven branches in South Dakota. Later in the decade, opportunities to expand outside the group's traditional seven-state banking region began to arise as the barriers to interstate banking began to be dismantled. In 1988 Norwest entered rapidly growing Arizona for the first time through the purchase of a small bank near Phoenix. Norwest ended the 1980s fully recovered from its early-decade travails and ranking as one of the nation's most profitable regional banking companies and the 30th largest bank overall, with assets in excess of $25 billion. Net income stood at $237 million for 1989.

Acquisitions continued in the early 1990s. By early 1991 Norwest had 291 bank branches in 11 states, having moved into Indiana, Illinois, and Wyoming. In April 1990 Norwest paid $173 million for Sheboygan-based First Interstate of Wisconsin, a $2 billion concern. Also acquired was a troubled S & L in Norwest's home state, First Minnesota Savings Bank. The largest purchase yet came in 1992 when Norwest paid about $420 million in stock for United Banks of Colorado Inc., a bank based in Denver with total assets of $6.3 billion. Norwest Financial grew through acquisition as well, with the 1992 purchase of Trans Canada Credit, the second largest consumer finance firm in Canada. By the end of 1992 Norwest had total assets of $44.56 billion, more than double the figure of 1988. At the beginning of 1993, Johnson handed over his CEO position to Kovacevich.

Expansion of the banking operation into New Mexico and Texas came in 1993 through the acquisition of First United Bank Group Inc. of Albuquerque for about $490 million. First United had assets of $3.8 billion. Between January 1994 and June 1995, Norwest made an additional 25 acquisitions, including several in Texas, making it the most active acquirer among bank holding companies. In 1995 Norwest Mortgage became the nation's leading originator of home mortgages following the acquisition of Directors Mortgage Loan Corp., a Riverside, California-based lender with a residential mortgage portfolio of $13.1 billion. The following year Norwest Mortgage became the biggest home-mortgage servicer as well through the $600 million purchase of the bulk of the mortgage unit of the Prudential Insurance Co. of America. Meanwhile, in May 1996 Norwest Financial completed the purchase of $1 billion-asset ITT Island Finance, a consumer finance company based in San Juan, Puerto Rico. About one-quarter of Norwest Corp.'s earnings were generated by Norwest Financial in the mid-1990s, with another 12 percent coming from Norwest Mortgage. The traditional community banking operations--which extended to 16 states by 1995&mdashcounted for only about 37 percent of the total. By year-end 1995, Norwest had total assets of $72.13 billion, making it the 13th largest bank holding company in the nation. Net income, which was nearing the $1 billion mark, had grown at a compounded annual rate of 25 percent over the previous eight years.

One of the keys to Norwest's success in the retail banking sector following the arrival of Kovacevich was the emphasis on relationship banking. His focus was on smaller customers, checking account depositors and small businesses, and he aimed to build relationships with them that would lead to cross-selling of other financial services--an auto loan, a mortgage, insurance, a mutual fund, and so on. To do so required the maintenance of an extensive network of bank branches staffed by well-trained tellers and bankers. This ran counter to the mid-1990s trend in the industry away from expensive branch banking and toward impersonal ATMs and Internet banking--the latter of course making cross-selling difficult. It was also in this cross-selling that the main units of Norwest--the retail bank, the finance company, and the mortgage company--fit and worked together. Another key to Norwest's success was its focus on these three key areas; although it did have other operations, such as a successful venture capital unit, the bank was not moving into such areas as investment banking, unlike numerous other banks, and it was not attempting to compete with large New York securities firms.

By the end of 1997, Norwest had become the 11th largest bank in the United States with total assets of $88.54 billion. With bank branches in 16 states, Norwest had the largest contiguous bank franchise in the nation. Its strongest markets were in Minnesota, Texas, Colorado, and Iowa. Having only entered the Texas market a few years previous, Norwest had built up a $10 billion presence there by buying 33 bank and trust outfits. Norwest Mortgage was national in scope, while Norwest Financial covered all 50 states, along with additional operations in Canada, the Caribbean, and Central America. Net income had reached $1.35 billion by 1997. Norwest had grown into this position of strength without completing any of the blockbuster mergers that shook up the banking industry in the 1990s, but in June 1998 the bank joined in the consolidation frenzy when it agreed to acquire Wells Fargo & Company.

Post-merger history

The financial performance of Wells Fargo, as well as its stock price, suffered from this botched merger, leaving the bank vulnerable to being taken over itself as banking consolidation continued unabated. This time, Wells Fargo entered into a friendly merger agreement with Norwest, which was announced in June 1998. The deal was completed in November of that year and was valued at $31.7 billion, with Norwest acquiring Wells Fargo and then changing its own name to Wells Fargo & Company because of the latter's greater public recognition and the former's regional connotations. Norwest also agreed to relocate the headquarters of the new Wells Fargo to San Francisco based on the bank's $54 billion in deposits in California versus $13 billion in Minnesota. The head of Wells Fargo, Paul Hazen, was named chairman of the new company, while the head of Norwest, Richard Kovacevich, became president and CEO. The new Wells Fargo started off as the nation's seventh largest bank with $196 billion in assets, $130 billion in deposits, and 15 million retail banking, finance, and mortgage customers. The banking operation included more than 2,850 branches in 21 states from Ohio to California. Norwest Mortgage had 824 offices in 50 states, while Norwest Financial had nearly 1,350 offices in 47 states, ten provinces of Canada, the Caribbean, Latin America, and elsewhere.

The integration of Norwest and Wells Fargo proceeded much more smoothly than the combination of Wells Fargo and First Interstate. A key reason was that the process was allowed to progress at a much slower and more manageable pace than that of the earlier merger. The plan allowed for two to three years to complete the integration, while the cost-cutting goal was a more modest $650 million in annual savings within three years. Rather than the mass layoffs that were typical of many mergers, Wells Fargo announced a workforce reduction of only 4,000 to 5,000 employees over a two-year period.

Continuing the Norwest tradition of making numerous smaller acquisitions each year, Wells Fargo acquired 13 companies during 1999 with total assets of $2.4 billion. The largest of these was the February purchase of Brownsville, Texas-based Mercantile Financial Enterprises, Inc., which had $779 million in assets. The acquisition pace picked up in 2000 with Wells Fargo expanding its retail banking into two more states: Michigan, through the buyout of Michigan Financial Corporation ($975 million in assets), and Alaska, through the purchase of National Bancorp of Alaska Inc. ($3 billion in assets). Wells Fargo also acquired First Commerce Bancshares, Inc. of Lincoln, Nebraska, which had $2.9 billion in assets, and a Seattle-based regional brokerage firm, Ragen MacKenzie Group Incorporated. In October 2000 Wells Fargo made its largest deal since the Norwest-Wells Fargo merger when it paid nearly $3 billion in stock for First Security Corporation, a $23 billion bank holding company based in Salt Lake City, Utah, and operating in seven western states. Wells Fargo thereby became the largest banking franchise in terms of deposits in New Mexico, Nevada, Idaho, and Utah; as well as the largest banking franchise in the West overall.

Following completion of the First Security acquisition, Wells Fargo had total assets of $263 billion. Its strategy echoed that of the old Norwest: making selective acquisitions and pursuing cross-selling of an ever-wider array of credit and investment products to its vast customer base. Under Kovacevich's leadership, Wells Fargo was posting smart growth in revenues and profits and was the envy of the banking industry for the smooth way in which it had completed the Norwest-Wells Fargo merger as well as its knack for integrating smaller banks. Although there was speculation that the next 'stage' for Wells Fargo might involve a major merger with an eastern bank that would create a nationwide retail bank or a merger that would bring the bank one of the two other things it did not have--a global presence and a large investment banking arm--Kovacevich seemed content with the concentration on western U.S. banking and the broader finance and mortgage operations. Wells Fargo was more profitable than most of the 'megabanks' that had formed in the 1990s, with the reason perhaps lying in its more modest ambitions

Post-merger controversy

Like many large-scale companies, Wells Fargo has attracted many vocal detractors who protest their business practices ^{[citation needed]}, customer service ^[8], fee levels, and other aspects of the company. (For more examples and specifics, search Complaints.com.) There is even a Wells Fargo Watch project dedicated to tracking all alleged instances of corporate malfeasance, especially ongoing investigations into alleged predatory lending practices ^[9] in Wells' mortgage division.

In September 2003, New York State Attorney General Elliot Spitzer filed suit against Wells Fargo after numerous advocacy groups, including ACORN, began decrying what they claimed were racist lending policies. In late 2005, Inman News reported that a putative class action suit had been filed in Miami, Florida, accusing Wells Fargo Bank of using contests to provide kickbacks to business associate for referrals in violation of the Real Estate Settlement Procedures Act.^[10]

In December 2005, the conservative parachurch group Focus on the Family ended its banking relationship^[11] with Wells Fargo, due to the group's opposition to the gay rights movement, after the company announced that it was matching contributions to GLAAD. Wells Fargo continued the program and received widespread support in the face of the boycott, which had no other high-profile participants.

On the other hand, Wells Fargo has been seen as avoiding many of the ethical problems of other financial services companies in the past decade:

• Its stock research operations were never part of the Global Settlement paid by other companies for conflicted research
• Its insurance brokerage division was not accused by Elliot Spitzer of engaging in an illegal contigent commission scheme, even though it has the 5th largest insurance brokerage practice and nearly all other major brokerages were accused
• Its Mutual Fund division was not found to have let others engage in illegal market timing, even though many of the largest fund companies were accused of this.
• Its subprime lending division, although criticized by ACORN and others, never had to pay out any of the major fines that its peers such as Household Financial or CitiFinancial had to.