• Uncategorized

Company Analysis Wells Fargo

WELLS FARGO 14

CompanyAnalysis: Wells Fargo

WellsFargo Company Analysis

Missionand vision statement analysis

WellsFargo is guided by a mission and vision which states as follows:

“Wewant to satisfy our customers’ financial needs and help themsucceed financially,” (Wells Fargo, 2016).

Lookingat the above statement, it is clear that the company deals in theprovision of financial services. In short, the statement clearlyspecifies the product category in which the company operates.Similarly, even though the mission does not make it clear who thefirm`s customers are, one can easily conclude that Wells Fargo existsto serve any person who requires financial services of any nature.Nonetheless, the statement is lacking in many aspects, including thefact that it does not specify the market where the firm operates, aswell as its core values together with ethical priorities (Bhandari &ampVerma, 2013).

Recommendedmission statement:

Inline with the nine essential parts of effective mission statements(Bhandari &amp Verma, 2013), Wells Fargo is highly encouraged toconsider espousing the statement suggested below:

“Ourmission is to meet customer’s personal and corporate banking needsin the whole of the US, applying the latest technology to ensure thatour services are quick and convenient to all clients.”

Therecommended statement excludes several components, such as theself-concept of Wells Fargo and its position regarding employees.Nonetheless, it enhances the existing statement by taking intoconsideration the aspects of technology and market.

Externalfactor evaluation

Opportunities

  1. An increase in the number of immigrants in the US

  • More and more people are migrating to the US from other countries. According to MarketLine (2016), 10% of all American residents were born in a foreign country.

  • Immigrants comprise a very important customer segment for financial institutions in the US, precisely because they are the most likely to purchase homes, at least as first-timers.

  • Given that Wells Fargo targets immigrant customers, such reports indicate that the future of the company is bright. This is because the initiative of targeting immigrant customers could enable the company to win a large portion of the market, besides giving it considerable presence within a cross-cultural community that is growing at a fast rate.

  1. Increasing usage of digital banking

  • Wells Fargo is one among the companies that use online platforms in the delivery of service to customers. By the close of the year 2015, Wells Fargo reportedly had over 26 million online customers, all active, besides serving over 16 million customers via the mobile banking platform (MarketLine, 2016).

  • Owing to projections that online banking is set to become more popular in coming years, it is apparent that there is plenty of opportunities for Wells Fargo to increase the number of customers it serves, without necessarily having to spend huge sums of money on infrastructure.

  • At the same time, the company would make greater profits by serving more customers through online together with mobile platforms.

Threats

  1. Tougher regulations

  • One of the challenges faced by players in the financial services business entails regular changes in financial legislations together with regulations.

  • Since the occurrence of the 1930 Great Depression, governments, particularly the US, have made substantial legislative reforms aimed at strengthening the finance sector (MarketLine, 2016).

  • Legislations such as the Dodd-Frank Wall Street Reform, as well as the Volcker Rule, could cause significant costs to firms like Wells Fargo, simply because of the expenses linked with complying with such regulations.

  1. Intense competition

  • The kind of business that Wells Fargo transacts involves many players, and this intensifies competition within the industry.

  • Precisely, Wells Fargo’s competitors include brokerage firms, banks, investment banking institutions, insurance companies, credit unions, and thrifts. The company also competes with internet-based businesses and issuers of credit cards (MarketLine, 2016).

  • Additionally, financial services companies have recently demonstrated the preference for consolidation, which intensifies competition in the industry.

  • This preference is a threat to firms operating singly, such as Wells Fargo, because it affects their pricing power. Moreover, stiff competition will reduce a firm’s market share together with profitability.

Financialstatements and analysis

  • Going by net income figures, Wells Fargo`s financial performance had taken a positive trend for the last five years, except in 2015 when it dropped by a small margin. Precisely, the company’s net income for 2015 was US $22,894 million, down from US$ 23,057 in 2014 (Morningstar Investment Research Center, 2016).

  • Interestingly, the company’s earnings per share have increased steadily over the five-year period, growing from US$ 2.82 in 2011 to US$4.12 last year.

Source:Maxfield (2015)

  • Turning to the company’s key ratios, the financial report provided by the Morningstar Investment Research Center (2016) signals that the firm’s asset turnover has not fluctuated by any substantial margins over the past five years, even though it dropped by 0.01 between 2013 and 2014.

  • A similar trend has been observed regarding the organization’s return on equity as well as return on assets, which have dropped observably since 2013. This gives the impression that in the recent past, Wells Fargo has, regrettably, not used shareholders monies wisely neither is it making profitable use of its assets.

  • Wells Fargo’s financial growth, as reflected in its earnings per share and net income, is however not enough to insulate the company from stiff competition in the industry. When gauged against a competitor like JPMorgan Chase, Wells Fargo clearly has a long way to go. As an example, JPMorgan Chase outdoes Wells Fargo in terms of earnings per share and return on equity, which suggests that among the two companies, JPMorgan Chase is utilizing its shareholders’ wealth more profitably than Wells Fargo.

  • In order to obtain a clearer picture of Wells Fargo, it might be worthwhile to utilize industry-specific metrics like the price to book ratio and the price to earnings ratio. In brief, price to earnings ratio is obtained by dividing a firm’s market price by the earnings per share. On the other hand, price to book ratio is obtained by dividing market price by a firm’s book value of every share (Blokhin, 2015).

  • It might also be useful to compute the company`s capital ratio, which helps in evaluating a company`s vulnerability to unexpected bad loans` incidences.

Internalfactor evaluation

Strengths

  1. Strong position in the market

  • In America’s financial services sector, Wells Fargo is ranked among the top three companies in terms of the value of assets (MarketLine, 2016).

  • Further, the company is the biggest collector of deposits among the US’ leading metropolitan markets. Apart from this, Wells Fargo is termed as the largest lender in retail mortgage, as well as to low-to-moderate income earners. The company ranks among the top providers of wealth management services, insurance brokerage and retail brokerage (MarketLine, 2016).

  • Such a strong position gives the company considerable scale advantages.

  1. The firm’s capital base is strong

  • Besides having a strong presence in the market, Wells Fargo has a very solid capital base. Between 2009 and 2015, the company’s capital increased by close to $71 billion (MarketLine, 2016).

  • When compared to its rivals, Wells Fargo’s exposure to adverse outcomes such as capital loss, as a result of high-risk trading is lower (MarketLine, 2016). Therefore, the company is well-protected against uncertainties that exist in the market.

  1. Diversified products

  • MarketLine (2016) defines Wells Fargo as “a diversified financial holding company,” (p. 3). This gives the implication that the company transacts in a range of products and services, and this is an advantage because it translates into higher returns.

Weaknesses

  1. Inadequate exposure to international business

  • Despite holding an enviable position in the market, it is regrettable that Wells Fargo lacks sufficient international exposure. The firm concentrates largely on the US market, and even here, it focuses predominantly on the Southeast as well as Midwest regions (MarketLine, 2016).

  • In short, the company`s presence in the main geographical areas, such as Asia-Pacific nations and Europe, is limited.

  • This limited presence exposes the company to fluctuations in the local market, in addition to putting it on a losing end especially when global players like Citigroup are taken into consideration (MarketLine, 2016).

  1. Deteriorating ability to manage expenses effectively

  • A significant observation made from the company’s financial statements is that from 2012, Wells Fargo’s noninterest expenses have been rising, especially when compared to the expenses that the company incurred in 2008 and 2009 (MarketLine, 2016).

  • Unless this is checked into, the firm’s profit margins will decline significantly, thereby obstructing plans for growth.

SWOT,existing strategic plan and proposed strategic direction

STRENGTHS

  • Strong position in the market

  • A solid capital base

  • Diversified products

WEAKNESSES

  • Inadequate exposure to international business

  • Deteriorating ability to manage expenses effectively

THREATS

  • Tougher regulations

  • Intense competition

OPPORTUNITIES

  • An increase in number of immigrants

  • Increasing usage of digital banking

Fromthe external factor assessment and the internal factor evaluationconducted above, it would be correct to say that Wells Fargo might beoperating in an industry that is heavily contested already, but thethreat of entry is moderate. This is partly because of regulationsimposed on the sector, as well as the scale advantages enjoyed by thecompany together with its key competitors. Likewise, the threat ofsubstitute products is minimal, and this is because Wells Fargo dealsin a variety of goods.

Nonetheless,the company’s buyers appear to enjoy significant buying power, andmore so given that there are many other firms offering similarproducts. Based on this analysis, which relies on Porter’s fiveforces model, the company’s current strategy of diversification isperfectly in order. Nonetheless, a crucial deduction made from theforegoing analysis is that it is very imperative for Wells Fargo totake advantage of the increasing preference for online bankingservices. As Porter (2008) proposes, it would be prudent for the firmto pursue strategies that are geared towards exploiting such trendsin the market. In simple terms, this means that Wells Fargo shouldexpand its current diversification strategy to include the mostrecent forms of online banking service.

Inaddition to the above, one of the key strategic issues that WellsFargo currently faces is the massive retrenchment of employees. Egan(2016) reveals that more than 5,000 employees have been fired as aresult of opening unauthorized deposit accounts and makingtransactions on behalf of customers. According to the source, theobjective of this unprofessional conduct was to earn bonuses on thepart of the employees. In order to prevent mistakes such as the onecommitted by employees, it is strongly recommended that Wells Fargoshould establish very tight internal controls, besides revising itsreward system to ensure that employees do not use phony tactics toearn bonuses.

References

Bhandari,A., &amp Verma, R. P. (2013). Strategicmanagement: A conceptual framework.New Delhi: McGraw-Hill.

Blokhin,A. (2015). Whatmetrics can be used to evaluate companies in the banking sector?Available at &lt&lthttp://www.investopedia.com/ask/answers/042815/what-metrics-can-be-used-evaluate-companies-banking-sector.asp&gt&gt

Egan,M. (2016). 5,300Wells Fargo employees fired over 2 million phony accounts.Available at &lt&lthttp://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-fees/&gt&gt

MarketLine.(2016). Companyprofile: Wells Fargo &amp Company.Retrieved from &lt&lthttp://web.b.ebscohost.com.ezproxy.ohiodominican.edu/ehost/pdfviewer/pdfviewer?vid=3&ampsid=eb1eca04-08af-475a-beb3-e0d10c29c334%40sessionmgr101&amphid=128&gt&gt

Morningstarinvestment Research Center. (2016). JPMorganChase &amp Co.Retrieved from &lt&lthttp://library.morningstar.com.ezproxy.ohiodominican.edu/stock/key-ratios?t=JPM&ampregion=USA&ampculture=USA&gt&gt

MorningstarInvestment Research Center. (2016). WellsFargo &amp Co.Available at &lt&lthttp://library.morningstar.com.ezproxy.ohiodominican.edu/stock/key-ratios?t=WFC&ampregion=USA&ampculture=USA&gt&gt

Porter,M. (2008). The five competitive forces that shape strategy. HarvardBusiness Review, 86(1)2-17.

WellsFargo. (2016). Ourvision.Retrieved from &lt&lthttps://www.wellsfargo.com/about/corporate/vision-and-values/our-vision/&gt&gt