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This Big Bank is Just Too Cheap: Wells Fargo & Co (WFC)

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Wells Fargo & Co (NYSE:WFC) has been an American business icon since 1852 and has fueled economic growth since the Gold Rush. It is the fourth largest bank in the US by assets, providing retail and commercial banking, along with wealth, brokerage, and retirement management services. These and other financial service are available in over 130 countries. Overall, Wells Fargo is the 26th largest corporation in America according to Fortune. In 2007, before the recession, Wells Fargo & Co (NYSE:WFC) was the only bank in the United States with a AAA credit rating by the S&P 500. Since then, they were dropped to AA- and then to A+, which is still a very high and respectable rating. During the financial crisis, Wells Fargo received $25 billion in TARP funds from the U.S. government, which they paid back in December of 2009. After getting this weight off their back, they have been on a tear.

Wells Fargo & Co (NYSE:WFC)

Financial Growth

Wells Fargo reported upbeat fourth quarter 2012 earnings in January. They reported record earnings of $5.1 billion, a 24% increase from the fourth quarter in 2011. They also reported record diluted earnings per share of $0.91, a 25% increase from 2011. Total revenue increased 7%, and more capital was returned to shareholders via an increased dividend. Numbers like these are what investors crave from a company.

Segment Growth

Investment banking has been a major source of Wells Fargo & Co (NYSE:WFC)’s growth. They charge for their services in the form of fees including upfront, retainer, and success fees. These fees grew 30% year-over-year from commercial and corporate bankers. As of January, they own a 5.1% share of the United State’s investment banking market. With the strength in the market, this segment is sure to continue its growth.

For community banking, consumer checking was flat, while business checking rose 3.7% year-over-year. Credit card penetration rose to 33.1%, auto originations rose 8%, and mortgage originations rose 4%. In the wholesale banking segment, commercial card use rose 25%, and total assets under management rose to $451.8 billion. Retail brokerage, wealth management, and retirement accounts reported a record net income up 13%. Retail brokerage accounts assets grew 20%, mainly due to the strong market performance. Wealth management assets rose 3% and IRA assets grew 11%. Wells Fargo has kept these segments growing consistently, and this will be key in keeping their market share rising.

Fee Generation

This bank has one of the most diverse fee generation structures you will find. This is important because it prevents them from relying on any one business segment to generate income. Rather than explain the breakdown in words, take a look at this chart:

The Big 4

JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), and Wells Fargo make up the four largest banks in the United States. JPMorgan Chase was formed when J.P. Morgan & Co. merged with Chase Manhattan in 2000. They have global operations specializing in investment banking, retail and commercial banking, asset management, and private equity. They own the #16 spot on the Fortune 500’s largest corporation list and grew earnings 19.5% in 2012, and they are expected to grow another 8.3% in 2013.

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