Since its founding during the California gold rush, Wells Fargo (NYSE:WFC) has grown into one of the nation's largest banks. It's the biggest by market capitalization, the second biggest by deposits, and the fourth largest by assets. Most importantly, it's the most profitable. In the quarter ended Sept. 30, it notched an impressive 13.4% return on equity, something many industry analysts thought was impossible in the post-financial crisis world of increased regulatory oversight and heightened capital requirements.
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Its recipe for success is amazingly simple. Its leaders appreciate that a well-run, traditional bank can make money in good times and in bad.
Through organic growth and a series of well-timed acquisitions -- the most notable being its 2008 FDIC-assisted purchase of Wachovia, the nation's fourth largest bank holding company at the time -- Wells Fargo has amassed a staggering $946.5 billion in deposits ($267 billion of which are noninterest bearing) and become the undisputed king of the U.S. mortgage market.
These two facts give Wells Fargo a powerful operational advantage to start. Its deposits allow it to average between $10.5 billion and $11 billion each quarter in net interest income alone. And to give you a taste of its dominance in the mortgage market, in the most recent quarter, the megabank originated an unprecedented $139 billion in home loans. That's nearly three times the amount originated by JPMorgan Chase (NYSE:JPM), the next largest player in this space, and roughly seven times the amount reported by Bank of America (NYSE:BAC), formerly the nation's largest originator. Thanks to these products and services, Wells Fargo transacts with one in three U.S. households.
As a final testament to its simplicity, Wells Fargo's leaders have shunned Wall Street's predilection toward opaque operational structures, choosing instead to organize into three straightforward segments. Its largest, community banking, offers an assortment of financial products and services for consumers and small business, accounting for 59% of the bank's total revenue and 54% of its net income. The next largest, wholesale banking, houses its burgeoning investment bank and serves businesses with annual sales in excess of $20 million. This segment accounts for 27% of the bank's overall revenues and 39% of its profits. Finally, its wealth, brokerage, and retirement division provides a full range of financial advisory services to clients and accounts for the remaining 14% of revenues and 7% of earnings.
Investors burned by the complex, toxic balance sheets at Wells Fargo's competitors no doubt appreciate the clarity of this banking giant's approach.