Wells Fargo & Company Bank - Term Paper Example

? WELLS FARGO & COMPANY BANK Your School of Engineering, Social Sciences, etc Number and of Date of Paper Abstract This paper serves as a bank report which shall provide a study of Wells Fargo Bank, which includes the historical development of the bank, its charter, the number of states where it operates, management team, and the TARP program initiated by the U.S. Department of Treasury and TARP funds received by the bank. It shall also discuss the balance sheet and the income statement for 2009 and 2010. The performance of the traded stocks of the bank shall also be presented in this financial report. Keywords: Wells Fargo bank, TARP Program, U.S. Department of Treasury, income statement and balance sheet, traded stocks WELLS FARGO AND COMPANY Wells Fargo & Company is “a diversified financial services company providing banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores and 12,000 ATMs and the Internet across North America and internationally. It is headquartered in San Francisco, but has been decentralized so that every all our customers’ financial needs are satisfied. It has $1.3 trillion in assets and approximately 280,000 team members across our 80 plus businesses; ranked fourth in assets and second in market value of our stock among our U.S. peers as of December 31, 2010” (wellsfargo.com). Wells Fargo has a good financial background and reputation over the years by exhibiting stability and permanence. In fact, in 2010, “Fortune has ranked Wells Fargo in 19th place in Revenue Among All Companies in All Industries and the World’s 39th Most Admired Company. While Forbes included it as part of the Top 100 Best Companies in the World for 2010” (wellsfargo.com). Historical Background According to the Wells Fargo Website: “The name Wells Fargo evokes an image of the stagecoach, pulled by six horses and loaded with gold, thundering across the American frontier. The full history of Wells Fargo, though, is that and much more. Marked by service and rich with innovation, Wells Fargo history is part of the history of America, and its many and diverse communities” (wellsfargo.com). In 1852, Henry Wells and William Fargo founded Wells Fargo & Company to provide banking and express service to western pioneers. The first banking and express office opened in the gold rush port of San Francisco, and Wells Fargo’s trustworthy agents soon moved into other mining camps and settlements” (wellfargo.com). “Wells Fargo agents provided essential banking services, reliable transportation of gold and goods, and dependable mail delivery across the frontier. They purchased gold dust, took deposits and offered convenient and safe transport of money over long distances. Merchants used Wells Fargo checks to send payments to suppliers, while miners and business owners especially liked reliable mail delivery by Wells Fargo’s letter express. Wells Fargo sent gold, mail and express shipments by the fastest means possible stagecoach, steamship, railroad or Pony Express. According to one newspaper editor, “it has been the universal business agent of the entire region from the Rocky Mountains to the Pacific Ocean.” Its trademark is a stagecoach pulled by a six-horse team was the symbol of frontier commerce. In 1858, Wells Fargo helped finance and operate the nation’s first regularly scheduled long-distance stage line. Stagecoaches of the Overland Mail Company, known as the Butterfield line, after company president John Butterfield, carried mail and passengers on a three-week journey between Missouri and California, by way of Texas and the Southwest” (wellsfargo.com) Wells Fargo-Wachovia Merger In order to infuse more capital to intensify its service to existing and future customers, Wells Fargo entered into a Merger Agreement with Wachovia. “The integration of Wells Fargo is the largest, most complex banking merger in U.S. history. This merger ensures added earnings and capital growth for the company. The estimated merger costs at less than $5 billion, one-third less than estimated cost and the Wells Fargo bank is on its way to achieve $5 billion in expense saving from the merger by the end of 2011. It also creates job opportunities, as the company is 12th-largest private employer in the U.S. In November 2009, the Wells Fargo banking system is combined with Wachovia system to serve over 95,000 Wachovia customers in Colorado. In March 2010, it did the same for 40,000 Wachovia customers in Arizona, 15,000 in Nevada and 14,000 in Illinois. By mid-2010, full service was given to 600,000 Wachovia customers in California. In the third quarter of 2010, Wachovia and Wells Fargo systems teamed-up for 514,000 Wachovia customers in Texas, and 21,000 in Missouri and Kansas. Later in 2010 and in 2011, the same treatment shall be granted to 14 million more Wachovia Community Banking customers in Alabama, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia” (Wells Fargo Annual Report for 2010). U.S. TARP Program 2008 According to the report of Laura Baumann, “on Oct. 14, 2008, the U.S. Department of Treasury announced the Troubled Asset Relief Program, or TARP Program, which is served as a government initiative to help aid and ensure strength of financial institutions and enhance market liquidity. The TARP Program allows the Treasury to purchase up to $250 billion in Senior Preferred stock on standardized terms more fully described in the TARP Program's term sheet” (Baumann, 2008). Qualifying Financial Institutions under U. S. TARP Program “In order to qualify under the program, there were set requirements and qualifications to be met by financial institution-applicants in order to become a beneficiary. The TARP Program is generally available to the following ‘Qualified Financial Institutions’: First: U.S. bank or savings associations not controlled by a bank holding company (BHC) or savings and loan holding company (SLHC) and; Second: any U.S. BHC, or any U.S. SLHC that engages in activities that are financial in nature or complementary to a financial activity and does not pose a risk to the safety and soundness of depository institutions or the financial system generally,  and Third: any U.S. bank or U.S. savings association controlled by such qualifying U.S. BHC or SLHC except that Qualified Financial Institutions will not include any BHC, SLHC, bank or savings association controlled by a foreign bank or company. The Treasury determines the eligibility and allocation for Qualified Financial Institutions after consultation with the appropriate federal banking agency” (Baumann, 2008). The report of Todd Sullivan stated that, “Wells Fargo issued to the U.S. Department of Treasury 25,000 shares of Wells Fargo’s fixed rate cumulative perpetual preferred stock, series D without par value. The shares have a liquidation amount per share of $1,000,000, for a total price of $25 Billion. This is part of the TARP Capital Purchase program initiated by the US Treasury Department to used appropriated funds under Emergency Economic Stabilization Act of 2008 to invest in U.S. Financial Institutions and encourage businesses and consumers to support the U.S. economy” (Walls Street Nation, 2008). Balance Sheets and Income Statements Wells Fargo’s Financial Performance for the years 2009 -2008 FOR THE YEAR 2009 2008 % Change Wells Fargo net income $ 12,275 2,655 362 % Wells Fargo net income applicable to common stock 7,990 2,369 237 Diluted earnings per common share 1.75 0.70 150 Pro?tability ratios: Wells Fargo net income to average total assets (ROA) 0.97 % 0.44 120 Wells Fargo net income applicable to common stock to average common stockholders’ equity (ROE) 9.88 4.79 106 Efficiency ratio 55.3 54.0 2 Total revenue $ 88,686 41,877 112 Pre?tax pre?provision pro?t (PTPP) 39,666 19,279 106 Dividends declared per common share 0.49 1.30 (62) Average common shares outstanding 4,545.2 3,378.1 35 Diluted average common shares outstanding 4,562.7 3,391.3 35 Average loans $ 822,833 398,460 107 Average assets 1,262,354 604,396 109 Average core deposits 762,461 325,212 134 Average retail core deposits 588,072 234,130 151 Net interest margin 4.28 % 4.83 (11) AT YEAR END Securities available for sale $ 172,710 151,569 14 Loans 782,770 864,830 (9) Allowance for loan losses 24,516 21,013 17 Goodwill 24,812 22,627 10 Assets 1,243,646 1,309,639 (5) Core deposits 780,737 745,432 5 Wells Fargo stockholders’ equity 111,786 99,084 13 Total equity 114,359 102,316 12 Tier 1 capital 93,795 86,397 9 Total capital 134,397 130,318 3 Capital ratios: Total equity to assets 9.20% 7.81 18 Risk?based capital Tier 1 capital 9.25 7.84 18 Total capital 13.26 11.83 12 Tier 1 leverage 7.87 14.52 (46) Tier 1 common equity 6.46 3.13 106 Book value per common share $ 20.03 16.15 24 Team members (active, full?time equivalent) 267,300 270,800 (1) (Source: Wells Fargo Annual Report 2009) Based on the annual report of the bank, it shows Wells Fargo has stable financial performance for the years ending 2008 and 2009. The table shows that the banks income increased by 362% due to its recent merger with Wachovia. Its revenue for 2009 jumped to 112% compared to 2008. It has to date, “$1.2 trillion worth in assets and has become one of the top banks in the U.S” (Morning Star). Shares of Stock Wells Fargo stocks are doing well and financially stable in the stock market. Although according to Wall Street Journal report, the banks’ “first-quarter profit jumped 48% as it set aside sharply less to cover potential loan losses, though revenue declined. Shares dipped 1.1% to $29.75 in recent pre-market trading based on Dow Jones” (Wall Street Journal). General Observations The bank’s management team has made a wise business management decision when it acquired or purchased Wachovia. The assets of the bank increased significantly to trillions of dollars making it one of the top banks in America. Because of the infusion of additional income, the bank can generate more income and revenue in the coming years through business investments, personal loans, consumer loans and investment loans, issuing bonds and selling company shares in the stock market. According to Reuters, “Wells Fargo’s net income rose 50.5 percent, but gains were driven mainly by setting aside less money to cover bad loans. The bank's loan book shrank as outstanding loans to consumers declined and loans to companies did not grow enough to compensate. Credit quality improved for the bank, as it did for rivals, but investors are less clear about where future profit growth will come from” (Gollner, 2011). References Baumann, L. (October 23, 2008). U.S. Treasury TARP Program: Highlights for Financial Institutions. Retrieved on April 21, 2011, from http://www.dwt.com/LearningCenter/Advisories?find=37009 Morning Star. Wells Fargo Company. Retrieved on, April 21, 2009, from http://quote.morningstar.com/Stock/s.aspx?t=WFC Gollner, P. & Baldwin, C. Reuters. (April 20, 2011). Wells Fargo posts falling revenue, shares drop. Retrieved on April 21, 2011, from http://news.yahoo.com/s/nm/20110420/bs_nm/us_wellsfargo Sullivan, Todd. (October 30, 2008). Wall Street Nation. Wells Fargo Complete $25 Billion TARP Deal. Retrieved on April 21, 2011, from http://wallstnation.com/WFC-103008.HTML The Wall Street Journal. (April 20, 2011). Stocks to Watch II: Wells Fargo AT&T, AES and More. Retrieved on April 21, 2011, from http://blogs.wsj.com/marketbeat/2011/04/20/stocks-to-watch-ii-wells-fargo-att-aes-and-more/ Wells Fargo Annual Report 2009. Retrieved on April 21, 2011, from http://www.annualreports.com/HostedData/AnnualReports/PDFArchive/wfc2009.pdf Wells Fargo Website, Retrieved on April 21, 2011, from `https://www.wellsfargo.com/wachovia/ Wells Fargo History. Retrieved on April 21, 2011, from, http://www.wellsfargohistory.com/history/history_brief.htm Wells Fargo Investment. Statement of Financial Condition, December 31, 2009, Retrieved on April 21, 2011, from https://www.wellsfargo.com/downloads/pdf/online_brokerage/fin_stmt_0609.pdf Read More