Third largest bank in US
Strong credit rating
Amount of services provided for the consumer
|Bank scandal fallout
Lack of Consumer Confidence
Stock Price Drop
Lower Corporate Tax Rate
Traditional marketplace competitors
Online scams; identity thefts
Third largest bank by assets (Dixon, 2018):
Wells Fargo has a nationwide brand and according to the latest numbers from S&P Global Market Intelligence, a financial industry research firm has the third largest total assets of any bank in the US. (Dixon, 2018)
|Rank||Bank name||Total assets|
|1||JPMorgan Chase & Co.||$2.53 trillion|
|2||Bank of America Corp.||$2.28 trillion|
|3||Wells Fargo & Co.||$1.95 trillion|
|4||Citigroup Inc.||$1.84 trillion|
|5||Goldman Sachs Group Inc.||$917 billion|
|6||Morgan Stanley||$851.86 billion|
The size and strength of its depository franchise has helped the company to maintain strong position in regards to other banks, despite internal issues. (Chunial, 2018) Wells Fargo has gained this size due to several high-profile mergers, such as Wachovia and Northwest Corp., giving the company a presence across the country. (Macfarlane, 2018) This has helped spread the Wells Fargo brand nationwide.
According to the Investopedia staff, a good metric for evaluating management performance is a bank’s return on assets (ROA). When calculating ROA, remember that banks are highly leveraged, so a 1% ROA indicates huge profits. This was published in their Banking Industry Handbook. The data pulled from Ycharts shows that in this case Wells Fargo is very profitable.
|Data for this Date Range|
|June 30, 2018||1.10%|
|March 31, 2018||1.13%|
|Dec. 31, 2017||1.16%|
|Sept. 30, 2017||1.10%|
|June 30, 2017||1.16%|
|March 31, 2017||1.16%|
|Dec. 31, 2016||1.17%|
|Sept. 30, 2016||1.21%|
|June 30, 2016||1.24%|
Data courtesy of Ycharts 2018.
The largest bank in the sector is JP Morgan Chase (Dixon, 2018) and their respective ROA is 1.09 according to Ycharts, which is slightly lower than Wells Fargo.
Strong Credit Rating
Wells Fargo has one of the best credit ratings in the sector. Its rating is above both banks that have more total assets, JP Morgan and Bank of America. This chart was pulled from relbank.com and is consistent with published ratings on Wells Fargo’s website.
Amount of services provided for the consumer
Comprehensive services offered can make an attractive option for consumers to hold accounts at Wells Fargo.
Banking, loans and credit, insurance, investing and retirement, wealth management, and rewards and benefits. Under the commercial segment, Wells Fargo offers loans, insurance for the owner as well as assets, credit facilities, merchant services, Online banking services, round the clock customer service etc. Under the small industries segment, their line of services includes banking, loans and credit, merchant services, insurance, and payroll and other services (Bhasin, 2018).
Bank Fallout Scandal
The following was reported by Michael Corkery in the New York Times on September 8 2016:
For years, Wells Fargo employees secretly issued credit cards without a customer’s consent. They created fake email accounts to sign up customers for online banking services. They set up sham accounts that customers learned about only after they started accumulating fees.
On Thursday, these illegal banking practices cost Wells Fargo $185 million in fines, including a $100 million penalty from the Consumer Financial Protection Bureau, the largest such penalty the agency has issued.
Federal banking regulators said the practices, which date back to 2011, reflected serious flaws in the internal culture and oversight at Wells Fargo, one of the nation’s largest banks. The bank has fired at least 5,300 employees who were involved.
In all, Wells Fargo employees opened roughly 1.5 million bank accounts and applied for 565,000 credit cards that may not have been authorized by customers, the regulators said in a news conference. The bank has 40 million retail customers.
Lack of Consumer Confidence
The fallout from this scandal cost Wells Fargo more than just the fines accrued. In addition, consumer confidence has been affected. This has been directly as the company faced scathing remarks from the American Consumer Council. Wells Fargo also faced numerous lawsuits throughout this process from consumers as reported by the American Consumer Council.
Stock Price Drop
Another indication of lack of consumer confidence and scandal blowback is the fact Wells Fargo is trailing main competitors in stock margin (%9 less than large banks through 3rdquarter 2018). (Moise, 2018) This can also be attributed to the previous Cap placed on new account creation that was placed on the company. (Kim, 2018) The cap has recently been lifted and this could potentially be a sign that Wells Fargo has weathered the blowbacks from the scandal.
New management has been put in place by Wells Fargo. The company has reportedly changed the leadership styles that influenced the pressure and account creation. One very positive sign was the removal of the cap mentioned above, showing more faith in the company after passing the FED stress tests. (Kim, 2018)
Reduced Tax Rate
Beginning January 1, 2018 the corporate tax rate dropped from 35% to 21%. The following benefits are directly from the taxfoundation.org website.
- A corporate income tax rate closer to that of other nations will discourage profit shifting to lower-tax jurisdictions.
- New investment will increase the size of the capital stock, and productivity, output, wages, and employment will grow. The Tax Foundation Taxes and Growth model estimates that the total effect of the new tax law will be a 1.7 percent larger economy, leading to 1.5 percent higher wages, a 4.8 percent larger capital stock, and 339,000 additional full-time equivalent jobs in the long run.
- Economic evidence suggests that corporate income taxes are the most harmful type of tax and that workers bear a portion of the burden. Reducing the corporate income tax will benefit workers as new investments boost productivity and lead to wage growth.
These benefits could potentially support Wells Fargo to have a swift recovery from the previous scandal blowback.
Many companies have online products and services. There are companies that specialize in services that Wells Fargo provides, such as Rocket Mortgage. The ability to shop for lower rates as well as marketplace for competition could act to pull customers to competitors who have lower rates.
Best online mortgage lenders: summary
- Best overall for online mortgage lenders:Rocket Mortgage
- Best overall for online mortgage lenders:Guaranteed Rate
- Best for refinance:Lenda
- Best for refinance:SoFi
- Best for first-time homebuyers:Quicken Loans
- Best for first-time homebuyers:SunTrust Mortgage
- Best for customer service:Better Mortgage
- Best for customer service:PennyMac
- Best for online experience from traditional lender:Bank of America
- Best for online experience from traditional lender:PNC Mortgage
- Best for online experience from traditional lender:Network Capital Funding Mortgage
Data acquired from Nerd Wallet website
Below is the data from the site on how the information is acquired and filtered:
NerdWallet’s selection of mortgage lenders for inclusion here was made based on our evaluation of the products and services that lenders offer to consumers who are actively shopping for the best mortgage. The six key areas we evaluated include the loan types and loan products offered, online capabilities, online mortgage rate information, customer service and the number of complaints filed with the Consumer Financial Protection Bureau as a percentage of loans issued. We also awarded lenders up to one bonus star for a unique program or borrower focus that set them apart from other lenders. To ensure consistency, our ratings are reviewed by multiple people on the NerdWallet Mortgages team.
An important thing to note in the above data is that Wells Fargo is not mentioned.
Another aspect that is a threat to Wells Fargo are savings rates. Wells Fargo website shows a posted interest rate of % 0.1. This is much lower than many banks offer. Magnifymoney.com publishes the top savings rates online. The following rates are for Sunday, 23 September 2018.*
MySavings Account from MySavingsDirect 2.25% APY
CIBC Agility Savings – Online Only from CIBC USA 2.10% APY
Online Savings from MutualOne Bank 2.02% APY
Wells Fargo Way2Save 0.01% APY (Service charge of $5 Per month unless $300 is maintained in account)
*99709 was the input zip code and $25 was the minimum account for both Wells Fargo website and magnifymoney.com
Online Scams and Identity Theft
The following data was published by Jamie Conliffe in the technology Review:
- Hackers stole $172 billion from people in 2017
- As many as 978 million people in 20 countries lost money to cybercrime last year, according to a new report by security firm Norton.
- The individual impact: Norton says that victims lost an average of $142 to hackers in 2017, and that each victim spent almost 24 hours dealing with the fallout.
- How the US was hit: The report claims that 143 million Americans were affected by cybercrime in 2017, losing a total of $19.4 billion. (Conliffe, 2018)
One of the biggest threats facing banks are hackers and scammers. According to researchers at security firm Positive Technologies, which has a commercial stake in securing web apps, tested 33 websites and services using its proprietary application inspector, and found that banking and financial institutions were “the most vulnerable” to getting hacked. (Whittaker, 2018)
Every financial site and web app the researchers tested contained a high-severity vulnerability, they said. (Whittaker, 2018)
The report by Whittaker goes on with the following:
For some attackers, exfiltration and stealing data or denying service to users is one thing. But more sophisticated hackers use weak entry-points to move laterally within a domain. If an attacker finds a local area network connection on a target server, they can move deeper into a network and compromise an entire company or government department’s infrastructure, the researchers said.
It’s how the massive data breach at Equifax is thought to have been carried out.
(n.d.). Retrieved from https://www.americanconsumercouncil.org/archives/100116.htm
Chunial, D. (2018, May 26). Wells Fargo: Only Buy on Weakness. Retrieved from https://seekingalpha.com/article/4177407-wells-fargo-buy-weakness
Condliffe, J. (2018, January 23). Hackers stole $172 billion from people in 2017. Retrieved from https://www.technologyreview.com/the-download/610043/hackers-stole-172-billion-from-people-in-2017/
Dixon, A. (2018, July 26). The 15 Largest Banks in America. Retrieved September 10, 2018, from https://www.bankrate.com/banking/americas-top-10-biggest-banks/#slide=1
NerdWallet. (n.d.). Best online mortgage lenders of 2018 for home buyers. Retrieved from https://www.nerdwallet.com/blog/mortgages/online-mortgage-lenders/
Hitesh Bhasin. (2018, June 28). Retrieved September 17, 2018, from http://www.marketing91.com
Kim, T. (2018, July 02). Morgan Stanley upgrades Wells Fargo due to the bank’s ‘positive stress test results’. Retrieved September 12, 2018, from https://www.cnbc.com/2018/07/02/morgan-stanley-upgrades-wells-fargo-due-to-its-positive-stress-test.html
McFarlane, G. (2018, July 13). How Wells Fargo Became One of the Biggest Banks In America. Retrieved from https://www.investopedia.com/articles/markets/093014/how-wells-fargo-became-biggest-bank-america.asp
Pomerleau, K. (2018, February 12). US Corporate Income Tax More Now More Competitive. Retrieved from https://taxfoundation.org/us-corporate-income-tax-more-competitive/
Savings Accounts. (2018, September 23). Retrieved from https://www.magnifymoney.com/compare/savings-account/
Staff, I. (2017, March 30). The Industry Handbook: The Banking Industry. Retrieved from https://www.investopedia.com/features/industryhandbook/banking.asp
Staff, R. (n.d.). Home. Retrieved from https://www.relbanks.com/best-banks/usa
Way2Save® Savings. (2018, September 23). Retrieved from https://www.wellsfargo.com/savings-cds/way2save/
Wells Fargo & Co Return on Assets (TTM):. (2018). Retrieved from https://ycharts.com/companies/WFC/return_on_assets
Whittaker, Z. (2018, April 18). Bank web apps are the “most vulnerable” to getting hacked, research says. Retrieved from https://www.zdnet.com/article/bank-sites-and-web-apps-are-most-vulnerable-to-hackers/