ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Organizational Analysis Paper
- Wells Fargo & Co. Analysis
Business 596
Graduate Business Seminar
Professor Marzwell
Wei Wang
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Organizational Analysis Paper
- Wells Fargo & Co. Analysis
Current Situation
Wells Fargo Today
Wells Fargo & Company (WFC) is a diversified financial institution that provides banking,
insurance, investment banking, mortgage, and business finance. Wells Fargo has more than 9,000
stores and more than 12,000 ATMs across North America and internationally (wellsfargo.com,
2013). Wells Fargo & Company was founded in San Francisco during the gold – rush period.
And now, Wells Fargo went in a new era of banking in 2008 after the acquisition of commercial
banking giant Wachovia, which makes Wells Fargo the fourth largest bank in U.S. in terms of
assets. Its main business lines are retail, commercial, and corporate banking services. And the
branch of Wells Fargo provide services of brokerage and investment, wholesale banking,
consumer finance, mortgage banking, leasing, agricultural finance, commercial finance, data
processing, trust services, advisory, mortgage-backed securities, and venture capital investment.
Among all of its 80 plus services, the largest business are wholesale banking, home and
consumer finance, community banking, investments and insurance.
History of Wells Fargo & Co. Wells Fargo bank has more than 150 years of history. The
bank's early age date back to 1852, during the gold rush period, Henry Wells and William Fargo
founded Wells, Fargo & Co (wellsfargo.com, 2013). The original bank offered banking services
and secured delivery service of gold, notes, and other valuable assets. In the 1860s, Wells Fargo
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
made its reputation of trustworthiness by operating the famous stagecoach line. It secures and
delivers gold and other valuable assets through the Wild West and across the country. During the
World War I, Wells Fargo’s delivery system was hired by U.S. government as part of its World
War I plan. After the war, Wells Fargo reposition and rebuilt its whole business during the 20th
century, and become a regional bank in California and operating in San Francisco as a banker’s
bank for the region. By the 1980s, Wells Fargo had become a major bank in California and the
seventh largest bank in the US. In the 1990s, Wells Fargo expands its branches throughout the
West, Midwest, and several Eastern states. And today, Wells Fargo’s customers are over 50
million households, and it owns more than 9,000 branches nationwide. There are more than
266,000 people working for Wells Fargo and leading by CEO John Stumpf (Wells fargo &
compnay, 2013).
Customer satisfaction and reputation. The following table shows Wells Fargo has a great
reputation with its customer and the customer satisfaction is high (wellsfargo.com, 2013).
Top 20
Biggest Public
Companies in World
(2012)
Forbes
Most Powerful Women
in Banking – Top
45th
Most Admired (World)
(2012)
Fortune
25th
Revenue (U.S.) (2012)
Fortune
Best Corp/Institutional
Internet Bank (North
America) (2012, third
consecutive year)Global
Finance Magazine
Best Bank for Payments
and Collections (N.
America) (2012)
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Banking Teams (2012)
American Banker
100 Best Corporate
Citizens (2012)
Corporate Responsibility
Magazine
27th
Most Respected (World)
(2012)
Barron’s
Global Finance
Magazine
Excellence in Middle
Market International
Banking Services (2012)
Greenwich Associates
As we can see, many of the most influential business magazines, such as Forbes, Fortune,
Barron’s, and Global Finance Magazine, value highly about Wells Fargo, especial when it comes
to ethic of the corporation and customer services.
Innovation. Meanwhile, Wells Fargo is also a very innovative company in banking service,
in spite of that it is a more than 150 years old Corporation (wellsfargo.com, 2013). For example,
Wells Fargo is dedicated to improve its convenience of its banking service for customer, and the
most recent innovation is to allow customer to manage their account and daily expense with their
mobile phone. Moreover, Wells Fargo was voted as top 10 innovators in mobile service by bank
technology news. The following table shows the awards that Wells Fargo get in innovation area.
500 Most Innovative Companies (2012)
Information Week
First place for responsiveness (2012,
Annual ranking of best U.S. retail bank
sites)
Top Innovator
Mobile services (2012)
CIO, Jim Smith, highlighted as Top 10
Innovator
Bank Technology News
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Keynote Competitive Research American Banker
Best Corp/Institutional Mobile
SolutionProvider in North America (2012)
Global Finance Magazine
Best Corp/Institutional Website Design in
the World (2012)
Global Finance Magazine
Best Consumer Internet Bank in U.S. (2012,
third consecutive year)
Global Finance Magazine
#1 in North America
Social Media for Consumers (2012)
Global Finance Magazine
Digital Marketing Strategy of the Year
(2012)
Retail Banker International
Best Privacy & Security and Best Quality
& Availability (2012, Keynote’s Mobile
Banking Scoreboard)
Keynote Competitive Research
Most A grades - product quality, of top five
national banks (2012 Middle Market Quality
Index) Phoenix-Hecht
Most A grades for customer service and
fraud prevention services (2012 Large
Corporate Quality Index) Phoenix-Hecht
“The Innovators” list for advances in mobile
banking (2012)
Bank Technology News
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Analysis of Commercial Banking Industry
Description of the industry
The participant bank in commercial banking industry offers financial service, such as
commercial and customer loans (Jose, 2013). And banks also accept deposits from customers,
using as the capital of funding the loans. The supervisory agency regulating this industry is
Office of the Comptroller of the Currency. Banks are also insured by FDIC and follow its
regulations.
Key external influencers
Many economy factors could have strong impact on the performance of banks.
1) Prime rate. The prime rate is the interest rate that banks charge to their big corporation
customer with highest credit and lowest risk of default (Jose, 2013). The following figure
shows the prime rate in recent years.
The bank’s revenue comes from the difference between prime rate and federal funds rate.
Low prime rate could increase the demand of loans. And high prime rate could help banks access
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
to a higher margin. As the figure shows prime rate change a lot during past years, but are
expected to remain in low position in 2013 and 2014.
2) Aggregate household debt. Aggregate household debt includes all outstanding commercial
loans, credit card loans, mortgage, car loans, and student loans (Jose, 2013). The industry
revenue increase when aggregate household debt in high level. And it is positive relevant to
household’s expectation of income. The aggregate household debt is expected to gradually
increase in 2013.
3) Corporate profit. Commercial loans are a big part of banks’ revenue. And when corporation
profit is high, banks are more likely to earn high profit. Corporate profit is expected to
increase in 2013 (Jose, 2013).
Major competitors in commercial banking industry
There is over 7,000 banks in US, however, the number of bank as large as Wells Fargo is
not a lot (Jose, 2013). The major players in commercial banking industry are JPMorgan Chase &
Co., Bank of America, Citigroup Inc., and Wells Fargo itself. The following figure shows the
competitive landscape of commercial banking industry and the market share of each major
national bank.
As the figure shows Wells Fargo has the largest market share, which is 12.8% and is over
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
2% more than the second place – JPMorgan Chase. The largest revenue of Wells Fargo comes
from its community banking service, and it can generate more than 80% of revenue. In other
words, Wells Fargo’s revenue mainly comes from small business customer, individual customer,
and retail clients. The following figure shows Wells Fargo’s financial performance in last many
years (Jose, 2013).
As we can see, Wells Fargo is slowly coming back from the loss in subprime mortgage
crisis. But the pathway for Wells Fargo isn’t very clear and is full of obstacles. And in 2010 and
2011 Wells Fargo’s revenue actually decreases as a result of low increase in housing market as
well as in mortgage market.
JPMorgan Chase. The number one competitor of Wells Fargo is JPMorgan Chase. It has
approximately 10% of market share in US. JPMorgan is one of the largest financial institution in
the world, and now the largest bank in United States. It has about $2.2 trillion in assets.
JPMorgan has total seven business segments: investment banking, retail financial services, card
services, commercial banking, treasury and security services, asset management and corporate.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
The most contributed segments of JPMorgan Chase are retail financial services, card services
and commercial banking. The revenue of retail financial service grows 16.2% last year. And the
card service of Chase is one of the nation’s biggest credit card services generating over $125
billion in revenue annually. The commercial banking service is the smallest segment among the
top 3, however, its quality is probably the best. The service face to variance of clients, including
corporations, government agencies, and non – profit organizations.
Bank of America. Bank of America (BoA) is the third largest bank in US judged by the size
of revenue (Jose, 2013). The following figure shows the profitability of Bank of America.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
However, Bank of America experienced a really bad hurt from the subprime mortgage crisis
(Jose, 2013). Bank of America’s net income shows how badly the mortgage crisis affected its
performance. From 2009 to 2012, Bank of America estimated loses $6.9 billion, $10.9 billion,
$16.8 billion and $5.3 billion net income, respectively. As a result, Bank of America received
$45 billion government loan under TARP in 2009. And Bank of America fell to the third place of
commercial banking behind JPMorgan Chase and Wells Fargo. Moreover, Bank of America is
projected to lose market share and keep downsizing the following five years.
Porter’s Five Forces Analysis
Porter’s five forces model originated from Michael E. Porter's 1980 paper "Competitive
Strategy: Techniques for Analyzing Industries and Competitors." Since then, it has become a
frequently used tool for analyzing a company's industry structure and its corporate strategy. In
Porter’s theory, there are five competitive forces suited for every single industry and market. The
model assesses the industry or company’s strangeness toward these five forces to analysis the
company or industry’s situation (Industry Handbook, 2013). The following figure shows the
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
framework of Porter’s five forces model.
Barrier to entrance – medium
In United States, to found a bank, it must be approved by the Board of Governors of the
Federal Reserve System and obey the supervision, regulation and inspection of Federal Reserve
System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation (FDIC), and other federal regulatory agencies. And commercial banking industry is
highly regulated. Banks are restricted in their range of activities, in acquisitions of other banks
and in interstate banking activities. Moreover, banks also have requirement from FDIC of its
capital level and reserve requirements. The following figure shows all the barriers for entering
commercial banking industry and its respective level of barrier (Jose, 2013).
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
However, some financial companies still manage to entry the commercial banking industry.
In 2008, both Goldman Sachs and Morgan Stanley converted from investment bank status into
bank holding companies to increase their access to retail deposits
Competitive Rivalry within the industry – high
The rivalry within the industry is rated high. In fact, the competition is based on customer
service, interest rates on loans and deposits, quality and variety of products and services, lending
limits and customer convenience (e.g. locations of ATMs). Although the number of commercial
banks goes down rapidly while the number of ATMs goes up dramatically, the growth of number
of banking offices continues and that shows customers needs more bank branches for their
convenience. Other factors, such as transaction time, innovation, technology, reputation and
price, also can affect the competition in commercial banking industry. In the near future, the
intense competition is most likely to carry on, even heat up, in the banking industry, because
merger and acquisitions in the financial industry produces larger, better capitalized and more
geographically expanded banks. And economy of scale brought by mergers could give bank
giants the ability to offer large variety of financial products and service at more competitive
prices. On the other hand, the competition of retail deposit is also expected to be enlarged. The
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
reason is that banks try to less dependent on wholesale market for funding, and more prioritize
on retail deposits (Jose, 2013).
Threat of substitute – Medium
Banking belongs to wealth management industry (Financial services meet, 2011). And a
point of view is that the substitute of bank is other kind of wealth management firms. What are
they? For example, insurance company handles a lot of wealth management in US. And
investment bank handles wealth management as well. Statistic shows that nowadays, the deposit
in US has been decrease and the money flows to stock market through investment banks and
security brokers. And ultimately, the money flows to business in every industry. So the substitute
of commercial banking is rated as medium.
Bargaining power of suppliers – high
The supplier of commercial banking includes Mutual fund companies, hedge funds, other
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
broker dealers in structured deals, separate account managers, life insurance companies and
companies looking to go public (Financial services meet, 2011). The bargaining power of
suppliers has been increasing in the past two decades, for instance, suppliers now has to be paid
up to 300% of their trailing 12 months productions and commission and benefit fee.
Bargaining power of buyers – high
The bargaining power of buyer has been rising dramatically in recent (Jose, 2013). The
industry used to have all information and buyers have no power to it. But now the industry shifts
toward the favor of buyers. Because of the technology evolution, buyer can switch between
banks very conveniently and at extremely low cost. So the bank has to try its best to sustain its
customers, otherwise, customers will walk in competitor’s door with their money. The bargaining
power of buyer is high. The following figure shows number of investment grade corporation (big
portion of bank’s customer) falling.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Vision and Value of Wells Fargo
Vision
According to Wells Fargo’s website, its vision is “We want to satisfy all our customers’
financial needs and help them succeed financially” ("Vision and value," 2013). Wells Fargo has a
strong believe in its vision since the very first day when the vision is created 20 years ago. And
Wells Fargo thinks their vision is even more relevant today than 20 years ago. With only 88
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
characters, the vision perfectly describes Wells Fargo’s spirit.
Wells Fargo’s vision of financial satisfied, successful customers is based on a simple
premise that believe customer in all business can be served better and save money and time. If
customer brings their financial service to trusted bank and the employees know them well and
provide warm – hearted and precise guide and advice, and able to satisfied with their financial
needs with all banks variety of products and services. This is exactly what Wells Fargo pursued
("Vision and value," 2013).
In order to fulfill its customer – centric vision, Wells Fargo requests its employees working
hard, persistence and determination. Although Wells Fargo makes steady progress toward its
vision to satisfy all customers’ financial needs and help them succeed financially, it still needs to
learn, teach, and share a lot of things. Wells Fargo’s job is to let customer bring more work to
them and satisfy their needs. The vision of Wells Fargo does not involve getting bigger, pursuing
expansion of transaction, and selling more products, it’s all about building relationship with
customers one at a time. Because everyone understands of financial success differs, Wells
Fargo’s job to help variances from different customers and can be according to personal needs.
Customers’ financial success probably includes the intention of financial security, and the desire
to be financial literate. It also could include the intention to restrict to spending and saving plan
and be disciplined, so they can afford their home, education, retirement life, or investment of
business. Understand each customer’s financial pursuant is important and the first step for
fulfilling and satisfying them. Moreover, Wells Fargo believes that their concentration of
satisfying customer is the reason they work hard and could lead to their profitability.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Value
The value is the guide to every transaction, every conversation, every decision, and every
interaction with employees and customers. Also, the value should be embedded into every Wells
Fargo’s product and every service. And the values should be implemented to all team members
and sculpture to every team member’s soul, so that values on paper could worn out, but value in
spirit never die. The five primary values of Wells Fargo are:
“People as a competitive advantage”
“Ethics”
“What’s right for customers”
“Diversity and inclusion”
“Leadership”
SWOT Analysis of Wells Fargo & Co.
Strengths Weaknesses
Strong domestic market position
Cross selling
Strong capital
Unfavorable shift in earning assets and
yields
Weak international market position
Expense management
Opportunities Threats
Increase in Wealth Management industry
Immigrant customers
Online customers
Losses from Wachovia acquisition
Regulatory challenges
Uncertain economy in US
Strengths
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Strong market position in US. Wells Fargo has strong market share in US banking industry
(Wells Fargo & Company SWOT Analysis, 2012). It is the fourth largest bank in size of assets in
US. It also is leader many financial service segments, for instance the mortgage segment, used
car lender, and small business segment. As a result, strong market position could leads to
significant economy of scale for Wells Fargo.
Cross selling. Wells Fargo is the largest producer and consumer of cross – selling for
financial products (Wells Fargo & Company SWOT Analysis, 2012). For example, one fourths of
its customer has eight or more product and forty percent of customer has six or more products. It
is Wells Fargo’s goal for its customer to carry eight products. Cross selling could bring higher
return on investment and cost leadership over other competitors.
Strong capital base. The company’s capital reserve has been increasing in last few quarters.
Its tier 1 capital increases from $93.8 billion in the year of 2009 to near $114 billion in year of
2011. Therefore, tier 1 capital ratio increases from 9.25% to 11.33% in the time period from
2009 to 2011. Capital could use to cushion against market uncertainty. Wells Fargo has less risk
of capital loss than its competitors. So it is expected to remain strong capital base.
Weaknesses
Unfavorable shift in earning assets and yields. Due to weak loan demand, Wells Fargo’s
earning assets has slightly shifted from loan to more liquid assets during 2010 (Wells Fargo &
Company SWOT Analysis, 2012). At the same time, average interest-bearing core deposits
increased to 58.6% of average earning assets for 2011, from 51% for 2008. Consequently, the
company's net interest margin (NIM) declined to 3.89% in 2011 from 4.83% in 2008.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Weak international market share. Wells Fargo is weak for international expansion. The
US assets add up to its almost 100% of total assets. And domestically, Wells Fargo is not spread
very wide geographically, its business focus on the Midwest and Southeast. It also makes Wells
Fargo weak against probable US economy downturn.
Weak expense management. The efficiency ratio, which measure bank’s expense
management, is rising in last few years. It means that noninterest expense raise in terms of total
revenue. As a result, the company’s margin decreases.
Opportunities
Wealth management. Post Wachovia merger Wells Fargo has 15,000 financial advisors
managing $2 trillion in client assets through bank, private client and independent channels. The
company provides private banking, trust and family office services to affluent investors, from
those just beginning to accumulate wealth to those who have many financial services needs.
Wells Fargo is one of the nation's top-seven retirement record keepers. It also one of the nation's
largest retirement administrators and a leading distributor of IRA and annuity products. The
company's focus on wealth management is likely to yield favorable results both in the near and
long terms (Wells Fargo & Company SWOT Analysis, 2012).
Online banking. Wells Fargo is one of the early adopter of online banking. And the bank is
continuously working on its online service and mobile service’s customer interface to make it
more beautiful. Online banking service could dramatically simplify the company’s ability to gain
customer without increasing much of marketing cost. Thus, the bank’s contribution margin could
be increasing because of online banking.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Threats
Losses from Wachovia acquisition. Although the acquisition of Wachovia could help Wells
Fargo get access to a few profitable market, it is still affecting Wells Fargo’s near financial
performance. It is reasonable to believe that the total cost to Wells Fargo from mortgage
securities is still hard to quantify. Losses from Wachovia acquisition could continue to affect the
company's financial position and performance in the near term (Wells Fargo & Company SWOT
Analysis, 2012).
Increasing regulatory challenge. Increasing regulatory challenges not only increase non –
compliance risk, but also increases compliance spending.
Uncertain economy. US economic growth prospects are increasingly looking uncertain.
Slow job market recovery and weak consumer spending are big concern to not only consumers,
but also organizational investors (Wells Fargo & Company SWOT Analysis, 2012). In fact,
consumer spending falls by 0.5 percent in June, 2012, and 0.2% in May. However, homeowners
are expecting home price to boost in one year, and bullish housing market. As a result, whether
the confidence in housing market could offset the weakness in job market and consumer
spending determines the future of US economy.
Personal Assessment
- SWOT Analysis
Strengths Weaknesses
Strong international background
Good education
Lack of understanding of US market
English is not mother tongue
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Opportunities Threats
Economy recovery
Strong Chinese group in California
Regulatory challenges
Strengths
Strong international background. I can offer Wells Fargo my experience with international
customers, since I am international student for many years. And Wells Fargo has a big part of
customer are immigration, I could understand their financial needs better.
Good education. I am highly educated with master degree in finance education. So I am
capable of doing finance services.
Weaknesses
Lack of understanding of US market. Since I was born and raised in China, and there are a
lot of difference between Chinese financial industry and US banks, I am a little less familiar with
US bank.
English is not mother tongue. It could be a big disadvantage when compare to native
speakers, because it is a little less connected with people when using language other than mother
tongue. However, perusing master degree in US teaches me sufficient language skills.
Opportunities
Economy recovery. Many signals show the economy is recovery and as well as the job
market.
Strong Chinese group in California. There are a lot of Chinese in California, especially in
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Los Angeles area, and a lot of Chinese owned firms as well. So it is always a shortcut to find a
job in Chinese firms.
Threats
Regulatory challenges. There are many limitations for international student to find job. For
example, it is illegal to work outside campus while studying.
Financial Analysis
The following table is the highlights of Wells Fargo & Co. from the year of 2012.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
As we can see, Wells Fargo has a very healthy over - all financial situations.
Earning Analysis
The following tables indicate Wells Fargo’s ability of earning.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Balance Sheet Analysis
The following table shows Wells Fargo’s balance sheet information at the year end of 2012.
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
Reference
Financial services meet porter’s five forces. (2011). Retrieved from
http://consultingwithresults.wordpress.com/2011/08/03/financial-services-meet-porters-
five-forces/
Industry Handbook: Porter's 5 Forces Analysis. (2013). Retrieved from
http://www.investopedia.com/features/industryhandbook/porter.asp
Jose, E. (2013). Ibisworld industry report 52211 commercial banking in the us. Retrieved from
http://0-clients1.ibisworld.com.leopac.ulv.edu/reports/us/
industry/default.aspx?entid=1288
Vision and value. (2013). Retrieved from
https://www.wellsfargo.com/invest_relations/vision_values
Wells Fargo & Company SWOT Analysis. (2012). Wells Fargo & Company SWOT Analysis, 1-8.
Wells fargo & compnay. (2013). Retrieved from
ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS
http://www.vault.com/wps/portal/usa/companies/company-profile/Wells-Fargo-&-
Company?companyId=1161
WellsFargo.com. (2013). Retrieved from
https://www.wellsfargo.com/downloads/pdf/about/wellsfargotoday.pdf
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