Introduction
Wells Fargo is a company that was established in 1852. Henry Wells and William Fargo are the founders of the company. The enterprise offered the most secure express delivery of valuable assets such as gold and silver. They decided to expand their business and started providing banking services. This is the best decision that the management of Wells Fargo ever made. The management of the company later agreed to establish a famous stagecoach line in the 1860s. The stagecoach line was responsible for ensuring delivery all over the country. This also came in handy because people now found it easier to send and receive parcels and letters at a faster rate in terms of time compared to the past years.
The network of the company was commandeered by the government of the United States. This is known to have been part of its efforts in the First World War. This left the bank with San Francisco as the only destination. The dream of every company in the world is to rise again whenever it falls (Hume, Thacker, Wilson, Hume & Hume, 2010). Wells Fargo worked hard and rose again in the 20 th century. The efforts enabled it to have a major presence in the city of California in the 1980s. It became the 7 th largest banking facility in the country. The bank extended its wings in the West, Eastern, and Midwest states of the nation.
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New era for Wells Fargo
The company introduced a new era in the field of banking in 2008. This happened when it joined hands with commercial banking giant known as Wachovia. The merging enabled them to come up with the fourth largest bank in assets in the United States. Wells Fargo offers three primary business lines in banking. They include corporate, retail, and commercial banking services.
Services offered by Wells Fargo
The services that the firm provides are categorized in three forms that include commercial, personal and small business. The personal category enables the bank to provide services such as banking, retirement, insurance as well as credit and loans. Rewards, benefits, and wealth management also fall under the personal category. The section of banking has various services and accounts that include accounts checking, foreign exchange, transfers, identity theft protection. Credit cards among other services (Chandler, 2006) .
The section of credit and loans also offers different services and accounts that include mortgage loans, student loans, auto loans and credit cards, and home equity lines. The investment solutions of the bank include investment services, investing for education, Individual Retirement Accounts, and rollovers. There is also an insurance section that offers services and products such as life insurance, auto insurance, renter insurance, specialty vehicle insurance, and umbrella liability insurance. The wealth solutions that the firm offers include private banking, wealth planning, trust services, and specialized wealth services.
The subsidiary arms of the bank provide many services that include investment banking, mortgage banking, commercial finance, venture capital investment, advisory, among other services. The bank has more than 80 lines of business. Wells Fargo offers its services to more than 50 million clients ( Wells Fargo Bank, 1979). It has more than 9000 branches around the country. The company employs more than 266000 competent individuals. John Stumpf is the current CEO of the firm.
It is also essential to note that the bank employs qualified and competent staff members. Wells Fargo have a goal of maintaining the top position countrywide and world wide. The employees provide good customer service and this is what sells them to the outside world. They put the interests of their clients first and ensure they serve and advise them accordingly. The success of Wells Fargo’s clients is their own success as well. Most clients advertise their good services to friends and family and this plays a role in enabling Wells Fargo to register even more clients.
The financial statement review of Wells Fargo
The stock movement
A close analysis of the bank over a period of the last five years shows that the stock moved in tandem with the more extensive market S&P 500 index. A critical point to note is that the stock has risen at a faster rate compared to the index in the last year. A favorable market trend and a good backing will enable the stock to grow more in future. There is always room for improvement (Fridson & Alvarez, 2002) .
Financials
The revenue of Wells Fargo in the second quarter of the year 2015 was $21.318. Wells Fargo experienced a considerable increase in the second quarter of 2015 from 2014. This played a significant role in pushing the earnings per share up by 2%. The firm also experienced increasing and positive earnings per share (EPS) in the previous ten quarters that were analyzed. The data analysis started from the first quarter of 2013. The enterprise is expected to sustain the positive trend in earnings per share comfortably in future.
Wells Fargo Company earned $4.10 in 2014 on an annual basis. This was 5.4% higher than $3.89 that was earned in 2013. The net income for the firm in 2015 was at $5.719 billion. This was a 0.17% decrease from $5.726 in the second quarter of 2014. The bank recorded significant growth in average loans and deposits in the most recent quarters. The quarter end loans moved up by 7% while the average loans moved up by 5%. This is in comparison with the second quarter of 2014. Wells Fargo Company also experienced an improvement in the quality of credit. The net charge-off went down by $67 million in Q2FY15.
Peer comparison
Wells Fargo Company receives tough competition from the Bank of America Corporation, JP Morgan Chase & Co, Citigroup, Inc, as well as IS Bancorp. Wells Fargo is different from the rest of the banks because of its little use of derivatives in hedging and speculating with borrowed money. JP Morgan had the highest value of derivatives at $56.38 trillion compared to the Bank of America which had $31.31 trillion. The value of derivatives on the books of Wells Fargo was much lower at $5.87 trillion ( Fridson & Alvarez, 2011) .
The following graph demonstrates how Wells Fargo and its peer stocks have moved and behaved in the last five years.
Wells Fargo Company has maintained its position above JP Morgan Chase, Citigroup, and Bank of America. It is important to note that the US Bancorp has tried to be closer and even higher at certain times. Cashflow and liquidity management at Wells Fargo
Analysis plays a major role in the growth and development of any business and Wells Fargo understands this clearly. They have put reporting and treasury management technology in place to enable them deliver accurate, fast, and consolidated information from Wells Fargo accounts, international bank accounts and also non-Wells Fargo account ( Bibeault, 1998).
The net interest margin
Wells Fargo is a top-notch bank that gives its clients the opportunity to deposit and make loans. The firm should consider working harder to garner extra interest revenue than what it pays out to depositors in interest. Wells Fargo has a higher net interest margin compared to other banks in the United States. This is proof that the bank is performing very well in what it does. It continues to yield positive net income.
The net interest margin of Wells Fargo was 2.96 in 2005. All banks had an average of 2.97%. Wells Fargo has the ability of impacting its net interest margin to a significant level by coming up with good loans ( Skoglund & Chen, 2015) . The net interest of all banks has been affected greatly by the low interest rate environment in the previous years.
Return on Asset (ROA)
The profitability of any bank in the world today is affected by its return on assets. ROA can be defined as the net income of a bank divided by its total asset. Wells Fargo usually amplify their returns by borrowing cash from their depositors. They borrow the money at a low interest and loan it out to car buyers, homebuyers, and other borrowers at interest rates that are higher.
Wells Fargo’s Return on Equity
The firm has recorded a good track of success record for more than 150 years. It has been a leader in financial and banking services. The bank always put their customers first. Their services are outstanding and this is what makes them successful in what they do. The return on equity (ROE) of the bank has been high over the last years. Wells Fargo has a regular competitive advantage and a sound financial structure. The bank looks forward to shining brighter in future. The higher ROE of the firm has enabled it to enjoy a better return ( Damodaran, 2015).
The future of Wells Fargo’s ROE is bright. The ROE of the bank has shown great signs of improving. This has actually been due to buybacks. There has been a consistency in the general trend of the enterprise. It is very clear that the returns of the company will continue to go up in future. Wells Fargo has a higher ROE than about 70% of banks in the whole world.
JPMorgan Chase had an ROE of 10% in January 2016 but it did not beat Wells Fargo which had 13%. Bank of America’s ROE is about 6% which is below the average mark of the industry. The story of Citigroup is similar to that of Bank of America. Its ROE is approximately 7%. It is clear to note that Bank of America and Citigroup are not doing their best to put the equity of shareholders to good use. This is what makes them generate fewer success rates of return. It is also clear that the two banks require more capital for them to be able to produce the expected profit and success.
Leverage and investors at Wells Fargo
Margin leverage enables investors to expand their monetary reach by borrowing cash to buy extra ventures, or for a reason other than acquiring additional investments. They utilize their securities as a guarantee ( Lindsay & Rand Corporation, 1979) . Utilizing margin leverage can include a high level of risk since investors may lose a greater number of assets than they deposited in their margin account.
Nonperforming loans to total loans
The nonperforming loans to total loans ratio is an essential part of Wells Fargo’s main business of making loans. Nonperforming loans have become a default in the banking industry. This is because borrowers have not been in position to make payments on this kind of loan for 90 days and above. The truth of the matter is that Wells Fargo may not be able to recover the outstanding balance of the cash that was loaned out regarding nonperforming loans. This is a very tough situation.
The amount of these loans always increases when the economic environment is worse. This is brought about by the increase in unemployment which puts borrowers in a situation where they cannot be able to make the loan payments as required by the bank ( Klein, 2013) . The ratio of nonperforming loans at Wells Fargo has decreased gradually since the mortgage crisis. Other banks in the industry have also experienced this issue. All banks have recorded a high ratio of 5.6% in 2010. The ratio recently fell to 1.6%.
Wells Fargo recorded a 1.5% nonperforming loans to total ratio in 2014. We must also take note that the credit quality of the firm’s loan portfolio went up after the mortgage crisis. Most of the borrowers have tried their best to make their payment on time.
A synopsis of my findings
I did an extensive research about the company and found out that there are many other opportunity that Wells Fargo can outperform. I attended the most recent Investor Day and was excited to hear them announcing a $2 billion of incremental cost savings by the end of 2019. Savings are supposed to be generated through mechanisms such as digitalization efforts, process automation, and product rationalization. The company has a brighter future because it looks forward to investing in technology and innovation. This is expected to attract young investors because they are mostly fascinated by things that go hand in hand with technology. This sounds like a great move.
In my opinion, a combination of cost saving, loan growth, and a resumption of customer has enabled wells Fargo to regain leading returns on assets and equity in the banking industry. The Federal Reserve has given Wells Fargo the chance to repurchase a high number of shares due to its strong position in terms of capital as well as its conservative lending. This has enabled the firm to add another increment to the growth of per share earnings in 2018 and 2019.
Wells Fargo has a yield of 2.8%. This is slightly above the 2% that is generated by S&P 500. I tend to believe that the low payout of earning will give room for the support of an above stock market increment of dividends. Investors should think of purchasing stock from this company because it has experienced consistent growth in business and operations. The management of the company seems to be dedicated to what they do. This is the surest place to invest
Wells Fargo’s financial risks associated with operating internationally
The government of the United States does not insure Wells Fargo, London branch accounts. Wells Fargo has not opened its offices that cater for the needs of retail and small business customers outside the United States. The company, however, carry out certain businesses outside the United States. They do this through various other companies in Asia, Canada as well as Latin. The firm’s banking services in Europe are provided through Wells Fargo Bank International (WFBI). This is regulated by the Central Bank of Ireland.
Conclusion
According to the research that I carried out, it is clear that Wells Fargo is one of the greatest banks in the world today. They have done well in business and continue to aim higher in terms of customer service and taking the banking industry to higher grounds. The employees of the company are dedicated to what they do. They know the aim of the company and work together to help it achieve the goals that it has set. The management of the company is also outstanding. They make good decisions that push the company to greater heights.
References
Bibeault, D. B. (1998). Corporate turnaround: How managers turn losers into winners .
Washington, DC: Beard Books.
Chandler, R. J. (2006). Wells Fargo . Charleston, S.C: Arcadia Pub.
Damodaran, Aswath. (2015). The Dark Side of Valuation . Ft Pr.
Fridson, M. S., & Alvarez, F. (2002). Financial statement analysis: A practitioner's guide . New York: Wiley.
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: A practitioner's guide . Hoboken, N.J: Wiley.
Hume, J. B., Thacker, J. N., Wilson, R. M., Hume, J. B., & Hume, J. B. (2010). Wells, Fargo & Co. stagecoach and train robberies, 1870-1884: The corporate report of 1885 with additional facts about the crimes and their perpetrators . Jefferson, N.C: McFarland & Co.
Klein, N. (2013). Non-Performing Loans in CESEE . Washington: International Monetary Fund.
Lindsay, D. S., & Rand Corporation. (1979). Inflation and the return on equity of regulated firms . Santa Monica, Calif: Rand.
Skoglund, J., & Chen, W. (2015). Financial risk management: Applications in market, credit, asset and liability management and firmwide risk .
Wells Fargo Bank. (1979). Wells Fargo & Company: A brief history . San Francisco: The Department.
