I recently happened upon a book written in 1949 on the history of Wells Fargo (NYSE:WFC). The book, Wells Fargo: Advancing the American Frontier by Edward Hungerford, offers a fascinating view into the early years of what is today one of the best-run banks in the world. What follows are 10 interesting insights from the book.
1. Wells Fargo wasn't a bank at first
Banking was originally of secondary importance to Wells Fargo. The company was founded in 1852 to provide delivery services to people in California during the Gold Rush. After acquiring multiple stagecoach lines, it "owned the greatest staging empire in the world." It even purchased what remained of the Pony Express, which operated between St. Joseph, Missouri and Sacramento, California for 18 months before the transcontinental telegraph line rendered it obsolete in 1861.
2. The Fat Cat of Montgomery Street
The high profits and lucrative dividend payments from Wells Fargo's express operations earned it the nickname: the Fat Cat of Montgomery Street -- San Francisco's equivalent of Wall Street.
3. Surviving the Panic of 1855
The first of many financial panics that Wells Fargo survived took place in 1855, when a drought made it impossible to mine for gold along stream beds. The panic caused nearly 200 businesses in San Francisco to fail, including Wells Fargo's biggest competitor, Adams Express Company. "As the only major express company surviving the crash, Wells Fargo could look forward to prosperous days ahead," wrote Hungerford. Wells Fargo's financial position was so strong that it didn't even suspend its dividend that year.
4. The first serious threat to Wells Fargo
In the first half of the 1860s, Wells Fargo acquired virtually all the stage lines from the Missouri River to California, which gave it a monopoly on transcontinental delivery services. It then abruptly changed course in 1868. After realizing that the transcontinental railroad was nearing completion, Wells Fargo's board of directors ordered its president to sell off all of the company's stage lines.
5. The hostile takeover of Wells Fargo in 1869
When Wells Fargo's stock plummeted as a result of the threat from the transcontinental railroad, which was completed in 1869, a group of California-based investors acquired control of the company. It was at that point that Wells Fargo moved its headquarters from New York City to San Francisco. Because these same investors controlled the Central Pacific railroad, Wells Fargo gained exclusive express privileges on the only train that connected California to the East Coast.
The "Treaty of Omaha," which marked the transfer of control over Wells Fargo, revitalized the company. "Considering the fact that Wells Fargo was the only company that could transport express in California on the [Central and Southern Pacific railroads] it fixed its rates high," wrote Hungerford. "And the profits ... were good."
6. Holdups and robberies
Holdups and robberies were a major threat to Wells Fargo in its early years. By 1884, its stagecoaches and trains had been robbed 340 times, leading to the deaths of 16 robbers (not including 7 hanged by citizens) and six Wells Fargo employees. The company hired its own security force to combat the threat. "For forty years it had been said throughout the West that there were two institutions dangerous for bad men to tinker with," said Hungerford. "One was the Federal Government and the other, Wells Fargo."
7. Well Fargo's worst acquisition
In the mid-1890s, Wells Fargo purchased Commercial National Bank, a Portland, Oregon-based bank that "had had a hard time of it in the great panic of 1893." While Wells Fargo was flush with capital at the time -- "panics were hardly more than incidents" to the company, wrote Hungerford -- Commercial National's bad loans were worse than expected. As Wells Fargo's president at the time recounted:
I listened to what those people said and I passed on a lot of assets that never should have been passed. The reason that I made that kind of error was that I laid too much stress on their good faith. I didn't allow for the fact that a man of good faith might lack something of good judgment.
Wells Fargo lost its entire investment in Commercial National and subsequently sold it in 1905 to United States National Bank, which had "long since become an outstanding bank of Portland." That bank today is U.S. Bancorp.
8. The spinoff of Wells Fargo Bank in 1905
In 1901, famed railroad financier Edward H. Harriman gained control of the Southern Pacific railroad, which, in turn, owned a substantial share of Wells Fargo stock stemming from previous dealings between the companies. Harriman saw little value in Wells Fargo's banking operations, which were ancillary to its express service. He accordingly decided to spinoff Wells Fargo Bank in 1905.
The bank was purchased by Isaias Hellman, president of the Nevada Bank of San Francisco, which had $9 million in deposits at the time compared to Wells Fargo's $6 million. "Yet to throw away the name of Wells Fargo with all its vast prestige was unthinkable," wrote Hungerford. The combined bank thus went by the name of Wells Fargo-Nevada National Bank.
The Wells Fargo Bank of New York was sold around the same time to the National Park Bank, which later merged into Chase National Bank -- what is today JPMorgan Chase.
9. The San Francisco earthquake and fire in 1906
For multiple days after the 1906 earthquake and fire that destroyed three-quarters of San Francisco, Wells Fargo operated without records of its customers' accounts, which were then trapped in the fireproof vault in its still smoldering headquarters building. But even though it paid out hundreds of thousands of dollars to depositors based entirely on their integrity, its total loss from overpayments didn't exceed $200.
10. The end of Wells Fargo Express in 1918
Wells Fargo's express service officially ended in 1918. At the behest of the Secretary of the Treasury, the three big express companies in the country were merged into the American Railway Express "in the interests of winning" World War I.
There was much bitterness. Once the new combination had been made, the Wells Fargo signs and insignia were torn down all the way across the land to be replaced immediately by the signs and insignia of the American Railway Express. Wells Fargo disappeared from the telephone listings everywhere; the name was apparently never even to be whispered.
The same is not true, of course, of Wells Fargo's once cast aside bank. In the financial crisis of 2008-09, it proved yet again that it's one of the safest and most prudent stewards of capital in America. As Hungerford observed six decades before the crisis, "From its beginnings nearly 100 years ago down to the present, not one person ever lost a dollar, in property or in money entrusted to the care of Wells Fargo."