Founded in 1852 and headquartered in San Francisco, Wells Fargo is a nationwide, diversified, community-based financial services company with $1.4 trillion in assets. Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet, and has offices in more than 35 countries to support the bank’s customers who conduct business in the global economy. With more than 265,000 employees, Wells Fargo serves one in three households in the USA. Wells Fargo was ranked number 26 on Fortune’s 2012 rankings of the largest corporations in the USA. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.
As most large banks retreat from the trading business, Wells Fargo is expanding. The fourth-largest U.S. bank says it can earn solid returns in investment banking while taking little risk for itself. It is focusing on services that its corporate lending customers need, such as stock and bond underwriting and merger advice. For investors, it is looking at areas such as processing futures and swaps trades.
The Wells Fargo Securities unit is relatively small now, but in a few years, the unit could account for twice as much of the firm’s revenue, an estimated 10 percent compared to its current 5 percent, Deutsche Bank analyst Matt O’Connor wrote in a report in May 2012. For JPM, Bank of America, and Citigroup, that percentage is closer to 20 to 25 percent. A much bigger proportion of Wells Fargo’s revenue comes from traditional commercial and retail banking businesses: residential mortgages, lines of credit for corporations, and so on.
Online banks are growing rapidly in number and taking market share from large banks. The website http://www.mybanktracker.com/best-online-banks rates more than 30 online banks in the USA in terms of having low fees, low interest rates, excellent technology, and great customer service. Exhibit 10 reveals in rank order the top 18 Internet Banks in the USA. Note that Ally is number 1 and E*TRADE is number 18.
EXHIBIT 10 The Best Online U.S. Banks (1= best, 18 = least best)
|· 1. Ally|
· 2. Bank of Internet
· 3. ING Direct
· 4. Charles Schwab Bank
· 5. Sallie Mae Bank
· 6. USAA
· 7. TIAA Direct
· 8. Barclays Bank
· 9. State Farm Bank
· 10. Discover Bank
· 11. UFB Bank
· 12. Simple
· 13. Incredible Bank
· 14. Nationwide Bank
· 15. First Internet Bank
· 16. One United Bank
· 17. Presidential Online Bank
· 18. E*TRADE
Source: Based on info at http://www.mybanktracker.com/best-online-banks .
Following the 2007 to 2009 financial crisis, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 that affects all aspects of the financial industry. Provisions include: prohibition of proprietary trading, restrictions on who can own hedge funds, establishing the Financial Stability Oversight Council, elimination of the Office of Thrift Supervision, and much more. The new regulations are expected to greatly increase the fees all financial institutions must pay. Provisions of Dodd-Frank aim to avoid situations in which large banks (such as AIG and Citigroup) are bailed out by the government because they are “too big to fail.” Dodd-Frank did ease public perception and opinion of the financial crisis and may in fact apply to middle-size firms. However, recent research reveals that the largest institutions are so interconnected worldwide that, should a similar financial situation arise again, world governments again would be forced to save these behemoths. It is expected that there will be more than 14,000 new regulatory requirements enacted by 2015.
One of the hottest topics and business challenges facing banks today is the advent of mobile payment systems and the new competitors that enter the market associated with these payment systems. Bank Technology News even stated in 2012 that credit and debit cards used today are soon headed to the museum to be replaced by a linkage of mobile, Web, and point of sale options. As of 2012, there were more than five billion mobile phone users in the world, with more than 70 percent of the world’s population having a mobile phone, yet only half the world’s population having a bank account. Juniper Research reports that the market for global payments should exceed $600 billion by 2013. Businesses such as Intuit’s GoPayment are already available for the Apple iPhones and Android platforms.
Near Field Communications (NFC) is allowing customers to pay for products using their mobile phones at retail stores. Big players such as MasterCard, American Express, Visa, eBay, and Google are also establishing mobile payment systems. Traditional banks such as JPM perhaps need to form strategic alliances to participate in this new arena because less people will be using cash, checks, and plastic cards to perform their business transactions.
As of 2012 there were 76 million homes in the USA with 52 million of these homes having a mortgage, and 4.7 million of these homes in a delinquent state. Around 2.5 million of the delinquent homes are worth less than their mortgage and around 10 million homeowners who are not delinquent are paying mortgage notes that are worth less than their home. About 25 percent of these homes are expected to go into default because homeowners either cannot afford to continue paying or are simply unwilling to pay more for a home than it is worth.
Going up and up on fees much like the U.S. Postal Service Office, are large banks on permanent decline? The Wall Street Journal (9-12-12, p. A1) reported that the percentage of Americans who own checking accounts dropped from 92 to 88 percent between 2010 and 2011, whereas the number of Americans who own a major credit card dropped from 74 to 67 percent, and those who own a major debit or check card dropped from 78 to 66 percent. In other words, Americans are using traditional banks less and less. In fact, the article reports that 8.2 percent of the nation’s households, nearly 12 million, are managing their finances without a bank. Bank overdraft fees, according to the article, cost Americans $31.6 billion in 2011. Consumer behavior is definitely shifting from bank credit and debit cards to prepaid debit cards offered by both NetSpend and Green Dot. Pew Charitable Trusts estimates the total dollars that flow through prepaid debit cards will reach $201.9 billion in 2013, up from $28.6 billion in 2009.
A movement called “Bank Transfer Day” emerged in November 2011. In February 2012, J.D. Power & Associates reported that customers of large, regional, and mid-sized banks were defecting at a higher rate because of frustration over factors such as fees and poor customer service. According to their survey, 9.6 percent of customers said they had switched to a new banking provider within the last year, compared to 8.7 and 7.7 percent in the previous two years. The main beneficiaries of the defections are credit unions and smaller banks, which experienced an average increase of 10.3 percent in the acquisition of new customers, versus 8.1 percent a year previously. In March 2012, the National Credit Union Administration reported that credit unions added 1.3 million members in 2011, hitting a record 91.8 million. Online banks are also gaining and increasingly sustaining competitive advantage over large banks.
Cash Advance Centers Inc. is the largest payday lending company in the USA and is widely being used now in lieu of doing business with a bank. That company reports that 22 percent of its customers earn more than $75,000, so the point here is that avoiding bank fees and such is becoming popular not only with individuals of lower incomes but also with people of medium incomes.