Monday, March 5, 2012

Wells Fargo Plans Global Expansion

Unlike some of the other large U.S. banks, Wells Fargo (WFC) doesn't have much of an international presence.

Only 2% of the Wells Fargo staff is located outside the United States.

It looks like they're seeing an opportunity to change that.

This Financial Times article that was posted on CNBC's website said Wells Fargo has plans to build its international operations.

The article points out that Wells Fargo picked up a network of international offices via the Wachovia acquisition, but up to now has done much with them.

The reason seems simple enough.

Wachovia was a very large acquisition (Wells Fargo's assets were more than doubled) and was acquired during a troubling time (for Wachovia and the system as a whole) to say the least. So the focus has been on transforming Wachovia's substantial operations into the Wells Fargo way of doing business. Naturally, executing such a large integration takes priority over other things and, if nothing else, takes time.

This recent Forbes article explores some of the things that seems to separate Wells from other big banks.

The Bank That Works

The article describes how the former CEO Dick Kovacevich influenced Wells Fargo's culture and developed its approach to banking:

...Kovacevich is credited with developing the bank's obsession with cross-selling products to its customers. He viewed banking as a commodity business and preferred to compare Wells Fargo to merchants like Wal-Mart or Lowe's rather than Citigroup or Goldman Sachs.

His vision was that service and salesmanship would win the day and that the key to success would be to tear down the silos so cross-selling would flourish. 

According to the article, John Stumpf, the current CEO of Wells Fargo, thinks about growing successfully in the following way:

First, earn more business from your current customers. Second, attract customers from your competitors. Or third, buy another company. If you can't do the first, what makes you think you can earn more business from your competitors' customers or from customers you buy through acquisition?

It's tough to know specifically what separates Wells Fargo from other banks. Much of it seems to come from differences in their banking culture and, maybe as a direct result, a superior ability to cross-sell though there is likely much more to it than that.

Whatever it is, they sure don't want competitors to really understand it.

He'd [Stumpf] as soon reveal his methods as Coke would the ingredients of its syrup.

What's easier to see is that they've consistently produces higher returns with what seems less risk and complexity than peers.

Whether the international expansion makes a big difference in the near term or not, I wouldn't bet against long-term success.

It's also worth noting that Wells has been recently acquiring assets from banks that are under pressure to shrink their balance sheets.

Adam

Long position in WFC established at lower than recent market prices
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