Wells Fargo & Co (US)

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Wells Fargo & Co established itself as one of America's biggest banks by erring on the side of caution rather than reckless expansion. Or so it seemed until a series of scandalous revelations starting in late 2016 revealed that at least part of its impressive growth had been assisted by sharp sales practises and false accounting. Sales staff were in effect encouraged by tough targets and an aggressive incentive scheme to cheat the system in order to to earn substantial bonuses, or otherwise risk dismissal. The business was created over the course of two decades from a series of careful acquisitions, not least the purchase in 1998 of the original Wells Fargo company by what was then Norwest Corp. However the defining deal to-date came at the end of 2008. Seizing the opportunities provided by the general meltdown in the financial services industry, Wells Fargo snapped up failing competitor Wachovia, doubling in size to become one of the country's two biggest retail banks, even overtaking rival Bank of America in several areas. It is now America's single biggest financial services company by outlets, with a vast network of 8,600 retail "stores" spread across 39 US states; also the biggest mortgage lender, having overtaken BofA in 2011; and was until late 2016 the world's most valuable bank by market capitalisation.

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Adbrands Weekly Update 18th Apr 2018: American banks enjoyed big profit gains from US tax reforms, as well as generally upbeat business sentiment. Net income at JPMorgan Chase jumped by 35% to an all-time record for the bank of $8.7bn, while Bank of America grew 30% to $6.9bn. However both were beaten in percentage terms by Morgan Stanley whose net earnings jumped by 38% to $2.7bn. Goldman Sachs was the next biggest profit jumper, up 26% to $2.8bn, while Citi was up 13% to $4.6bn. Wells Fargo gained 5% to $5.9bn, but said it might be required to restate those figures at a later date to accommodate a forthcoming $1bn regulatory settlement over mis-sold car insurance and mortgage fees. The lower tax rate alone generated a combined total of $2.9bn in extra profit from the six companies. Yet despite those big gains, investors were generally unimpressed by the lack of any significant growth in lending to businesses and consumers. That was one of the key underlying motivations for Republicans' tax reforms: to encourage borrowing and growth in the wider economy. So far, there's no sign of that, as JPMC finance chief Marianne Lake admitted: "I think we have to recognize that tax reform is in its early stages." As far as revenues were concerned, JPMC remained the clear leader among US banks with 12% growth to $27.9bn, but reigning #2 Wells Fargo slipped back to $21.9bn - it was the only bank to report a year on year decline. That allowed BofA to reclaim second place with $23.1bn. Citi had $18.9bn. Morgan Stanley topped Goldman again with $11.1bn to $10.0bn respectively.

Adbrands Weekly Update 18th Jan 2018: Most US companies will take an exceptional hit in their 4Q results from President Trump's tax reform bill, not least the big banks who kicked off the reporting season this week. The cut in the US corporate tax rate will significantly benefit all companies in the future but it creates a short-term problem for businesses that accumulated big losses during the 2008 financial crisis which they had intended to set off for tax purposes against future profits. A lower tax rate will make those deferred credits harder to use, so they now mostly have to be written off. That's a bigger issue for some companies than for others. Wells Fargo - which didn't have much in the way of accumulated losses - reported a one-off gain in 4Q, offsetting additional charges for litigation related to its various sales practises scandals. As a result, net income edged up 1% to $22.2bn, but revenues were flat at $88.4bn.

Adbrands Weekly Update 30th Nov 2017: Wells Fargo admitted further wrongdoing within its sales divisions. Following on from its fake customer accounts scandal, and then the unauthorised auto insurance scandal, and then the inflated mortgage fees scandal, the bank has now uncovered evidence that executives in its foreign exchange department routinely over-charged corporate customers for currency conversions in order to qualify for higher bonuses. The practice came to light following after major client Restaurant Brands International - the owner of Burger King and Tim Hortons - took a loss on a large currency transaction handled by the bank and demanded an internal investigation. Wells Fargo was the only US bank to reward its currency traders with bonuses on the level of revenue they charge out to customers. During the investigation, it uncovered multiple examples where corporate clients had been charged inflated fees on currency exchanges. According to a report in The Wall Street Journal, the correct fees were charged in only 35 of 300 separate trades. The top four managers in Wells Fargo's foreign exchange department were fired last month as a result of the inquiry. The latest revelation further heightens tensions between the bank and federal regulators, who have already warned they are considering a formal enforcement action that will oblige the bank to correct multiple problems in several departments by a fixed date. It has already issued multiple directives, many of which have yet to be resolved.

Adbrands Weekly Update 19th Oct 2017: US banks mostly had a great quarter, as consumer and business lending offset generally lacklustre trading and investment results. JPMorgan Chase led the pack as usual with profits up 7% to $6.7bn on revenues up 3% to $26.2bn, well ahead of expectations. That was despite a shock 21% fall in trading revenues. Bank of America too beat expectations, with net profit of $5.6bn on revenues of $21.8bn. Citi delivered profit of $4.1bn on revenues of $18.2bn. Morgan Stanley also beat predictions as a result of strong performance in wealth management. Perhaps surprisingly, even Goldman Sachs - which has minimal exposure to consumer lending - also did well, with revenues ahead of expectations despite the trading downturn and profits exactly as predicted. The big disappointment - again - was Wells Fargo, still struggling with the fallout from its sales practises scandal. Given its business profile, it should have been the bank most likely to benefit from rises in lending, but actually total loans slipped by 1% year-on-year, compared to gains of 2% to 3% at the other lenders; consumer loans alone were down 3%. Revenues slipped back to $21.9bn - lower than analysts had been anticipating and putting the bank at risk of losing its second place position to BofA - while net profits slumped by 19% year-on-year to $4.6bn as a result of a $1bn charge against regulatory investigations.

Adbrands Weekly Update 3rd Aug 2017: The sales practises scandal swirling around US bank Wells Fargo just won't go away. It emerged last year that sales executives had signed up existing customers to banking products they didn't need without their knowledge or had invented fake customers to help them to hit their targets. That led to the ousting of CEO John Stumpf and huge fines. A new independent investigation, commissioned by the bank itself, has revealed that around 570,000 customers with auto loans from the bank were charged for additional car insurance, often without their knowledge so that it duplicated their own third-party cover, and at higher-than-market rate. In more than a third of cases the additional charge led to loan delinquencies and poor credit ratings, and around 20,000 customers even had their cars wrongly repossessed. The bank has set aside another $80m to compensate customers affected.

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Background

Free for all users | see full profile for current activities: Like most of its competitors the current Wells Fargo has been assembled through merger or acquisition of a string of other groups. The original business was established in California in 1852 by Henry Wells and William Fargo, then the principals of New York's American Express Company. The board of that company considered the Wild West too risky to allow a branch of American Express there, so Wells and Fargo established it as a separate business of their own. The most important commodity carried by the delivery service was gold, and as a result the company soon began to offer commercial banking to its customers. The delivery business was officially spun off in 1905. 

For the next 70 years or so, Wells Fargo was primarily a city bank for San Francisco, but expanded its network to cover all of California by the end of the 1980s through the acquisition of rival Crocker and the local branches of the UK's Barclays. In 1996 it acquired First Interstate Bancorp, a multi-regional banking network first created by the founder of Bank of America in the 1920s. Two years later, Wells Fargo was itself acquired by Norwest Corporation, originally a cooperative of regional banks from Minnesota and the North West United States. The merged business retained the more celebrated Wells Fargo brand and image. The group's network expanded still further in 2000 with the acquisition of First Security, another multi-state banking group based in Utah and various South Western states. 


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