A short summary of Wells Fargo magnificent history:
Wells Fargo is known for running a bank like a real business. It began its 15 year stint of spectacular performance in 1983, but the foundation for the shift dates back to as early as the 1970s when then-CEO Dick Cooley began building one of the most talented management teams in the industry(as asserted by Warren Buffett himself).
Wells Fargo approach can be summed up by this one statement : You get the best people, you build them into the best managers in the industry and you accept the fact that they will be CEOs of other companies.
Today, in this financial crisis, Wells Fargo still retains its impeccable management team and enjoys one of the most impressive revenue growth despite all the hoo-hah in the banking industry. To be able to sustain itself is already a feat, to survive through it and continue to prosper is definitely commendable. Probably, that explains why Warren Buffett acquired 304 million shares in early 2008. Because Warren believed in Wells Fargo's potential
Currently, Wells Fargo is still wrestling with the loans it inherited from Wachovia (4th largest bank in the US providing financial services such as asset and wealth management, corporate and investment banking services).
One of the biggest trouble spots of the Wachovia purchase were its option ARM portfolio of loans made under the Pick-a-Pay brand, a group of loans that allowed customers to pay less than the full interest payment on new mortgages.
Apparently the option ARM is being criticised badly in the market, especially among the consumers. It is said that this loan seem to be enticing because of its low initial payments, the ultimate bait. But soon, the payments start to double and becomes bloated over time. As a result, many borrowers were buried because they then realised that they actually had no clue what the loan was all about. Even for those people who could pay the payments, they are essentially paying the minimum amount and this causes the loan balance to increase.
These loans provide monthly payment options for the houses of the public in the United States. However, looking at the sluggish housing market right now, people are naturally opting to pay the minimum amount, hoping that this nightmare will be over soon. But, experts predict that the earliest that will actually happen is in early 2010. Most of the borrowers are not able to sustain themselves till then and thus many are forced to sell their houses at a lower prices before foreclosures set in.
Overall, option ARM is a failure!
But some analysts question why Wells would forgo raising money publicly at a time when peers experienced little deterioration in their stock price -- if any -- after issuing new stock.
As reported, banks like American Express and JPMorgan Chase have already initiated events to raise money to bail themselves out. However, Wells refuses to raise funds despite looking at the success achieved by his peers.
One possible reason could be because it wants to be more independent. I infer that from the fact that they reluctantly accepted the 25 billion fund to aid them during the financial crisis. If not out of desperation, I believe that Wells Fargo will prefer to get out of this mess by themselves, with the help of its management team which is well known for producing syngeristic solutions to any problems they face.
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