Wells Fargo Corporation – 2009

Group 2 – Strategic Management

Stephanie Alpha
Cherilyn Algar
Francis Balaba
Kathleen Gay Belandres
Danila Cadavos
Jonah Paula Dalajota
Ivy Namocatcat
Ace Gabriel Napal
Lady Jane Paje
Grace Saliot

OA 2b
OBJECTIVES

This study aims to determine the next preferable course of action among two points: First, the
acquisition of Wachovia – an extensive banking system which had a strong reputation in the
east coast of United States but saddled with a large portfolio of subprime mortgages, and lastly,
the adversity Wells Fargo faced during the first half of 2009.

RATIONALE

Wells Fargo & Company is an American international banking and financial services holding
company headquartered in San Francisco, California, with "hub quarters" throughout the
country. Wells Fargo is the result of over 200 mergers including, most recently, Wachovia. The
vast majority of these acquisitions, except for Wachovia, involved financial institutions in the
far western part of the United States. It is the world's second largest bank by market
capitalization and the third largest bank in the U.S. by assets.

By the end of 2008, Wells Fargo had built a very creditable reputation and was widely
recognized as an industry leader. The following statistics based on industry sources and
government statistics clearly show its size and strength:

• 41st in revenue among all U.S. companies as ranked by Fortune

• 17th most profitable company in the United States
• 33rd largest employer in the United States
• 18th most respected company in the world as ranked by Barron’s
• “AAA” credit-rated by Moody’s
• The only Standard & Poor’s “AAA” bank in the United States
• Among the top 50 companies as ranked by Diversity, Inc.
• Retail Banker of the Year according to U.S. Banker
• Number 1 commercial real estate lender
• 18th among the world’s most valuable brands according to the Financial Times

Recently, Wells Fargo has been a leading innovator in the use of internet and is in the forefront
of using e-commerce in the financial industry. Also in the same year, 2008, it was in an enviable
position as the largest financial institution headquartered in the Western United States. It has
an unbroken record of paying increasing dividends since 1995, when it paid $0.0525 per share.
In 2008, the dividend had increased to $0.34 per share.
COMPANY’S PROFILE

Industry & Nature of Business

Wells Fargo is within the industry of banking and financial services. They offer variety of
services including but not limited to: banking, mortgage, investing, credit card, insurance, and
customer and commercial financial services. The company statement says, “We’re
headquartered in San Francisco, but we are decentralized so every local Wells Fargo store is a
headquarters for satisfying all our customers’ financial needs and helping them succeed
financially.”

Company’s Vision

“We want to satisfy all our customers’ financial needs and help them succeed financially. We
want to be the premier provider of financial services in every one of our markets, and be known
as one of America’s great companies. ”

Company’s Mission

“Helping customers succeed financially.”

COMPANY’S HISTORY

Wells Fargo is a storied name in American Old West folklore going back to the days of the
stagecoach. On March 18, 1852, the founders—Henry Wells and William G. Fargo—built an
innovative start-up to help customers build businesses and manage money in a rapidly changing
world. The founders began their careers in the middle of a technological revolution. Trains,
canals, and stagecoaches created more interconnected communities and economies. Demand
grew for secure ways to send payments, and reliable places to access money, especially while
traveling.

Wells and Fargo used their hands-on experience making deliveries of money and valuables by
steamboat and stagecoach to develop a network of offices from California to New York and
around the world. The network provided consistency and support for customers in a rapidly
evolving economy. Using Wells Fargo, customers wary of doing business with distant partners
knew they could depend on the local Wells Fargo agent to act on their behalf.

A lot has changed since 1852. New communities and industries have emerged and grown.
Technology has made communication and bank transactions faster than ever before.
STATEMENT OF THE PROBLEM (What is the problem all about)

How did Wells Fargo handle the Wachovia acquisition?

To have an understanding of how extensive this acquisition was, duly note that Wachovia had
been a rising east coast bank by growing leaps and bounds over the previous decade. Few years
before being acquired by Wells Fargo, it first merged with First Union Bank, which made
Wachovia very well positioned to take the next step in order to compete with other big and
renowned banks in the United States. The downside however, was despite it being well
positioned, it had its own subprime mortgage problems and overcommitted credit default
swaps. Despite this, Wells Fargo still acquired Wachovia in the same year.

How did Wells Fargo perform during the first half of 2009?

The first half of 2009 was not kind to Wells Fargo. Moody’s Investor Service reduced Wells
Fargo’s debt rating to two levels during January, cited as having “significantly weakened”
financial position and that Wachovia assets would influence its earnings.

COMPANY’S SOLUTION

With regards to the Wachovia acquisition

Despite the shortcomings of Wachovia, Wells Fargo still pushed through the acquisition. They
agreed to acquire Wachovia’s almost 2.2 billion shares of stock for $7 per share. They also
issued $20 billion in new shares to pay for the transaction.

With regards to Wells Fargo’s performance during the first of 2009

Wells Fargo cut its dividend 85% to a nickel per share in a move to attempt to solidify its
balance sheet.
RECOMMENDED SOLUTION

With regards to the Wachovia acquisition

Our recommended solution is to halt the Wachovia acquisition. It was seen by the both
companies as a tremendous marriage of convenience presenting opportunities for Wells Fargo
and survival for the other. Wells Fargo could have made a sweeter deal if they waited for a
little longer before acquiring Wachovia since it already had its own subprime mortgage
problems and was also credit default swaps. These problems, if not fixed, could have made the
Wachovia declare for bankruptcy, and if they do declare, this would give an edge for Wells
Fargo to bargain for a much sweeter deal.

With regards to Wells Fargo’s performance during the first of 2009

It would have been better if Wells Fargo cut its dividend from 85% to at least 40% rather than
making it significantly lower. Duly note that Wells Fargo is among the top in the banking
industry in United States and it is very important to keep a positive image to the investors and
shareholders. It is also important to note that the banking industry in its entirety was having a
bad performance during the first half of 2009. Hence, it would be better for Wells Fargo to
strengthen its presence. Also, expanding internationally is a viable option as well.

CONCLUSION

Wells Fargo was fortunate to sidestep most of the subprime market mess and the accompanying
derivative credit meltdown. They had shown keen acumen in not pursuing the easy path and
has moved forward to capture more and more of the mortgage and banking business in its
geographic area. It was their acquisition of Wachovia that has been the highlight of all their
acquisitions since it was very extensive and Wachovia was climbing up the ranks. However,
Wells Fargo was already doing well in their performance even before the acquisition. Also,
they must also take into consideration to have a much more meticulous preventive measures in
their next huge moves, as the banking industry is still recovering with the recent financial crisis.
In addition to that, they also need to keep a positive image towards their consumers and
shareholders, to show confidence despite the adversities they faced especially during the first
half of 2009.
REFERENCES

Case Analysis on Wells Fargo Corporation 2009.

Crooks, D. L., Goodman, R. S., & John, B. Wells Fargo Corporation - 2009.
How I Got Job. Retrieved from https://howigotjob.com/mission-statement/wells-fargo-
mission-statement-and-vision-analysis/
Mission Statement. Retrieved from https://mission-statement.com/wells-fargo/
Stumpf, J. G. (2012). The Vision & Values of Wells Fargo. Wells Fargo.
Wells Fargo. Retrieved from wellsfargo.com/about/
Youtube. Retrieved from https://www.youtube.com/watch?v=Xo9AnO8vO0Q