Wells Fargo: Hardly a 'Community Bank'

In his recent appearance before the House Financial Services Committee, John Stumpf, President and CEO of Wells Fargo & Company (WFC), stated “We are a community bank.” In effect his statement was designed to create the impression that Wells Fargo was in much better shape than other large banks and not burdened by toxic assets. He specifically mentioned that he spent his career living and working in different cities and states implying that Wells Fargo’s closeness with customers enables them to make better loans.

His views are understandable given the storied pasts of Wells Fargo and Norwest Corporation prior to their merger in 1998. At the time of that merger Norwest was composed of 37 subsidiary banks located in 16 states with 930 locations, while Wells Fargo was a single bank with many branches in communities throughout California.

The uniqueness of this organization and its dominance in many locations certainly helped attract the attention of Warren Buffett. The fact that these banks tended to be consistently high earners persuaded him to load the boat with Wells Fargo & Company shares.

As of September 30, 2008 Buffett’s Berkshire Hathaway (BRK.A) owned 290,407,668 shares of common stock in Wells Fargo, valued at $10.899 billion. Those shares represented 8.7% of the common shares Wells then had outstanding.

The October 3, 2008 announcement that Wells Fargo intended to acquire troubled Wachovia Corporation forever shattered the market’s perception that Wells was a traditional community bank. That merger also destroyed the belief that Wells Fargo & Company was immunized against the economic storms sweeping the nation.

Wall Street has voted on the wisdom of that acquisition by slamming Wells Fargo stock. This past Friday, February 20th, Wells Fargo traded as low as $8.81 before closing at $10.91. You have to go back more than a decade to find a lower close after adjusting for splits.

Wells Fargo’s most notable investor has watched the value of his known Berkshire Hathaway ownership stake fall by about $7.731 billion or 70.9% in the past 153 days. While such a huge loss in value may not make him flinch, his fellow Wells Fargo investors are rapidly curling up in fetal positions.

When it decided to buy Wachovia, Wells Fargo forfeited any right to portray itself as a “community bank” that was not burdened with toxic assets. The plain fact is that it can no longer escape the intense scrutiny and deep suspicion being bestowed on the banking giants.

Unfortunately, Wells Fargo is now one of those giants whose future is being questioned by members of the media who are totally incapable of analyzing a bank balance sheet and income statement.

Comments

[Consumer Ba...:]

Yes............the same media who fell all over an inexperienced junior senator who is now the leader of the most powerful nation in the world. Perception???? Reality??????? America has been sufficiently dumbed down over the course of the last forty years to the point where we are more concerned about the myth of Global Warming than we are about English being a second language and our children not being able to add/subtract/multiply and divide.

Feb 22 07:51 AM

[ElGordo:]

As an acknowledged (by Obama) financial advisor to Obama, does any one believe that Warren Buffett will not argue against the nationalization of banks especially Wells Fargo ?

Feb 22 07:57 AM

[oceansmike:]

Who is Dr. Baker ?? Why would the public care what you have to say ??? are you another DOOM n Gloom Short Trader claiming that Investers are bailing on a Company that is perfectly RUN. You say the Stock has been driven down by stock holders You are so out of Touch sir,,Shortsellers are not what I would call stock investers or stock holders of record,,,find another hole to stick your head and when the next bubble emerges ,,we'll probaly hear from you after the fact,,,,,,,,,FM

Feb 22 08:09 AM

[Mad Hedge F...:]

Wells Fargo Bank (WFC) has been in a free fall for the last two weeks, as investors bail out of the stock in fear of nationalization, or an Alt-A loan loss driven bankruptcy. The stock has vaporized 47% in three weeks, down to a new 12 year low. Veloceraptor like hedge funds have been major short sellers of the stock because it is one of the last banks with any meat still on the bone. Demand for out of the money puts is soaring. The stock is being dragged down further by big selling of bank and financial ETF’s, like the Financial Select Sector SPDR (XLF), which has WFC as its second largest holding at 8.74%.

Feb 22 12:00 PM

[Vafer:]

what was the point of this article except to say - duh?

Feb 22 05:39 PM

[jbr:]

Wells paid for Wachovia with about 13% (post-deal) of its stock. Wachovia is now a wholly-owned subsidiary, i.e., Wells has no responsibility for any of Wachovia's liabilities. If Wachovia sinks into the ocean, then Wells will have thrown away 13% of its stock (admittedly, a really bad thing), but exactly how does that put Wells one dollar more at risk of insolvency than it was before the purchase?

Feb 23 08:07 AM

[User 364515:]

You're missing Mr. Stumpf's point. Wells Fargo views itself as a community bank because that is how most of its decision making procedures are set up, even in the post Wachovia merger era. In other words, Wells Fargo managers in each region are empowered to make the loan decisions, sponsorship decisions, and community support decisions that will most benefit their local communities. Most big banks don't allow their officers in the field such autonomy. THAT is why Wells Fargo is different. THAT is why it calls itself a community bank. And, by the way, it continues to be one of the best run banks -- no, make that one of the best run companies -- in the nation.

Feb 25 10:51 PM