G

Wells Fargo (NYSE:WFC) is an exceptional bank. But it's not only exceptional for what it does; it's also exceptional for what it doesn't do. Namely, by focusing on traditional banking, it's avoided the majority of financial frauds that have embroiled its peers on Wall Street in the past decade and a half.

Indeed, it's no exaggeration to say that the Wall Street banks -- principally JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and, since its acquisition of Merrill Lynch, Bank of America (NYSE:BAC) -- have a credibility problem. You can get a taste for this in the following table, which is a truncated rap sheet of the nation's four biggest banks since 2000.

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JPMorgan has a particular knack for being at the center of essentially every scandal to envelop the financial industry. Some of this, but not all, is the result of its being the biggest bank in America. To mention only three points:

  • According to the Securities and Exchange Commission, it "helped Enron mislead investors by characterizing what were essentially loan proceeds as cash from operating activities."
  • According to the U.S. Justice Department, it facilitated Bernie Madoff's multibillion-dollar fraud despite deep suspicions that it was, in fact, a Ponzi scheme.
  • According to the Federal Energy Regulatory Commission, it manipulated "electricity markets in California and the Midwest from September 2010 through November 2012."

While Citigroup and Bank of America aren't as, shall we say, prolific in this regard, they're not far behind. Aside from the numerous settlements stemming from the financial crisis, they've paid dearly for rigging markets and facilitating fraud -- and again, this is to point out only some of their more notable indiscretions.

Wells Fargo, by contrast, was notably absent from all of the pre-crisis malfeasance. In the company's 2002 letter to shareholders, in fact, its chief executive officer went out of his way to point this out:

It's impossible to earn trust if one is trustworthy in some things and not trustworthy in other things. We have to be trustworthy in all things all the time. The word "integrity" and the word "integration" come from the same root: entire. This implies a wholeness, a complete, undivided, unbroken consistency of approach and execution. To have integrity one must be consistently honest and trustworthy in everything one does. When you have integrity, people know you will do what you know is right. And that happens to align with how we define "culture" at Wells Fargo. It's knowing what you have to do without someone telling you to do it. That's why integrity is not a commodity. It's the most rare and precious of personal attributes. It is the core of a person's -- and a company's -- reputation.

For other industries, this may not be as big of an issue -- though I believe reputation matters across the board. But banking is different, because it's predicated on trust. And this isn't just a theoretical point, as trust filters into credit ratings, which, in turn, factor into funding costs.

It's for this reason, among others, that Wells Fargo's stock has been able to consistently outperform its peers over the past three decades. Is that bound to change anytime soon? Probably not. As a result, if you're thinking about buying a bank stock, do yourself a favor and avoid the Wall Street firms in favor of smaller, simpler, and more trustworthy lenders like Wells Fargo.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Apple, Bank of America, and Wells Fargo and owns shares of Apple, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.