If you’re not too hip to the ways of the catastrophic big banking business in the United States, you might have found yourself asking before: how is it that banks like Wells Fargo make money? Well, it shouldn’t be too difficult to grasp that when you lend money out at a higher rate than you borrow it, it’s quite easy to make a killer profit when you have millions and millions of clients at your disposal. The banking industry is one of the most intangible and difficult industries there is out there to understand and moving assets around from here to there where they could be “better used” is just the first piece of the complicated puzzle. If you’re still interested to know just how Wells Fargo became the biggest bank, we can let you in on just a bit of the long story just below.
Regional Acquisitions on a Huge Scale
Wells Fargo as it stands today was created through a merger of very large and powerful regional banks. Bank founders Wells and Fargo created the bank in both of their names back in 1852 to cater to a bursting population of gold miners and hopefuls looking to strike it rich in California. After hundreds of years of constant growth, Wells Fargo merged with Norwest Corporation that had headquarters in Minneapolis. Ten years later, Wells Fargo went on to buy out the well-known east coast banking giant Wachovia. The three companies that turned into one very large bank institution named Wells Fargo now boast more than 70 million clients from one side of the country clean over to the other. Can you see how Wells Fargo became the biggest bank in the nation? They had a plan in place for their domination.
- Well Fargo has three separate categories of operations with wealth, brokerage and retirement coming in at most important, wholesale in at second place and community rounding out third place.
Servicing the Rich and Everyone Else
The words “wealth, brokerage and retirement” is just another way for Wells Fargo to say that the rich and well-off are a first priority for them to service in business. Wells Fargo doesn’t exist simply to shell out advice to its wealthiest clients: Wells Fargo can also help create a foundation or solve inheritance issues before any problems were to occur. Any rich person can tell you that preserving their riches is just as important as the work it to took acquire those very same riches. Wells Fargo is the fifth-largest insurance brokerage in the world yet only 16th in the world for the size of their wealth management operations (well below many heavyweight banks such as ABS AG and Credit Suisse Group that reserve their services to only the most elite clients), but they still netted more than $1.7 billion in profit off of wealth, brokerage and retirement operations in 2013. That might sound like a lot, but you must believe it when we tell you that Wells Fargo’s most important arena of business is where they make the least money, and it just goes to show you: while you make good selling to the rich and powerful, you make even better selling to regular folks with everything to lose. Maybe you’re beginning to see the picture of how Wells Fargo became the biggest bank, but if you’re not, there’s certainly more to it.
Much than a Retail Bank
The word “wholesale” has a different meaning in the banking world than it does anywhere else. Wholesale banking includes selling asset-backed securities for large corporations and other banks, equipment financing, crop insurance, commercial real estate, energy syndicated loans and more. For example, if you’ve got to buy very expensive heavy machinery for your global business and you don’t have the $25 or $35 million it will cost in cash on the spot, Wells Fargo has no problem loaning you the money to pay for it. More than half of the Fortune 500 companies do some kind of wholesale banking with Wells Fargo. When a multinational company with tens of millions of dollars needs a place to store all of that cash, they head to the Wells Fargo wholesale department. Wells Fargo wholesale customers can have no less than $20 million in annual revenues.
Community Last, Yet First
Community banking made Wells Fargo a whopping $12.7 billion in 2013. When you have people all over the country depositing their paychecks and using those debit cards along with the money they make off of credit card clients, it’s very easy to see how Wells Fargo became the biggest bank this country has ever seen.
How Wells Fargo Became the Biggest Bank
Wells Fargo pulls in an average profit of more than $1.6 trillion a year. At this point, it’s no question how Wells Fargo became the biggest bank: they eliminated the competition and made everyone’s finances their business to handle.