In an industry that continues to undergo shocking change, Wells Fargo Bank still remains standing, getting larger and now among the largest banks in the nation, with more than $1 trillion in assets.
Locally, Wells Fargo is much bigger, too, thanks to the closing of this month’s $12.7 billion purchase of Wachovia Bank. That deal pushed Wells, which had been in second place in terms of deposits countywide, to No. 1, with $10.5 billion in assets and 112 branches.
Wells Fargo is also assimilating 1,400 employees of Charlotte, N.C.-based Wachovia in Southern California, bringing the total to 4,500, and making it among the region’s largest employers.
The merger will almost certainly transform Wells into an institution too large to fail, say observers.
“Its deposit base is so substantially larger and its failure would impact so many more people, so yes, I would put them into that category,” said David Ely, finance professor at San Diego State University. “Another problem (if it were to fail) is who would be able to acquire it?”
While the integration of Wachovia has just begun, and few decisions have been made, a local executive says the process should extend for several years.
“This merger will probably look more like the Norwest deal. It will take us about two to three years to integrate this company,” said Tom Wornham, executive vice president and regional manager of Wells Fargo’s Wholesale Banking Group.
Yes, there will be some job cuts, but overall, this merger won’t be too painful locally, because there was little overlap on the retail side, Wornham says.
In San Diego, Wells picked up 11 Wachovia branches in the merger, which added 3,300 branches to its U.S. network of 6,600 branches in 39 states. Only three Wachovia branches are close to existing Wells branches in the county.
Another factor benefiting Wells is that it’s not buying a failed bank, says Wornham.
“We bought a great bank that happened to make a couple of choices that didn’t come out well,” he said. “That makes this acquisition a whole lot easier than buying a broken bank.”
Analysts blame Wachovia’s problems on its 2006 acquisition of Golden West Financial, the Oakland-based parent to World Savings, which made billions in risky mortgages that soured.
Though Wells also wrote down the value of loans in its portfolio, particularly home equity loans, it avoided many pitfalls associated with the subprime mortgage debacle.
“This bank has a culture of disciplined lending. We stayed away from the exotic stuff and stuck with what we knew,” Wornham said.
That means borrowers had to show proof of income and assets, and had to have down payments, he says.
This isn’t the first big merger for Wells, but certainly the largest. When the agreement was struck in October, Wachovia had $760 billion in assets, while Wells had $620 billion.
Wornham says the merger should follow what Wells did in 1998 when it acquired Minneapolis-based Norwest Bank. The merger created a $200 billion bank.
That merger and a 1985 marriage with Crocker National Bank went well.
A merger with First Interstate Bank, based in Los Angeles, in the early 1990s, didn’t go so well, Wornham says.
“We tried to do too many things too fast,” he said.
Meanwhile, Wells is managing Wachovia in parallel with its own bank, with Wachovia’s North Carolina headquarters its East Coast operations center.
There have been no decisions on job cuts, but when announced, Wells will try to find jobs internally for existing workers, Wornham says.
Wells’ successful purchase came after Citigroup had announced the acquisition of Wachovia with the blessing of federal regulators.
Yet, within a week, Wells and Wachovia struck a better deal for taxpayers. Wells is assuming Wachovia’s assets, including its bad loans, while Citigroup’s proposed acquisition capped potential losses, with Washington on the hook for the remainder.
Measured by assets, the new ranking for the nation’s largest banks is Bank of America, JPMorgan Chase Bank, Citigroup and then Wells Fargo.
In San Diego and much of Southern California, Wells now dominates, both in terms of assets and number of branches.
Wornham says that won’t necessarily alter its push for more customers. “Market share is something you rent; you don’t own it,” he said. But deposits are an important aspect of the bank’s plans, he adds.
So with all its heft, and its accepting $25 billion in federal bailout funds, is Wells Fargo still making loans?
Wornham says commercial lending was up 24 percent through the first nine months of last year, and the company grew 15 percent in the same period.
“We’re open for business,” he said.