Old Wells Fargo
...can I get a loan to buy a horse?
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (September 2, 1998) --Despite a name that is sometimes perceived as stodgy or old fashioned, Wells Fargo (NYSE: WFC) has always been an innovator. In 1850, Wells Fargo co-founders, Henry Wells and William Fargo, helped found American Express. They left it because AMEX wasn't interested in expanding to the California market.

As a consequence, in 1852 the two men formed Wells Fargo in San Francisco. Legend has it that a six hour session of "rock paper scissors" was necessary to determine which surname went first in the company name. Mr. Wells won the battle with a final "rock" blow to Mr. Fargo's "scissors." Thus, Wells Fargo was born. If Mr. Fargo had only thrown "paper" instead, the company would have forever been named Fargo Wells.

That important but trivial information aside, the company quickly became famous for its Pony Express and stagecoach lines. In fact -- not willing to let the past go -- the company and its Wells Fargo website still proudly display a stagecoach as the corporate logo, invoking images of holdups, bank robberies, and hijackings on the rolling plains of the Old West.

In a brilliant move, Wells Fargo separated its banking business from its horse galloping "express" service in 1905. Perhaps ironically, the express business was later acquired by American Express.

Over the years, the banking business bought smaller California banks and Wells Fargo grew up with the country, until forming a holding company in 1969. It was in the 1980s that the company began to focus on retail and middle-market banking as a superregional institution. Late in that decade Wells Fargo bought Barclays Bank of California, Crocker National Bank, and a piece of BankAmerica (buying its personal trust business). In the early 1990s, the company hit the skids with the California economy (just imagine a bucking horse, having thrown its rider).

After a change of management and a slow recovery, Wells Fargo completed a hostile takeover of First Interstate in 1996. This was initially a happy victory. By 1997 however, as Dale wrote, First Interstate customers were livid with displeasure. They had reason to be. First Interstate provided a personal banking experience, while Wells Fargo (remember, it's cutting edge) promoted a high-tech approach to banking. The two cultures clashed on the customer experience and expectation front.

In 1998, Wells Fargo agreed to merge with Norwest (NYSE: NOB) in a deal worth $34 billion. (Yesterday, I wrote that Wells Fargo was acquiring Norwest, which is the precise wording at Hoover's. However, I heard from a Norwest employee and another Fool that this should actually be classified as a merger, which is what Dale said, too.) Norwest offers Wells Fargo 2,800 branches in the West and Midwest and, being the leading mortgage servicer in the country, a big boost in the home mortgage business, as well as in the consumer finance biz. The new company will retain the Wells Fargo name.

Even without Norwest, Wells Fargo is well diversified and extremely well run. Its amortiziation-adjusted return on equity is 23.65%, putting it at the top of our five finalists in this measure. The company's lines of work include business and retail banking, real estate lending, international banking, mortgage banking, and consumer finance and investment services. Wells Fargo is, as hinted, big on electronic and online banking (check out its website if you're thinking of banking online), and it offers progressive smart card services. Warren Buffett owns approximately 8% of the company.

Dale introduced Wells Fargo and provided all of its numbers on May 14. (Hey, what are you laughing at? Yes, we're a little slow here in the Drip Port when studying companies!). Dale wrote more on Wells Fargo on July 30, and he provided links to all of the related Norwest articles that day, too. Importantly, he offered combined financials for both companies assuming a merger. Please visit the July 30 column for all this in one enchilada.

Of our five finalists, Norwest/Wells Fargo and Mellon Bank (NYSE: MEL) are the top two choices.

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9/2 Close

Stock Close Change CPB $50 1/4 -2 1/8 INTC $74 7/8 -1 1/8 JNJ $72 11/16 + 5/16
Day Month Year History Drip (1.03%) 3.63% 3.94% (11.48%) S&P 500 (0.38%) 3.44% 2.07% 4.12% Nasdaq 1.13% 6.25% 1.43% (0.06%) Last Rec'd Total # Security In At Current 08/03/98 4.125 CPB $54.395 $50.250 07/01/98 9.724 INTC $80.239 $74.875 08/07/98 6.543 JNJ $70.138 $72.688 Last Rec'd Total # Security In At Value Change 08/03/98 4.125 CPB $224.38 $207.28 ($17.10) 07/01/98 9.724 INTC $780.21 $728.05 ($52.16) 08/07/98 6.543 JNJ $458.92 $475.59 $16.68 Base: $1800.00 Cash: $286.03** Total: $1696.96

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