Friday, October 6, 2006
Wells Fargo: Wild At Heart
In reviewing the 2005 annual report of Wells Fargo (WFC), some surprising facts emerge. While WFC is the only bank in the U.S. rated Triple A by Moody's, risk-taking behaviors do lurk under the surface. The first surprise was that WFC made more money as a venture capitalist last year ($500 million) than it did through its 1200+ stores in consumer finance ($400 million). The second surprise was that junior lien mortgages stood at nearly $60 billion or 20% of the loan book. This seems a departure from Triple A behavior. It will be interesting to see how these perform over this tightening cycle.
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I continue to be amazed at WFC's unfolding saga. WFC led the banks through the Great Recession as a model of good behavior. Then, like the boy who gets extra recess time for good behavior and uses it for horrible behavior, WFC used the good post Great Recession environment to create incentives and a culture of customer exploitation. In the greatest adversity the seeds of success are sown and so here the reverse must be true.
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