Question 1
Wells Fargo & Co.is a community-based company that offers financial services. Its exceptional services in banking, insurance, investments, mortgage, and commercial financing are known. Wells Fargo was founded in 1852 by Henry Wells and William D. Fargo, and it has its headquarters in San Francisco.
Wells Fargo is known to be doing exceptionally well year in year out, and there were great changes that happened in the financial year 2019. The changes included the selection of our new CEO, Charlie Scharf, after the previous CEO's retirement. This year also saw the inclusion of new board members who had experiences in different fields. Wells Fargo is known for its commitment to changing its customers' financial status, and we are focused on making a difference in our client's lives and businesses. With all these new management changes, the financial results were not as we desired because there were slight declines in our net income and total assets compared to the previous years. The annual report for the year 2019 is different from the previous years as we have experienced some decrease in net income and the total assets.
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Wells Fargo Company made $19.5 billion in net income in 2019. The company's revenue was reduced to $1.3 billion, or 2%, from the previous year that had a 4% growth in non-interest income. Although this has caused a decrease in stockholders' equity and earnings, it has not affected our clients' services as we are still the leading financial institution. Compared to the previous year, there was an increment of $1.9 trillion in the total assets as of December 31, 2019, and this was an increment (Reid et al., 2019). There was a decrease in cash and other short-term investments. They amounted to $10.1 billion since December 31, 2018, indicating a low balance in the company’s cash. The Debt securities increased $12.4 billion from December 2018. This was brought about by the trading sector's growth and the debts securities that are held to maturity.
Wells Fargo's total liabilities in the year 2019 had decreased compared to the previous years. This means that the company is doing well in terms of settling its debts with its suppliers. The company used some of its income to pay off its suppliers. The total equities had increased in 2019 for Wells Fargo compared to the past two years. This means that the company's stockholder's balance had increased together with the company's earning. This happened as Wells Fargo had increased its sales of the stock, and it helped to increase its revenue and reduces the operating expenses. This means that the company will start at a good note in the year 2020 as the stockholders will be more willing to invest more by buying the shares in Wells Fargo.
Question 2
Wells Fargo is a financial services provider; it is known for how it gives out huge loans to its clients. In 2019, there was a big growth in the Loan sector, $9.2 billion from the year 2018, which was because of the increase in business and commercial loans, housing mortgage financing that institution gladly offers to its clients in support of their dream. With this, the Credit risk in Wells Fargo is high. In case the institutions that we lend money are not in a position to pay us back, we will face a big setback in the credit sector, and it will interrupt our cash flows because we will not have enough finances to lend out to our other clients who require loans. That is why we make sure that our clients who come to borrow from us have collaterals or guarantors who can come in and help them pay us back in case of anything.
The change in interest rate brings investment losses, and it is known as the interest rate risk. By the end of the financial year in December 2019, Wells Fargo debt securities were at $53.8 billion of municipal bonds. The debt securities are guaranteed against loss by bond insurers. This means that we are somehow protected from the interest rate risk. We make sure that we keep track of our bond holdings to conduct the impairment analysis. With this decrease, the company is safe from the interest rate, and there is a minimal chance of investing losses.
Operational risk is the loss a company faces from failed systems or policies and other criminal activities such as fraud. When the risk occurs, it affects the business in a great way. Many financial institutions have experienced cyber-attacks, and they were greatly affected, and some even took more time to recover from the attacks (Verschoor, 2017). Although Wells Fargo company has been a target of various cyber-attacks for being a financial service provider institution, it has not experienced any losses from the cyber-attacks. Wells Fargo has its cyber-security as its prime concern, and we insist on having our Data, network controls, and systems in our control to shield our systems and network from any ambush and unofficial access. Being in control of the system is the best thing that Wells Fargo has invested in as it has protected us from unnecessary losses, and our clients are assured that their details and information are safe with us. This has continued to give us the peace that we need to continue being the top financial service provider around.
References
Reid, L. C., Carcello, J. V., Li, C., Neal, T. L., & Francis, J. R. (2019). Impact of auditor report changes on financial reporting quality and audit costs: Evidence from the United Kingdom. Contemporary Accounting Research , 36 (3), 1501-1539.
Verschoor, C. C. (2017). WELLS FARGO SCANDAL CONTINUES: New disclosures increase the scope of fraud and raise issues of audit and disclosure failure. Strategic Finance , 99 (5), 18-20.
