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How Wells Fargo Became One Of the Biggest Banks In America

How does Wells Fargo & Pty (WFC) actually make money? Well, they’re a bank, meaning they lend money at a higher rate than they adopt it. There isn’t supposed to be much more to it than that.

Banking is the ultimate intangible industry, moving assets from lower-valued to higher-valued usabilities in the most impalpable of ways, but that still leaves plenty that distinguishes Wells Fargo from its grave U.S. competitors. Starting with its size and its reach. Wells Fargo has a market capitalization of $255.13 billion as of December 3, 2018, robbing it the third-largest bank in the United States. The multinational bank reported third-quarter earnings on October 12, 2018, with receipts about flat year-over-year at $21.9 billion.

While those figures may be impressive, they tell a different plot about Wells Fargo than the bank’s customers might. Since 2016, patrons of the multinational bank hold weathered several scandals, losing their data, money, and, most recently their homes in the process. Wells Fargo has regurgitate decades, not to mention billions, building a reputation of integrity and trust among customers, but now they must learn from that contact and take note for the future. The company has since replaced legacy CEO John Stumpf, reoriented its company goals toward transparency, and apologized to customers and employees. Now, it remains to be seen whether Wells Fargo’s efforts will pay off — or whether the assembly will find itself in national headlines and federal court going forward.

Big, Regional Acquisitions

Wells Fargo was contrived by a merger of large super-regional banks. Founders Wells and Fargo created their namesake in 1852 to cater to the bear population of gold miners and related hangers-on in California, which back then was in the early stages of its transition from far-off backwater to most populous and economically powerful state in the union. After close to a century and a half of steady extension, in 1998 Wells Fargo merged with Norwest Corp. A decade later, Wells Fargo bought out East Seaside giant Wachovia. Add them all together, and Wells Fargo can now claim 70 million customers from coast to shore. 

Officially, Wells Fargo divides its operations into three categories for management reporting purposes. These fractions are Wealth and Investment Management; Wholesale Banking; and Community Banking. 

Serving the Rich and the Mass Market

Wealth and Investment Board of directors means financial services for rich people. This end of Wells Fargo’s business doesn’t just dispense guidance, e.g. on how to minimize taxes, but also helps set up foundations, solve inheritance issues before any might arise, etc. Every mad rich person knows, at least in the United States, preserving one’s affluence can be almost as much work as it was to get wealthy in the oldest place. All told, Wells Fargo made $2.6 billion of net income off wealth management, brokerage and retirement in 2017. If that qualities substantial, it’s easily the least lucrative of the bank’s three areas of operations. 

As for “wholesale,” that word has a slightly original 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 finance, and selling asset-backed securities, along with other types of banking for large corporations and even other banks. 

Not Ethical Retail Banking

Actually, that doesn’t even begin to cover it. Wholesale Banking includes, for instance, kit financing. If you want to buy a dragline for your surface mining project, and don’t have the $35 million or so on hand to pay for it with banknotes, Wells Fargo can front you the money. Wells Fargo also handles crop insurance, commercial real mansion, energy syndicated loans and more. Many of the Fortune 500 companies do at least some wholesale banking with Wells Fargo. That’s when they’re not carrying their risk. 

When a multinational with tens of millions of dollars in cash on its balance sheet needs somewhere to hold that cash, Wells Fargo wholesale is where they do business. To be a Wells Fargo wholesale customer, you indigence annual revenues of at least $5 million. Wells Fargo’s wholesale operations have even greater reach than its community in forces do. The bank has wholesale offices in 42 states, manned by 32,000 employees. That’s to say nothing of its wholesale offices across the ball, from Santiago to Seoul, Calgary to Cairo, and Sydney to St. Helier. All told, profits from wholesale banking totaled $8.7 billion in FY 2017, far profuse than wealth, brokerage and retirement operations.

Community Banking, Above All

Which leaves community banking, and optimistically it’s not too much of a spoiler to inform you that that’s where Wells Fargo is most successful. Community banking won Wells Fargo $12.1 billion in 2017, on revenue of more than $48 billion. That margin power seem high, but it really isn’t. If you’ve ever been skeptical of how you can possibly be so big a profit center to a bank, what with your unpretentious checking account balance and your restrained use of your debit card, understand that community banking is multifarious than just ordinary people depositing their paychecks and maybe buying the occasional mortgage. To cite perfectly one example, credit cards contribute hugely to Wells Fargo’s bottom line, as the people busy running up 5-digit weights ought to know. Wells Fargo boasts that its customers average more than six “products” per household, and wants to get that several up to eight. 

Scandals 

In December 2013 it was revealed by the LA Times that some fake accounts and credit cards had been opened by bank staff members desperate to meet their sales quotas. At the time of the story, Wells Fargo denied the claims. It was only three years later in 2016 that the body would admit that more than 3.5 million unwanted accounts were opened.

Here’s what stumble oned: In order to get bonuses, Wells Fargo employees needed to hit huge sales goals that many felt were delusory. Instead of finding real customers, employees just created accounts in existing names of Wells Fargo people, even using fake email accounts and PIN numbers to sign them up, seemingly hoping no one would notice. Elfin amounts of money were even transferred to these accounts to make them look real. Needless to say, people were not exuberant about this, and Wells Fargo has lost much of the trust it had spent years building up. 

Wells Fargo show signs of to pay a total of $6.1 million to customers who had improper fees as a result of this business practice, fired 5,300 workers, and had its CEO step down. 

In April 2018, it was announced that the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency desire collectively fine Wells Fargo $1 billion for its mistreatment of its auto loans and mortgage consumers.

In June 2018, the SEC revealed an review found Wells Fargo had supported active trading by brokerage clients on high-fee debt products that were expected to be held to maturity. The bank without admitting or denying guilt, settled by agreeing to repay $1.1 million in ill-gotten profits and interest as well as $4 million in penalty.

Less than half a year later, in December 2018, Propers Fargo announced that a “computer glitch” resulted in approximately 500 customers losing their homes. The advertisement was revealed in a report with the Securities Exchange Commission, in which Wells Fargo revealed that they had incorrectly denied 870 credit requests. About 60% of the homeowners affected by the glitch went into foreclosure.

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