Wells Fargo financial banking industry analysis and SEC filings

¶ … Fargo & Co. In detail. It puts light on the financial performance of the organization. The core products and competitive advantage of the organization have also been analyzed by the preceding paper. In addition to that this paper also highlights the SWOT analysis and the Porter's five forces model of Wells Fargo & Co.

Wells Fargo & Co.

Wells Fargo & Co. is a stable and renowned name in the banking industry. This organization has a commendable history of growth and success. Its mission and vision has enabled it to navigate successfully through the complicated and critical times of recession and economic downturn. It has been in the business since last many years and has gained a stable and prominent share in the financial and banking industry of the United States of America. (Amundson, 2011)

Company Background

Wells Fargo & Co. started operating officially in the year 1852. They opened their first office in San Francisco. This office was established during the gold rush. After that the organization started expanding from California to the rest of the United States of America. In the year 1910, the organization was operating at 6000 locations around the nation. After the First World War the government over took all the locations of the organization and it was left only with its San Francisco location. Wells Fargo & Co. remained resilient and started expanding once again. In the year 1980, Wells Fargo & Co. was the eighth largest bank of the United States of America and by the year 1990 the organization gained all its previous locations back. (Amundson, 2011)

Wells Fargo & Co. had a merger with First Interstate Bankcorp in the year 1996. In the year 1998, it again had a merger with Norwest. In addition to that, it also merged with Wachovia in the year 2009. Apart from that, Wells Fargo had a merger with a number of other companies and it also made various commendable achievements. (Amundson, 2011)

Resources, Capabilities, Core Competencies and Value Chain

Wells Fargo operates in a number of product lines. All these lines and the services associated with them are listed below;

Banking: In this line the organization offers the services of; online banking, ATM banking, business banking, wholesale banking and government and institutional banking. (Amundson, 2011)

Mortgage: In this sector the organization offers the service of home banking and mortgage. (Amundson, 2011)

Credit: The services provided in this line include, debit and consumer credit cards, personal credit management, auto dealer services and education financial services. (Amundson, 2011)

Insurance: This product line includes two services, namely Wells Fargo insurance and rural community insurance services. (Amundson, 2011)

Investments: The products included in this line are; retail brokerage, wealth management, retirement, Norwest equity partners, Norwest venture partners, Lowry Hill and capital markets. (Amundson, 2011)

Financial Analysis

The Wells Fargo organization had a net income of 5,171 million dollars on 31st March 2013. The net income reported an increase of 22% when compared to the income of last year. On March 31st 2013, the total assets of the organization had a value of $1,404,334 and the total liabilities and equity amounted to $1,436,634. The company witnessed a non-interest income of 10,760 million U.S. dollars according to the 2013 financial statement of the organization and the non-interest expenses of the organization equaled 12,400 million U.S. dollars. According the quarterly report of March 2013, the total stock equity of Wells Fargo & Co. equaled 162.1 billion U.S. dollars. The income applicable to the common stock of Wells Fargo & Co. was reported to be 4,931 million U.S. dollars. The earnings per share of Wells Fargo & Co. were reported to be 0.93 U.S. dollars and the organization had a total comprehensive income of 4,718 million U.S. dollars. The company, according to its March 2013 quarterly report, witnessed a net cash flow of 16,217 million U.S. dollars. (United States Securities And Exchange Commission, 2013)

The share price of Wells Fargo & Co. As of 25 July 2013 was $43.65. The company had a total asset to equity ratio of 11.37%. The profit margin of the organization was reported to be 21% and it had a Return on Equity (ROE) of 12%. The dividend yield of the organization is 2.70 and the organization has an EBITD Margin of 40.90. The asset turnover of the organization was reported to be 0.10. (United States Securities And Exchange Commission, 2013).

Apart from its good financial performance and diversified product line, the organization also manages its risks in an effective manner and provides high quality advices to its customers. (Amundson, 2011)

Value Chain

The value chain of the organization consists of five primary elements. These elements are listed below;

People: The people who work for the organization. The organization aims at attracting and retaining a valuable workforce which can work in a collective manner and can lead the organization towards its targeted goals. (Amundson, 2011)

Ethics: The organization aims at developing a relationship with its employees, customers and share holders on the basis of highest ethical standards. The organization aims at developing trustworthy and transparent relations with its employees. In addition to that, it also provides its customers and share holders with authentic information regarding all the aspects of the organization. (Amundson, 2011)

Customer Preferences: The organization aims at taking the steps that would benefit the customers the most and that would be best for the customers of the organization. For the organization, the preferences, demands and benefits of the customers are its top most priorities. (Amundson, 2011)

Diversity: The organization believes that diversity is the most effective tool for combating competition. Therefore, it aims at providing its customers with a diversified product and service line. A product and service line that can cater all most all the varied needs of the customers is what the organization wants to provide to its customers. (Amundson, 2011)

Leadership: leadership is the most important element of any organization. Wells Fargo & Co. aims at developing a leadership that can motivate the employees and satisfy the customers and other stakeholders. Human resource is the most important element of any organization and Wells Fargo & Co. aims at developing a leadership that can bring the best out of its human resource. (Amundson, 2011)

Value Creation

With the help of its core competencies, resources, including a diversified product and service line, the organization can create value for all its stake holders. The organization can cater all the needs of its customers in an effective manner. In addition to that, the organization can also strengthen its stand in the market and banking and financial industry and can create value for its share holders and creditors. By using its resources for the training and development of its employees the organization can create value for its employees. (Amundson, 2011)

If the organization uses all its resources effectively then it can create sufficient value for all its stake holders and can further stabilize its share in the industry of banking and finance. (Amundson, 2011)

Analysis of General Environment

The two factors of the general environment that can have an influential impact on the operations of the Wells Fargo organization and the industry in which it operates are the political and economic trends. These trends and their impacts on the concerned organization are listed below; (Amundson, 2011)

Political Trends:

The political environment of the organization includes all the important legislations that are implemented by the government in relation to the financial matters. These legislations include new consumer watchdog, breakup authority, financial early warning system, tighter leash for financial firms, mortgage reform and fiscal and monetary policies of the government. (Amundson, 2011)

The company and its business are greatly affected by the fiscal and monetary policies of the government. Especially, the policies that govern the supply of money and credit in the United States of America have an influential impact on the organization and the industry in which it operates. This is because these policies determine the availability or non-availability of the bank loans in the economy and they also identify the rates of interest that are being paid and charged on the loans. (SMIF, 2007)

Wells Fargo operates in a very competitive banking and financial industry and the implementation of rules, laws and policies make this industry more competitive. In this industry various banks, security firms and insurance companies can merge together to form a 'financial holding company'. Such mergers can elevate the level of the competition to higher levels. (SMIF, 2007)

In addition to that, a number of regulations regarding the regulatory system of the financial institutions are being introduced in the congress. These regulations can the change the ways in which the organization operates in an unpredictable manner. If these legislations are implemented then they can increase or decrease the cost of doing business. They can also have an influential impact on the competitive balance that the organization maintains between the banks, savings associations, and other financial institutions that it holds. (SMIF, 2007)

The organization cannot predict that whether any of these legislations would be implemented or not. In addition to that, it is very difficult for the organization to analyze the potential impact that these legislation would have on it costs, earnings and operations, if they are being implemented. (SMIF, 2007)

Economic Trends

The current economy of the United States of America is in crucial conditions. The interest rates in the economy are at a low level but the rates of employment are very high and same is the case with foreclosures. During the financial crunch of 2007 and 2008, the organization stayed out of the subprime market and hence performed well than its competitors. In addition to that, the organization also paid back the bailout funds that were being provided by the government and still made sufficient earnings in the year 2010. (Amundson, 2011)

The banking and financial industry as well as the earnings and business operations of Wells Fargo & Co. are impacted by the economic conditions in an influential manner. These economic factors include, interest rates, both short-term and long-term, credit risk, liquidity risk, foreign exchange risk, risks of equity prices, commodity price risk, risk of inflation, risk related to the supply of money, fluctuations in the equity capital market, fluctuations in the debt market and the strength and the condition of the economy of the United States of America and the other local economies in which Wells Fargo & Co. conducts its various business operations. (SMIF, 2007)

For example, a downturn in the economy or an increase in the rate of unemployment or any other economic factors that might have a negative impact on the overall economy and on the economic conditions of the households would lead towards a reduction in demand of the loans and they can also reduce the demand for the non-loan products and services. In addition to that such economic factors can also lead towards an increase in the number of people who would fail to pay back the loans that they have previously acquired. The people may go bankrupt due to the negative economic conditions and hence they might not be able to pay back the principle amount that they have borrowed and the interest that is being charged on the principle amount by the financial institutions. (SMIF, 2007)

The economic environment can, therefore, have both negative and positive impacts on the income and other financial variables of the Wells Fargo organization. In addition to that, these conditions also have the potential to alter the ways in which Wells Fargo & Co. conducts its business operations. (SMIF, 2007)

Porter's Five Forces Model

The two forces out the Porter's five forces that have the most influential impacts on the organization are threats of new entrants and rivalry.

Threats of New Entrants

In the industry of finance and banking it is very important for the organizations to run their business on the basis of the existing customers and to make thriving relationships with the new customers as well. Out of the entire business of Wells Fargo about 80% is being operated on the basis of the existing customer line, therefore, it is important for Wells Fargo to have good relations with its customers. If the customers are not satisfied with their existing banks there is a large array of banks ready to replace them. Wells Fargo has been doing well against these new entrants by putting up tough barriers to entry, such as economies of scale, so that the new organizations may find it difficult to attract the organization's clientele. (SMIF, 2007)