Organizational Analysis Paper

ORGANIZATIONAL ANAYSIS PAPER – WELLS FARGO & CO. ANALYSIS

Organizational Analysis Paper

- Wells Fargo & Co. Analysis

Business 596

Graduate Business Seminar

Professor Marzwell

Wei Wang


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


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)


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


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)


Best Consumer Internet Bank in U.S. (2012,

third consecutive year)


#1 in North America

Social Media for Consumers (2012)


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


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


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


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.


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.


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


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).


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


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


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.


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


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.


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


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.


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.


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


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


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.


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.


Balance Sheet Analysis

The following table shows Wells Fargo’s balance sheet information at the year end of 2012.




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

https://www.wellsfargo.com/invest_relations/vision_values

http://www.investopedia.com/features/industryhandbook/porter.asp

http://consultingwithresults.wordpress.com/2011/08/03/financial-services-meet-porters-five-forces/

http://consultingwithresults.wordpress.com/2011/08/03/financial-services-meet-porters-five-forces/


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

https://www.wellsfargo.com/downloads/pdf/about/wellsfargotoday.pdf

http://www.vault.com/wps/portal/usa/companies/company-profile/Wells-Fargo-&-Company?companyId=1161

http://www.vault.com/wps/portal/usa/companies/company-profile/Wells-Fargo-&-Company?companyId=1161

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