1 Huge Opportunity Wells Fargo Needs to Seize in 2014

Wells Fargo is one of the strongest banks in the world, but if it's hoping to continue growth into 2014, it's going to need to capitalize on its one blaring weakness.

Jan 6, 2014 at 7:20AM

Wells Fargo Joe Mabel

Source: Joe Mabel. 

Meet Wells Fargo (NYSE:WFC), the No. 1 bank in auto lending, small business, and mortgages -- the banking sector's smart kid in class. And while the smart kid in class is normally remembered for ruining the curve on tests, they often have one huge weakness. For Wells Fargo, that weakness is credit cards -- aka, the gym class of banking products. 

At a recent financial services conference, Wells Fargo CEO Jon Stumpf stated, "Of those customers who call us their bank [...] only 36% carry our card." That means just 25 million of the bank's 70 million customers are currently using a Wells Fargo credit card.   

Unlike the nerd of the class, though, Wells Fargo doesn't plan on just standing in the corner and praying not to get smoked in the face with a dodge ball. Stumpf, instead, is rallying the troops, saying, "I am not going to be satisfied until every creditworthy customer who calls us their bank carries our credit card." 

The real question for Wells Fargo moving forward isn't whether there's huge opportunity here -- according the Fool contributor John Maxfield, a stronger credit card division could mean up to $50 billion in additional assets -- the question is how will Wells Fargo attack the credit card market? And just how successful will it be in 2014?

Wfc

Why don't more customers use a Wells Fargo credit card?
It's easy to forget, but at one point, Wachovia was one of the four largest banks in the United States. According to an article in The New York Times, however, the bank had agreed to a card-issuing partnership with MBNA in 2000. This partnership essentially handed over Wachovia's credit card business to the more card-focused MBNA. The partnership lasted until 2006, when MBNA was acquired by Bank of America

Wells Fargo would acquire Wachovia in 2008, which gave the less-than credit card savvy bank just two years to create new business. For that reason, the Wachovia acquisition drastically skewed Wells Fargo's numbers. 

According to Stumpf, "We have gone from two years ago in 25%, 26% penetration, last year it was 32%, now it's 36%." That kind of growth in penetration in two years is a good sign for investors that Wells Fargo has the capability to follow through with growing the business. 

A customer-focused bank
Wells Fargo, compared to other big banks, seems to have done the best job selling itself as the most customer-focused. However, according to the most recent J.D. Power & Associates customer satisfaction study on retail banking, even though Wells Fargo scored better than rival big banks Citigroup and Bank of America, Wells Fargo is merely middle of the road. 

Even when comparing primary mortgage origination satisfaction -- which is Wells Fargo's bread and butter -- Wells Fargo is again just middle of the road. Wells Fargo also received average scores for credit card satisfaction.

If Wells Fargo really wants to step up to the plate and earn its customers' credit card business, I think it's going to need to do more than be average, and that means getting some help.

Call in the ringer 
Wells Fargo must have read the writing on the wall, because this past August, the bank announced a partnership to begin issuing American Express (NYSE:AXP) cards -- which is the top-ranked card in customer satisfaction.

Axp

American Express has made a name for itself by attracting affluent customers through its fantastic rewards programs. And up until recently, American Express operated strictly on a closed-loop system -- which means the company both issued cards and acquired merchants.

While that strategy has worked really well for American Express in the past, the company seems to be interested in expanding its network at a much faster rate, and for that reason, the company has formed several card-issuing partnerships connected with the American Express network. 

American Express mentioned in its press release that there would be test runs for the Wells Fargo American Express cards in late 2013 into early 2014, and then a full roll-out of the cards in mid-2014.

The partnership looks like a win-win: Wells Fargo gets to give its credit card division a much needed face lift, while American Express can leverage the relationship to expand its business.

Does this make Wells Fargo a buy?
Wells Fargo is a strong and sustainable business, and if the bank is able to continue to grow its credit card division, it'll be yet another feather in its cap and another great reason to buy.

The problem is, with a number of big banks trading at or near tangible book value, Wells Fargo looks a little expensive by comparison. If anything, I think Wells Fargo's interest in growing its card division should make American Express look very appealing.

Which big bank does Warren Buffet expect to withstand the test of time? 
Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends American Express, Bank of America, and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers