History of Wells Fargo
Encyclopedia
This article outlines the history of Wells Fargo & Company from its origins to its merger with Norwest
and beyond. The new company chose to retain the name of "Wells Fargo" and so this article also includes the history after the merger.
in early 1848 at Sutter's Mill
near Coloma, California
, financiers and entrepreneurs from all over North America and the world flocked to California, drawn by the promise of huge profits. Vermont native Henry Wells
and New Yorker William G. Fargo watched the California boom economy with keen interest. Before either Wells or Fargo could pursue opportunities offered in the West
, however, they had business to attend to in the East
.
Wells, founder of Wells and Company, and Fargo, a partner in Livingston, Fargo and Company, were major figures in the young and fiercely competitive express industry. In 1849 a new rival, John Butterfield
, founder of Butterfield, Wasson & Company, entered the express business. Butterfield, Wells, and Fargo soon realized that their competition was destructive and wasteful, and in 1850 they decided to join forces to form the American Express
Company.
Soon after the new company was formed, Wells, the first president of American Express
, and Fargo, its vice-president, proposed expanding their business to California. Fearing that American Express's most powerful rival, Adams and Company (later renamed Adams Express Company
), would acquire a monopoly in the West, the majority of the American Express Company's directors balked. Undaunted, Wells and Fargo decided to start their own business while continuing to fulfill their responsibilities as officers and directors of American Express.
association with an initial capitalization of $300,000, to provide express and banking services to California. The original board of directors comprised Wells, Fargo, Johnston Livingston, Elijah P. Williams, Edwin B. Morgan, James McKay
, Alpheus Reynolds, Alexander M.C. Smith and Henry D. Rice. Of these, Wells, Fargo, Livingston and McKay were also on the board of American Express.
Financier Edwin B. Morgan of Aurora, New York
, was appointed Wells Fargo's first president. They commenced business May 20, 1852, the day their announcement appeared in The New York Times. The company's arrival in San Francisco was announced in the Alta California of July 3, 1852. The immediate challenge facing Morgan and Danford N. Barney
, who became president in November 1853, was to establish the company in two highly competitive fields under conditions of rapid growth and unpredictable change. At the time, California regulated neither the banking nor the express industry, so both fields were wide open. Anyone with a wagon and team of horses could open an express company; and all it took to open a bank was a safe and a room to keep it in. Because of its comparatively late entry into the California market, Wells Fargo faced
well-established competition in both fields.
From the beginning the fledgling company offered diverse and mutually supportive services: general forwarding and commissions; buying and selling of gold dust, bullion, and specie (or coin); and freight service between New York and California. Under Morgan's and Barney's direction, express and banking offices were quickly established in key communities bordering the gold fields and a network of freight and messenger routes was soon in place throughout California. Barney's policy of subcontracting express services to established companies, rather than duplicating existing services, was a key factor in Wells Fargo's early success.
on Page, Bacon & Company, a San Francisco bank, began when the collapse of its St. Louis, Missouri
, parent was made public. The run soon spread to other major financial institution
s all of which, including Wells Fargo, were forced to close their doors. The following Tuesday Wells Fargo reopened in sound condition, despite a loss of one-third of its net worth
. Wells Fargo was one of the few financial and express companies to survive the panic, partly because it kept sufficient assets on hand to meet customers' demands rather than transferring all its assets to New York.
Surviving the Panic of 1855 gave Wells Fargo two advantages. First, it faced virtually no competition in the banking and express business in California after the crisis; second, Wells Fargo attained a reputation for dependability and soundness. From 1855 through 1866 Wells Fargo expanded rapidly, becoming the West's all-purpose business, communications, and transportation agent. Under Barney's direction, the company developed its own stagecoach
business, helped start and then took over the Overland Mail Company
, and participated in the Pony Express
. This period culminated with the 'grand consolidation' of 1866 when Wells Fargo consolidated under its own name the ownership and operation of the entire overland mail route from the Missouri River
to the Pacific Ocean and many stagecoach lines in the western states.
In its early days Wells Fargo participated in the staging business to support its banking and express businesses. But the character of Wells Fargo's participation changed when it helped start the Overland Mail Company. Overland Mail was organized in 1857 by men with substantial interests in four of the leading express companies--American Express
, United States Express, Adams Express
, and Wells Fargo. John Butterfield, the third founder of American Express, was made Overland Mail's president. In 1858 Overland Mail was awarded a government contract to carry the U.S. mail
over the southern overland route from St. Louis to California. From the beginning, Wells Fargo was Overland Mail's banker and primary lender.
In 1859 there was a crisis when Congress failed to pass the annual post office appropriation bill
and left the post office with no way to pay for the Overland Mail Company's services. As Overland Mail's indebtedness to Wells Fargo climbed, Wells Fargo became increasingly disenchanted with Butterfield's management strategy. In March 1860 Wells Fargo threatened to foreclose
. As a compromise, Butterfield resigned as president of Overland Mail and control of the company passed to Wells Fargo. Wells Fargo, however, did not acquire ownership of the company until the consolidation of 1866.
Wells Fargo's involvement in Overland Mail led to its participation in the Pony Express in the last six of the express's 18 months of existence. Russell, Majors and Waddell
launched the privately owned and operated Pony Express. By the end of 1860, the Pony Express was in deep financial trouble; its fees did not cover its costs and, without government subsidies
and lucrative mail contracts, it could not make up the difference. After Overland Mail, by then controlled by Wells Fargo, was awarded a $1 million government contract in early 1861 to provide daily mail service over a central route (the Civil War
had forced the discontinuation of the southern line), Wells Fargo took over the western portion of the Pony Express route from Salt Lake City
to San Francisco. Russell, Majors & Waddell continued to operate the eastern leg from Salt Lake City to St. Joseph, Missouri, under subcontract.
The Pony Express ended when Transcontinental Telegraph
lines were completed in late 1861. Overland mail and express services were continued, however, by the coordinated efforts of several companies. From 1862 to 1865 Wells Fargo operated a private express line between San Francisco and Virginia City, Nevada
; Overland Mail stagecoaches covered the route from Carson City, Nevada
, to Salt Lake City; and Ben Holladay
, who had acquired the business of Russell, Majors & Waddell, ran a stagecoach line from Salt Lake City to Missouri.
The Wells Fargo stagecoach empire was short lived. Although the Central Pacific Railroad
, already operating over the Sierra Mountains
to Reno, Nevada
, carried Wells Fargo's express, the company did not have an exclusive contract. Moreover, the Union Pacific Railroad
was encroaching on the territory served by Wells Fargo stagelines. Ashbel H. Barney, Danforth Barney's brother and cofounder of United States Express Company, replaced McLane as president in 1869. The transcontinental railroad
was completed in that year, causing the stage business to dwindle and Wells Fargo's stock to fall.
promoters, led by Lloyd Tevis
, organized the Pacific Union Express Company to compete with Wells Fargo. The Tevis group also started buying up Wells Fargo stock at its sharply reduced price. On October 4, 1869, William Fargo, his brother Charles, and Ashbel Barney met with Tevis and his associates in Omaha, Nebraska
.. There Wells Fargo agreed to buy the Pacific Union Express Company at a much-inflated price and received exclusive express rights for ten years on the Central Pacific Railroad and a much needed infusion of capital. All of this, however, came at a price: control of Wells Fargo shifted to Tevis.
Ashbel Barney resigned in 1870 and was replaced as president by William Fargo. In 1872 William Fargo also resigned to devote full time to his duties as president of American Express. Lloyd Tevis
replaced Fargo as president of Wells Fargo.
line, using more than a dozen railroads. The company first gained access to the lucrative East Coast markets beginning in 1888; successfully promoted the use of refrigerated freight cars
in California; had opened branch banks in Virginia City
, Carson City, and Salt Lake City, Utah
by 1876; and opened a branch bank in New York City by 1880. Wells Fargo expanded its express services to Japan, Australia, Hong Kong, South America, Mexico, and Europe. In 1885 Wells Fargo also began selling money order
s. In 1892 John J. Valentine, Sr.
, a long time Wells Fargo employee, was made president of the company.
Until 1876, both banking and express operations of Wells Fargo in San Francisco were carried on in the same building at the northeast corner of California and Montgomery Streets. In 1876 the locations were separated, with the banking department moving to a building at the northeast corner of California and Sansome Streets. The bank moved in 1891 to the corner of Sansome and Market Streets, where it remained until 1905.
Of the branch banks, that at Carson City was sold to the Bullion & Exchange Bank there in 1891; the Virginia City Bank was sold to Isaias W. Hellman
's Nevada Bank in 1891; and the Salt Lake City Bank was sold to the Walker Brothers there in 1894. The New York City branch remained until the Wells Fargo & Company bank merged with Hellman's bank in 1905.
In 1905 Wells Fargo separated its banking and express operations. Edward H. Harriman, a prominent financier and dominant figure in the Southern Pacific
and Union Pacific railroads, had gained control of Wells Fargo. Harriman reached an agreement with Isaias W. Hellman
, a Los Angeles banker, to merge Wells Fargo's bank with the Nevada National Bank, founded in 1875 by the Nevada silver moguls James G. Fair
, James Flood
, John Mackay
, and William O'Brien
, to form the Wells Fargo Nevada National Bank.
The Wells Fargo Nevada National Bank opened its doors on April 22, 1905, with the following board of directors: Isaias W. Hellman, president; Isaias W. Hellman, Jr. and F.A. Bigelow, vice presidents; Frederick L. Lipman, cashier; Frank B. King, George Grant, William McGavin and John E. Miles, assistant cashiers; E.H. Harriman, William F. Herrin and Dudley Evans, directors. By 1906 Levi Strauss
had also joined the board.
Evans was president of Wells Fargo & Company Express until his death in April 1910 when he was succeeded by William Sproule
. Burns D. Caldwell was elected president in October 1911. Wells Fargo & Company Express continued its operations until 1918 when the government forced the company to consolidate its domestic operations with those of the other major express companies. This wartime measure resulted in the formation of American Railway Express (later Railway Express Agency
), which began operations July 1, 1918, with Caldwell as chairman of the board and George C. Taylor of American Express as president. Wells Fargo continued some overseas express operations until the 1960s; as an operator of bank armored cars, it did business, in turn, as Wells Fargo Armored Security Corporation, Wells Fargo Armored Service and, since 1997, Loomis Fargo & Company
.
The two years following the 1905 merger tested the newly reorganized bank's, and Hellman's, capacities. In April 1906 the San Francisco earthquake
and fire destroyed most of the city's business district, including the Wells Fargo Nevada National Bank building. The bank's vaults and credit were left intact, however, and the bank committed its resources to restoring San Francisco. Money flowed into San Francisco from around the country to support rapid reconstruction of the city. As a result, the bank's deposits increased dramatically, from $16 million to $35 million in 18 months.
The Panic of 1907
,which began in New York in October, followed on the heels of this frenetic reconstruction period. Several New York banks, deeply involved in efforts to manipulate the stock market
, experienced a run when speculators were unable to pay for stock they had purchased. The run quickly spread to other New York banks, which were forced to suspend payment, and then to Chicago and the rest of the country. Wells Fargo lost $1 million in deposits weekly for six weeks in a row. The years following the panic were committed to a slow and painstaking recovery.
Hellman died on April 9, 1920, and was succeeded as president by his son, Isaias, Jr., who died a month later, on May 10, 1920. Frederick L. Lipman was then elected president. Lipman's management strategy included both expansion and the conservative banking practices of his predecessors. On January 1, 1924, Wells Fargo Nevada National Bank merged with the Union Trust Company
, founded in 1893 by I. W. Hellman, to form the Wells Fargo Bank & Union Trust Company. The bank prospered during the 1920s and Lipman's careful reinvestment of the bank's earnings placed the bank in a good position to survive the Great Depression
. Following the collapse of the banking system in 1933, the company was able to extend immediate and substantial help to its troubled correspondents.
Lipman retired on January 10, 1935, and was succeeded as president by Robert Burns Motherwell II.
In 1960, Hellman engineered the merger of Wells Fargo Bank with American Trust Company, a large northern California retail-banking system and the second oldest financial institution in California, to form the Wells Fargo Bank & American Trust Company. Ransom M. Cook was president with Hellman as chairman. The same was again shortened to Wells Fargo Bank in 1962.
In 1964 H. Stephen Crane was elected president with Cook as chairman. This merger of California's two oldest banks created the 11th largest banking institution in the United States. Following the merger, Wells Fargo's involvement in international banking greatly accelerated. The company opened a Tokyo
representative office and, eventually, additional branch offices in Seoul
, Hong Kong
, and Nassau
, as well as representative offices in Mexico City
, São Paulo
, Caracas
, Buenos Aires
, and Singapore
.
On November 10, 1966, Wells Fargo's board of directors elected Richard P. Cooley president and CEO. At 42, Cooley was one of the youngest men to head a major bank. Stephen Chase became chairman. Cooley's rise to the top had been a quick one. Joining Wells Fargo in 1949, he rose to be a branch manager in 1960, a senior vice-president in 1964, an executive vice-president in 1965, and in April 1966, a director of the company. A year later Cooley enticed Ernest C. Arbuckle
, dean of the Stanford Graduate School of Business
, to join Wells Fargo's board as chairman when Chase retired in January 1968.
In 1967, Wells Fargo, together with three other California banks, introduced a Master Charge card
(now MasterCard
) to its customers as part of its plan to challenge Bank of America
in the consumer lending business. Initially, 30,000 merchants participated in the plan.
Cooley's early strategic initiatives were in the direction of making Wells Fargo's branch network statewide. The Federal Reserve had blocked the bank's earlier attempts to acquire an established bank in southern California. As a result, Wells Fargo had to build its own branch system. This expansion was costly and depressed the bank's earnings in the later 1960s. In 1968 Wells Fargo changed from a state to a federal banking charter, in part so that it could set up subsidiaries for businesses such as equipment leasing and credit card
s rather than having to create special divisions within the bank. The charter conversion was completed August 15, 1968, with the bank renamed Wells Fargo Bank, N.A. The bank successfully completed a number of acquisitions during 1968 as well. The Bank of Pasadena, First National Bank of Azusa, Azusa Valley Savings Bank, and Sonoma Mortgage Corporation were all integrated into Wells Fargo's operations.
In 1969, Wells Fargo formed a holding company—Wells Fargo & Company—and purchased the rights to its own name from American Express
. Although the bank always had the right to use the name for banking, American Express had retained the right to use it for other financial services. Wells Fargo could now use its name in any area of financial services it chose (except the armored car trade—those rights had been sold to another company two years earlier).
to lend at higher rates of interest to businesses and individuals.
In 1973, a tighter monetary policy
made this arrangement less profitable, but Wells Fargo saw an opportunity in the new interest limits on passbook savings. When the allowable rate increased to 5%, Wells Fargo was the first to begin paying the higher rate. The bank attracted many new customers as a result, and within two years its market share of the retail savings trade increased more than two points, a substantial increase in California's competitive banking climate. With its increased deposits, Wells Fargo was able to reduce its borrowings from the Federal Reserve, and the 0.5% premium it paid for deposits was more than made up for by the savings in interest payments. In 1975, the rest of the California banks instituted a 5% passbook savings rate
, but they failed to recapture their market share.
In 1973, the bank made a number of key policy changes. Wells Fargo decided to go after the medium-sized corporate and consumer loan businesses, where interest rate
s were higher. Slowly, Wells Fargo eliminated its excess debt, and by 1974, its balance sheet
showed a much healthier bank. Under Carl E. Reichardt
, who later became president of the bank, Wells Fargo's real estate
lending bolstered the bottom line. The bank focused on California's flourishing home and apartment mortgage business and left risky commercial developments to other banks.
While Wells Fargo's domestic operations were making it the envy of competitors in the early 1970s, its international operations were less secure. The bank's 25% holding in Allgemeine Deutsche Credit-Anstalt, a West German
bank, cost Wells Fargo $4 million due to bad real estate loans. Another joint banking venture, the Western American Bank, which was formed in London
in 1968 with several other American banks, was hard hit by the recession of 1974 and failed. Unfavorable exchange rates hit Wells Fargo for another $2 million in 1975. In response, the bank slowed its overseas expansion program and concentrated on developing overseas branches of its own rather than tying itself to the fortunes of other banks.
Wells Fargo's investment services became a leader during the late 1970s. According to Institutional Investor
, Wells Fargo garnered more new accounts from the 350 largest pension funds between 1975 and 1980 than any other money manager. The bank's aggressive marketing of its services included seminars explaining modern portfolio theory
. Wells Fargo's early success, particularly with indexing—weighting investments to match the weightings of the Standard and Poor's 500
—brought many new clients aboard.
Arbuckle retired as chairman at the end of 1977. Cooley assumed the chairmanship in January 1978 with Reichardt succeeding him as president.
Meanwhile, Wells Fargo secured a major legal victory that would guarantee its long-term prosperity in its home market of California. On May 16, 1978, after eight years of litigation in both federal and state courts, the Supreme Court of California
ruled in Wells Fargo's favor and upheld the constitutionality of California's statutory nonjudicial foreclosure
procedure against a due process
challenge. Thus, Wells Fargo could continue to provide credit to borrowers at very affordable rates (nonjudicial foreclosure is relatively swift and inexpensive). Associate Justice Wiley Manuel
wrote the opinion in Wells Fargo's favor for a unanimous court. The victory was especially remarkable since during the tenure of Chief Justice Rose Bird
(1977-1987), the Court was notorious for its pro-plaintiff and anti-business bias.
By the end of the 1970s, Wells Fargo's overall growth had slowed somewhat. Earnings were only up 12% in 1979, compared with an average of 19% between 1973 and 1978. In 1980 Cooley told Fortune
, "It's time to slow down. The last five years have created too great a strain on our capital, liquidity, and people."
scheme by a Wells Fargo employee, one of the largest embezzlements ever. L. Ben Lewis, an operations officer at Wells Fargo's Beverly Drive branch, pleaded guilty to the charges. Lewis had routinely written phony debit and credit receipts to pad the accounts of his cronies, and received a $300,000 cut in return.
The early 1980s saw a sharp decline in Wells Fargo's performance. Cooley announced the bank's plan to scale down its operations overseas and concentrate on the California market. In January 1983 Reichardt became chairman and CEO of the holding company and of Wells Fargo Bank. Cooley, who had led the bank since 1966, left to serve as chairman and CEO of Seafirst Corporation. Reichardt relentlessly attacked costs, eliminating 100 branches and cutting 3,000 jobs. He also closed down the bank's European offices at a time when most banks were expanding their overseas networks. Paul Hazen
succeeded Reichardt as president in 1984.
Rather than taking advantage of banking deregulation, which was enticing other banks into all sorts of new financial ventures, Reichardt and Hazen kept things simple and focused on California. Reichardt and Hazen beefed up Wells Fargo's retail network through improved services such as an extensive automatic teller machine
network, and through active marketing of those services.
from Britain's Midland Bank
for about $1.1 billion. The acquisition was touted as a brilliant maneuver by Wells Fargo. Not only did Wells Fargo double its branch network in southern California and increase its consumer loan portfolio by 85%, but the bank did it at an unheard of price, paying about 127% of book value
at a time when American banks were generally going for 190%. In addition, Midland kept about $3.5 billion in loans of dubious value.
Crocker doubled the strength of Wells Fargo's primary market, making Wells Fargo the tenth largest bank in the United States. Furthermore, the integration of Crocker's operations into Wells Fargo's went considerably smoother than expected. In the 18 months after the acquisition, 5,700 jobs were trimmed from the banks' combined staff, 120 redundant branches closed, and costs were cut considerably.
Before and after the acquisition, Reichardt and Hazen aggressively cut costs and eliminated unprofitable portions of Wells Fargo's business. During the three years before the acquisition, Wells Fargo sold its realty-services subsidiary, its residential-mortgage service operation, and its corporate trust and agency businesses. Over 70 domestic bank branches and 15 foreign branches were also closed during this period. In 1987, Wells Fargo set aside large reserves to cover potential losses on its Latin American loans, most notably to Brazil and Mexico. This caused its net income to drop sharply, but by mid-1989 the bank had sold or written off all of its medium- and long-term Third World debt.
Concentrating on California was a very successful strategy for Wells Fargo. But after its acquisition of Barclays Bank
of California in May 1988, few merger targets remained. One region Wells Fargo considered expanding into in the late 1980s was Texas, where it made an unsuccessful bid for Dallas's FirstRepublic Corporation in 1988. In early 1989 Wells Fargo expanded into full-service brokerage and launched a joint venture with the Japanese company Nikko Securities called Wells Fargo Nikko Investment Advisors. Also in 1989, the company divested itself of its last international offices, further tightening its focus on domestic commercial and consumer banking activities.
On August 24, 1989, Wells Fargo obtained another important legal victory from the California Court of Appeal for the First District. In an opinion by Acting Presiding Justice William Newsom
(father of politician Gavin Newsom
), the court held that Wells Fargo was not subject to tort liability for breach of the implied covenant of good faith and fair dealing
just because it had taken a "hard line" approach in workout negotiations with its borrowers and refused to modify or forbear enforcing the terms of the relevant promissory note
s. The borrowers had narrowly avoided foreclosure only by liquidating a large amount of assets at fire sale
prices to raise cash and pay off their loans in full. By barring recovery against Wells Fargo for the losses incurred by borrowers as a result of its hardball tactics, the court enabled Wells Fargo to continue providing credit at low interest rates, secure in the knowledge that it could aggressively pursue defaulting borrowers without risking tort liability.
with technical innovations. The bank began selling stamps through its automated teller machine
s (ATMs), for example, and in 1995 was partnering with CyberCash
, a software startup company, to begin offering its services over the Internet
.
After dipping in 1991, Wells's net income surged to $283 million in 1992 before climbing briskly to $841 million in 1994. At the end of 1994, after 12 years of service during which Wells Fargo & Co. investors enjoyed a 1,781 percent return
, Reichardt stepped aside as head of the company. He was succeeded by Hazen. Wells Fargo Bank entered 1995 as the second largest bank in California and the seventh largest in the United States, with $51 billion in assets. Under Hazen, the bank continued to improve its loan portfolio, boost service offerings, and cut operating costs. During 1995, Wells Fargo Nikko Investment Advisors was sold to Barclays PLC
for $440 million.
During 1995, Wells Fargo initiated discussions to merge with American Express. This merger would have been notable, since both companies were started originally by the same persons, Wells and Fargo. It was thought that this merger could give Wells a more global presence. However, egos clashed within the companies as to who would run the combined firm. One issue centered around technology. Even though American Express was going through a very expensive and ambitious technological upgrade, it still would have lagged greatly behind Wells Fargo's systems, posing tremendous integration risk. Also, there would have been regulatory issues, especially since American Express owned an insurance company, Investors Diversified Services (doing business as American Express Financial Advisors), and this would have had to been divested. In the end it was decided not to go through with the merger.
, a Los Angeles
-based bank holding company with $58 billion in assets and 1,133 offices in California and 12 other western states. Wells Fargo had long been interested in acquiring First Interstate and made a hostile bid for First Interstate in October 1995 initially valued at $10.8 billion.
Other banks came forward as potential "white knights
", including Norwest
, Bank One Corporation
, and First Bank System. The latter made a serious bid for First Interstate, with the two banks reaching a formal merger agreement in November valued initially at $10.3 billion. But First Bank ran into regulatory difficulties with the way it had structured its offer and was forced to bow out of the takeover battle in mid-January 1996. Talks between Wells Fargo and First Interstate then led within days to a merger agreement. When completed in April 1996, following an antitrust review that stipulated the selling off of 61 bank branches in California, the acquisition was valued at $11.3 billion. The newly enlarged Wells Fargo had assets of about $116 billion, loans of $72 billion, and deposits of $89 billion. It ranked as the ninth largest bank in the United States.
Wells Fargo aimed to generate $800 million in annual operational savings out of the combined bank within 18 months, and immediately upon completion of the takeover announced a workforce reduction
of 16 percent, or 7,200 positions, by the end of 1996. The merger, however, quickly turned disastrous as efforts to consolidate operations, which were placed on an ambitious timetable, led to major problems. Computer system glitches led to lost customer deposits and bounced checks. Branch closures led to long lines at the remaining branches. There was also a culture clash before the two banks and their customers. Wells Fargo had been at the forefront of high-tech banking, emphasizing ATMs and online banking
, as well as the small-staffed supermarket branches, at the expense of traditional branch banking. By contrast, First Interstate had emphasized personalized relationship banking, and its customers were used to dealing with tellers and bankers not machines. This led to a mass exodus of First Interstate management talent and to the alienation of numerous customers, many of whom took their banking business elsewhere.
, suffered from this botched merger, leaving the bank vulnerable to being taken over itself as banking consolidation continued unabated. This time, Wells Fargo entered into a friendly merger agreement with Norwest
, which was announced in June 1998. The deal was completed in November of that year and was valued at $31.7 billion, with Wells Fargo merging into Norwest. Norwest then changed its name to Wells Fargo & Company because of the latter's greater public recognition and the former's regional connotations. Norwest also relocated the headquarters of the new Wells Fargo to San Francisco based on the bank's $54 billion in deposits in California
versus $13 billion in Minnesota
. The head of Wells Fargo, Paul Hazen, was named chairman of the new company, while the head of Norwest, Richard Kovacevich
, became president and CEO. The new Wells Fargo started off as the nation's seventh largest bank with $196 billion in assets, $130 billion in deposits, and 15 million retail banking, finance, and mortgage customers. The banking operation included more than 2,850 branches in 21 states from Ohio
to California. Norwest Mortgage had 824 offices in 50 states, while Norwest Financial had nearly 1,350 offices in 47 states, ten provinces of Canada
, the Caribbean
, Latin America
, and elsewhere.
Already president and CEO, Kovacevich became chairman as well when Hazen retired in May 2001. Another former Norwest executive, John Stumpf
, succeeded him as president in August 2005 and as CEO in June 2007; Kovacevich continues to serve as chairman today.
, through the buyout of Michigan Financial Corporation ($975 million in assets), and Alaska
, through the purchase of National Bancorp of Alaska Inc. ($3 billion in assets). Wells Fargo also acquired First Commerce Bancshares
, Inc. of Lincoln, Nebraska
, which had $2.9 billion in assets, and a Seattle-based regional brokerage firm, Ragen MacKenzie Group Incorporated. In October 2000 Wells Fargo made its largest deal since the Norwest-Wells Fargo merger when it paid nearly $3 billion in stock for First Security Corporation
, a $23 billion bank holding company based in Salt Lake City, Utah
, and operating in seven western states. Wells Fargo thereby became the largest banking franchise in terms of deposits in New Mexico
, Nevada
, Idaho
, and Utah; as well as the largest banking franchise in the West overall.
Following completion of the First Security acquisition, Wells Fargo had total assets of $263 billion with some 140,000 employees. It is the only bank in the United States to be rated AAA by Standard & Poor's
, and was named "The World's Safest US Bank" based on long-term foreign currency ratings from Fitch Ratings
and Standard & Poor's and long-term bank deposit rankings from Moody's Investor Service for the year 2007.
Its strategy echoed that of the old Norwest: making selective acquisitions and pursuing cross-selling
of an ever-wider array of credit and investment products to its vast customer base. Under Kovacevich's leadership, Wells Fargo was posting smart growth
in revenues and profits and was the envy of the banking industry for the smooth way in which it had completed the Norwest-Wells Fargo merger as well as its knack for integrating smaller banks. There was speculation that the next 'stage' for Wells Fargo might involve a major merger with an eastern bank that would create a nationwide retail bank or a merger that would bring the bank one of the two other things it did not have—a global presence and a large investment banking
arm, but Kovacevich seemed content with the concentration on western U.S. banking and the broader finance and mortgage operations.
Corporation. Although at first inclined to accept a September 29 agreement brokered by the Federal Deposit Insurance Corporation
to sell its banking operations to Citigroup
for $2.2 billion, on October 3 Wachovia accepted Wells Fargo's offer to buy all of the financial institution for $15.1 billion. Citigroup on October 9 ended its effort to block the sale of Wachovia to Wells Fargo, though it still threatened to sue both for $60 billion.
Acquisition of Wachovia would expand Wells Fargo's operations into nine Eastern and Southern states. There would be big overlaps in operations only in California and Texas, much less so in Nevada, Arizona, and Colorado. Merger of Wells Fargo and Wachovia would create a superbank with $1.4 trillion in assets and 48 million customers. The proposed merger was approved by the Federal Reserve as a $12.2 billion all-stock transaction on October 12 in an unusual Sunday order. The acquisition was completed on January 1, 2009.
Such a smoothly fitting merger of Wachovia with a strong bank like Wells Fargo was attractive, especially as it did not require government assistance. Wells Fargo was more profitable than most of the 'megabanks' that had formed in the 1990s, with the reason perhaps lying in its more modest ambitions.
Norwest
Norwest Corporation was a banking and financial services company based in Minneapolis, Minnesota, United States. In 1998, it merged with Wells Fargo & Co. and since that time has traded under the Wells Fargo name.-Early formation:...
and beyond. The new company chose to retain the name of "Wells Fargo" and so this article also includes the history after the merger.
- For a general overview of the activities of the current company see the main entry under Wells FargoWells FargoWells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...
.
Origins
Soon after gold was discoveredCalifornia Gold Rush
The California Gold Rush began on January 24, 1848, when gold was found by James W. Marshall at Sutter's Mill in Coloma, California. The first to hear confirmed information of the gold rush were the people in Oregon, the Sandwich Islands , and Latin America, who were the first to start flocking to...
in early 1848 at Sutter's Mill
Sutter's Mill
Sutter's Mill was a sawmill owned by 19th century pioneer John Sutter in partnership with James W. Marshall. It was located in Coloma, California, at the bank of the South Fork American River...
near Coloma, California
Coloma, California
Coloma is a census-designated place in El Dorado County, California, USA. It is approximately northeast of Sacramento, California. Coloma is most noted for being the site where James W. Marshall first discovered gold in California, at Sutter's Mill on January 24, 1848, leading to the California...
, financiers and entrepreneurs from all over North America and the world flocked to California, drawn by the promise of huge profits. Vermont native Henry Wells
Henry Wells
Henry Wells was an American businessman important in the history of both the American Express Company and Wells Fargo & Company.-Early life:...
and New Yorker William G. Fargo watched the California boom economy with keen interest. Before either Wells or Fargo could pursue opportunities offered in the West
Western United States
.The Western United States, commonly referred to as the American West or simply "the West," traditionally refers to the region comprising the westernmost states of the United States. Because the U.S. expanded westward after its founding, the meaning of the West has evolved over time...
, however, they had business to attend to in the East
Eastern United States
The Eastern United States, the American East, or simply the East is traditionally defined as the states east of the Mississippi River. The first two tiers of states west of the Mississippi have traditionally been considered part of the West, but can be included in the East today; usually in...
.
John Warren Butterfield
John Warren Butterfield was an operator of stagecoach and freight lines in the mid-19th century in the American Northeast and Southwest. He founded companies that became American Express and Wells Fargo. Butterfield also founded the Butterfield Overland Express and from 1858 to 1861 operated a...
, founder of Butterfield, Wasson & Company, entered the express business. Butterfield, Wells, and Fargo soon realized that their competition was destructive and wasteful, and in 1850 they decided to join forces to form the American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
Company.
Soon after the new company was formed, Wells, the first president of American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
, and Fargo, its vice-president, proposed expanding their business to California. Fearing that American Express's most powerful rival, Adams and Company (later renamed Adams Express Company
Adams Express Company
The Adams Express Company is a publicly traded diversified equity fund that traces its roots to a 19th century freight and cargo transport company. The Company uses a conservative investment philosophy, and the portfolio is managed with the expectation that it will generate solid returns with...
), would acquire a monopoly in the West, the majority of the American Express Company's directors balked. Undaunted, Wells and Fargo decided to start their own business while continuing to fulfill their responsibilities as officers and directors of American Express.
Foundation of Wells Fargo
On March 18, 1852, they organized Wells, Fargo & Company, a joint-stockJoint stock company
A joint-stock company is a type of corporation or partnership involving two or more individuals that own shares of stock in the company...
association with an initial capitalization of $300,000, to provide express and banking services to California. The original board of directors comprised Wells, Fargo, Johnston Livingston, Elijah P. Williams, Edwin B. Morgan, James McKay
James McKay
James McKay was a fur trader, pioneer and pre Canadian confederation politician and interpreter.-Early life:McKay was born of a Scottish father and First Nations mother at the Hudson's Bay Company's Edmonton House...
, Alpheus Reynolds, Alexander M.C. Smith and Henry D. Rice. Of these, Wells, Fargo, Livingston and McKay were also on the board of American Express.
Financier Edwin B. Morgan of Aurora, New York
Aurora, Cayuga County, New York
Aurora is a village and college town in Cayuga County, in the Town of Ledyard, north of Ithaca, New York, United States. The village had a population of 720 at the 2000 census, of which more than 400 were college students....
, was appointed Wells Fargo's first president. They commenced business May 20, 1852, the day their announcement appeared in The New York Times. The company's arrival in San Francisco was announced in the Alta California of July 3, 1852. The immediate challenge facing Morgan and Danford N. Barney
Danford N. Barney
Danford Newton Barney was an American expressman who served as president of Wells Fargo & Company from 1853 to 1866....
, who became president in November 1853, was to establish the company in two highly competitive fields under conditions of rapid growth and unpredictable change. At the time, California regulated neither the banking nor the express industry, so both fields were wide open. Anyone with a wagon and team of horses could open an express company; and all it took to open a bank was a safe and a room to keep it in. Because of its comparatively late entry into the California market, Wells Fargo faced
well-established competition in both fields.
From the beginning the fledgling company offered diverse and mutually supportive services: general forwarding and commissions; buying and selling of gold dust, bullion, and specie (or coin); and freight service between New York and California. Under Morgan's and Barney's direction, express and banking offices were quickly established in key communities bordering the gold fields and a network of freight and messenger routes was soon in place throughout California. Barney's policy of subcontracting express services to established companies, rather than duplicating existing services, was a key factor in Wells Fargo's early success.
Expansion into Overland Mail services
In 1855 Wells Fargo faced its first crisis when the California banking system collapsed as a result of unsound speculation. A runBank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
on Page, Bacon & Company, a San Francisco bank, began when the collapse of its St. Louis, Missouri
St. Louis, Missouri
St. Louis is an independent city on the eastern border of Missouri, United States. With a population of 319,294, it was the 58th-largest U.S. city at the 2010 U.S. Census. The Greater St...
, parent was made public. The run soon spread to other major financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s all of which, including Wells Fargo, were forced to close their doors. The following Tuesday Wells Fargo reopened in sound condition, despite a loss of one-third of its net worth
Net worth
In business, net worth is the total assets minus total outside liabilities of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time...
. Wells Fargo was one of the few financial and express companies to survive the panic, partly because it kept sufficient assets on hand to meet customers' demands rather than transferring all its assets to New York.
Surviving the Panic of 1855 gave Wells Fargo two advantages. First, it faced virtually no competition in the banking and express business in California after the crisis; second, Wells Fargo attained a reputation for dependability and soundness. From 1855 through 1866 Wells Fargo expanded rapidly, becoming the West's all-purpose business, communications, and transportation agent. Under Barney's direction, the company developed its own stagecoach
Stagecoach
A stagecoach is a type of covered wagon for passengers and goods, strongly sprung and drawn by four horses, usually four-in-hand. Widely used before the introduction of railway transport, it made regular trips between stages or stations, which were places of rest provided for stagecoach travelers...
business, helped start and then took over the Overland Mail Company
Butterfield Overland Mail
The Butterfield Overland Mail Trail was a stagecoach route in the United States, operating from 1857 to 1861. It was a conduit for the U.S. mail from two eastern termini, Memphis, Tennessee and St. Louis, Missouri, meeting Fort Smith, Arkansas, and continuing through Indian Territory, New Mexico,...
, and participated in the Pony Express
Pony Express
The Pony Express was a fast mail service crossing the Great Plains, the Rocky Mountains, and the High Sierra from St. Joseph, Missouri, to Sacramento, California, from April 3, 1860 to October 1861...
. This period culminated with the 'grand consolidation' of 1866 when Wells Fargo consolidated under its own name the ownership and operation of the entire overland mail route from the Missouri River
Missouri River
The Missouri River flows through the central United States, and is a tributary of the Mississippi River. It is the longest river in North America and drains the third largest area, though only the thirteenth largest by discharge. The Missouri's watershed encompasses most of the American Great...
to the Pacific Ocean and many stagecoach lines in the western states.
In its early days Wells Fargo participated in the staging business to support its banking and express businesses. But the character of Wells Fargo's participation changed when it helped start the Overland Mail Company. Overland Mail was organized in 1857 by men with substantial interests in four of the leading express companies--American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
, United States Express, Adams Express
Adams Express Company
The Adams Express Company is a publicly traded diversified equity fund that traces its roots to a 19th century freight and cargo transport company. The Company uses a conservative investment philosophy, and the portfolio is managed with the expectation that it will generate solid returns with...
, and Wells Fargo. John Butterfield, the third founder of American Express, was made Overland Mail's president. In 1858 Overland Mail was awarded a government contract to carry the U.S. mail
United States Postal Service
The United States Postal Service is an independent agency of the United States government responsible for providing postal service in the United States...
over the southern overland route from St. Louis to California. From the beginning, Wells Fargo was Overland Mail's banker and primary lender.
In 1859 there was a crisis when Congress failed to pass the annual post office appropriation bill
Appropriation bill
An appropriation bill or running bill is a legislative motion which authorizes the government to spend money. It is a bill that sets money aside for specific spending...
and left the post office with no way to pay for the Overland Mail Company's services. As Overland Mail's indebtedness to Wells Fargo climbed, Wells Fargo became increasingly disenchanted with Butterfield's management strategy. In March 1860 Wells Fargo threatened to foreclose
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
. As a compromise, Butterfield resigned as president of Overland Mail and control of the company passed to Wells Fargo. Wells Fargo, however, did not acquire ownership of the company until the consolidation of 1866.
Wells Fargo's involvement in Overland Mail led to its participation in the Pony Express in the last six of the express's 18 months of existence. Russell, Majors and Waddell
Russell, Majors and Waddell
Russell, Majors and Waddell was a business partnership, based in Lexington, Missouri, between William Hepburn Russell, Alexander Majors, and William B. Waddell. It operated various transportation and communications services in the American West in the 1850s and early 1860s, including stagecoach...
launched the privately owned and operated Pony Express. By the end of 1860, the Pony Express was in deep financial trouble; its fees did not cover its costs and, without government subsidies
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
and lucrative mail contracts, it could not make up the difference. After Overland Mail, by then controlled by Wells Fargo, was awarded a $1 million government contract in early 1861 to provide daily mail service over a central route (the Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
had forced the discontinuation of the southern line), Wells Fargo took over the western portion of the Pony Express route from Salt Lake City
Salt Lake City, Utah
Salt Lake City is the capital and the most populous city of the U.S. state of Utah. The name of the city is often shortened to Salt Lake or SLC. With a population of 186,440 as of the 2010 Census, the city lies in the Salt Lake City metropolitan area, which has a total population of 1,124,197...
to San Francisco. Russell, Majors & Waddell continued to operate the eastern leg from Salt Lake City to St. Joseph, Missouri, under subcontract.
The Pony Express ended when Transcontinental Telegraph
First Transcontinental Telegraph
The First Transcontinental Telegraph was a milestone in electrical engineering and in the formation of the United States of America. It served as the only method of near-instantaneous communication between the east and west coasts during the 1860s....
lines were completed in late 1861. Overland mail and express services were continued, however, by the coordinated efforts of several companies. From 1862 to 1865 Wells Fargo operated a private express line between San Francisco and Virginia City, Nevada
Virginia City, Nevada
Virginia City is a census-designated place that is the county seat of Storey County, Nevada. It is part of the Reno–Sparks Metropolitan Statistical Area. The population was 855 at the 2010 Census.- History :...
; Overland Mail stagecoaches covered the route from Carson City, Nevada
Carson City, Nevada
The Consolidated Municipality of Carson City is the capital of the state of Nevada. The words Consolidated Municipality refer to a series of changes in 1969 which abolished Ormsby County and merged all the settlements contained within its borders into Carson City. Since that time Carson City has...
, to Salt Lake City; and Ben Holladay
Ben Holladay
Benjamin "Ben" Holladay was an American transportation businessman known as the "Stagecoach King" until his routes were taken over by Wells Fargo in 1866...
, who had acquired the business of Russell, Majors & Waddell, ran a stagecoach line from Salt Lake City to Missouri.
Takeover of Holladay Overland
By 1866, Holladay had built a staging empire with lines in eight western states and was challenging Wells Fargo's supremacy in the West. A showdown between the two transportation giants in late 1866 resulted in Wells Fargo's purchase of Holladay's operations. The 'grand consolidation' spawned a new enterprise that operated under the Wells Fargo name and combined the Wells Fargo, Holladay, and Overland Mail lines and became the undisputed stagecoach leader. Barney resigned as president of Wells Fargo to devote more time to his own business, the United States Express Company; Louis McLane replaced him when the merger was completed on November 1, 1866.The Wells Fargo stagecoach empire was short lived. Although the Central Pacific Railroad
Central Pacific Railroad
The Central Pacific Railroad is the former name of the railroad network built between California and Utah, USA that formed part of the "First Transcontinental Railroad" in North America. It is now part of the Union Pacific Railroad. Many 19th century national proposals to build a transcontinental...
, already operating over the Sierra Mountains
Sierra mountains
Sierra is a Spanish word meaning "saw". The corresponding word in Portuguese and Latin is serra. This name is used for various mountain ranges in Spanish-speaking and other countries ....
to Reno, Nevada
Reno, Nevada
Reno is the county seat of Washoe County, Nevada, United States. The city has a population of about 220,500 and is the most populous Nevada city outside of the Las Vegas metropolitan area...
, carried Wells Fargo's express, the company did not have an exclusive contract. Moreover, the Union Pacific Railroad
Union Pacific Railroad
The Union Pacific Railroad , headquartered in Omaha, Nebraska, is the largest railroad network in the United States. James R. Young is president, CEO and Chairman....
was encroaching on the territory served by Wells Fargo stagelines. Ashbel H. Barney, Danforth Barney's brother and cofounder of United States Express Company, replaced McLane as president in 1869. The transcontinental railroad
First Transcontinental Railroad
The First Transcontinental Railroad was a railroad line built in the United States of America between 1863 and 1869 by the Central Pacific Railroad of California and the Union Pacific Railroad that connected its statutory Eastern terminus at Council Bluffs, Iowa/Omaha, Nebraska The First...
was completed in that year, causing the stage business to dwindle and Wells Fargo's stock to fall.
Takeover of the Pacific Union Express Company
Central PacificCentral Pacific Railroad
The Central Pacific Railroad is the former name of the railroad network built between California and Utah, USA that formed part of the "First Transcontinental Railroad" in North America. It is now part of the Union Pacific Railroad. Many 19th century national proposals to build a transcontinental...
promoters, led by Lloyd Tevis
Lloyd Tevis
Lloyd Tevis was a banker and capitalist who served as president of Wells Fargo & Company from 1872 to 1892.-Early life:...
, organized the Pacific Union Express Company to compete with Wells Fargo. The Tevis group also started buying up Wells Fargo stock at its sharply reduced price. On October 4, 1869, William Fargo, his brother Charles, and Ashbel Barney met with Tevis and his associates in Omaha, Nebraska
Omaha, Nebraska
Omaha is the largest city in the state of Nebraska, United States, and is the county seat of Douglas County. It is located in the Midwestern United States on the Missouri River, about 20 miles north of the mouth of the Platte River...
.. There Wells Fargo agreed to buy the Pacific Union Express Company at a much-inflated price and received exclusive express rights for ten years on the Central Pacific Railroad and a much needed infusion of capital. All of this, however, came at a price: control of Wells Fargo shifted to Tevis.
Ashbel Barney resigned in 1870 and was replaced as president by William Fargo. In 1872 William Fargo also resigned to devote full time to his duties as president of American Express. Lloyd Tevis
Lloyd Tevis
Lloyd Tevis was a banker and capitalist who served as president of Wells Fargo & Company from 1872 to 1892.-Early life:...
replaced Fargo as president of Wells Fargo.
Growth
The company expanded rapidly under Tevis' management. The number of banking and express offices grew from 436 in 1871 to 3,500 at the turn of the century. During this period, Wells Fargo also established the first transcontinental expressTranscontinental Express
As a publicity stunt, the express train called the Transcontinental Express arrived in San Francisco, California, via the First Transcontinental Railroad on 4 June 1876, only 83 hours and 39 minutes after having left New York City. The feat was reported widely in US newspapers.-References:*...
line, using more than a dozen railroads. The company first gained access to the lucrative East Coast markets beginning in 1888; successfully promoted the use of refrigerated freight cars
Refrigerator car
A refrigerator car is a refrigerated boxcar , a piece of railroad rolling stock designed to carry perishable freight at specific temperatures. Refrigerator cars differ from simple insulated boxcars and ventilated boxcars , neither of which are fitted with cooling apparatus...
in California; had opened branch banks in Virginia City
Virginia City
Virginia City is a city located in Storey County, Nevada.Virginia City may also refer to:* Virginia City, Montana* Virginia City, Nevada* Virginia City, Virginia* Virginia City , a 1940 film starring Errol Flynn...
, Carson City, and Salt Lake City, Utah
Salt Lake City, Utah
Salt Lake City is the capital and the most populous city of the U.S. state of Utah. The name of the city is often shortened to Salt Lake or SLC. With a population of 186,440 as of the 2010 Census, the city lies in the Salt Lake City metropolitan area, which has a total population of 1,124,197...
by 1876; and opened a branch bank in New York City by 1880. Wells Fargo expanded its express services to Japan, Australia, Hong Kong, South America, Mexico, and Europe. In 1885 Wells Fargo also began selling money order
Money order
A money order is a payment order for a pre-specified amount of money. Because it is required that the funds be prepaid for the amount shown on it, it is a more trusted method of payment than a cheque.-History of money orders:...
s. In 1892 John J. Valentine, Sr.
John J. Valentine, Sr.
John Joseph Valentine, Sr. was an American expressman. He was the first president of Wells Fargo & Company who had not been a banker and served from 1892 until his death in 1901.-Early life:...
, a long time Wells Fargo employee, was made president of the company.
Until 1876, both banking and express operations of Wells Fargo in San Francisco were carried on in the same building at the northeast corner of California and Montgomery Streets. In 1876 the locations were separated, with the banking department moving to a building at the northeast corner of California and Sansome Streets. The bank moved in 1891 to the corner of Sansome and Market Streets, where it remained until 1905.
Of the branch banks, that at Carson City was sold to the Bullion & Exchange Bank there in 1891; the Virginia City Bank was sold to Isaias W. Hellman
Isaias W. Hellman
Isaias Wolf Hellman was a German-Jewish banker and philanthropist, and a founding father of the University of Southern California.-Biography:...
's Nevada Bank in 1891; and the Salt Lake City Bank was sold to the Walker Brothers there in 1894. The New York City branch remained until the Wells Fargo & Company bank merged with Hellman's bank in 1905.
1900–1940
Valentine died in late December 1901 and was succeeded as president by Col. Dudley Evans on January 2, 1902.In 1905 Wells Fargo separated its banking and express operations. Edward H. Harriman, a prominent financier and dominant figure in the Southern Pacific
Southern Pacific Railroad
The Southern Pacific Transportation Company , earlier Southern Pacific Railroad and Southern Pacific Company, and usually simply called the Southern Pacific or Espee, was an American railroad....
and Union Pacific railroads, had gained control of Wells Fargo. Harriman reached an agreement with Isaias W. Hellman
Isaias W. Hellman
Isaias Wolf Hellman was a German-Jewish banker and philanthropist, and a founding father of the University of Southern California.-Biography:...
, a Los Angeles banker, to merge Wells Fargo's bank with the Nevada National Bank, founded in 1875 by the Nevada silver moguls James G. Fair
James Graham Fair
James Graham Fair was the overnight millionaire part-owner of the Comstock Lode, a United States Senator and a colorful real estate and railroad speculator.-Early life:...
, James Flood
James Cair Flood
James Clair Flood was born on Staten Island, N.Y. to Irish immigrant parents. Flood came to San Francisco a few years after the discovery of gold in California, and tried his luck in mining. In 1857 he opened a saloon with partner William S. O'Brien. In 1858 they sold the saloon and went into...
, John Mackay
John MacKay
John MacKay or John McKay may refer to:* John Mackay , founder of the city of Mackay, Australia* John MacKay , Scottish television journalist and newscaster...
, and William O'Brien
William S. O'Brien
William S. O'Brien was an American businessman who formed a business partnership with fellow Irishmen James Graham Fair, James C. Flood, and John William Mackay, the Consolidated Virginia Mining Company...
, to form the Wells Fargo Nevada National Bank.
The Wells Fargo Nevada National Bank opened its doors on April 22, 1905, with the following board of directors: Isaias W. Hellman, president; Isaias W. Hellman, Jr. and F.A. Bigelow, vice presidents; Frederick L. Lipman, cashier; Frank B. King, George Grant, William McGavin and John E. Miles, assistant cashiers; E.H. Harriman, William F. Herrin and Dudley Evans, directors. By 1906 Levi Strauss
Levi Strauss
Levi Strauss was a German-Jewish immigrant to the United States who founded the first company to manufacture blue jeans. His firm, Levi Strauss & Co., began in 1853 in San Francisco, California.-Origins:...
had also joined the board.
Evans was president of Wells Fargo & Company Express until his death in April 1910 when he was succeeded by William Sproule
William Sproule
William Sproule was president of the Wells Fargo Express Company and later the Southern Pacific Railroad.-References:...
. Burns D. Caldwell was elected president in October 1911. Wells Fargo & Company Express continued its operations until 1918 when the government forced the company to consolidate its domestic operations with those of the other major express companies. This wartime measure resulted in the formation of American Railway Express (later Railway Express Agency
Railway Express Agency
The Railway Express Agency was a the national monopoly set up by the Untied States federal government in 1917. Rail express services provided small package and parcel transportation using the extant railroad infrastructure much as UPS functions today using the road system...
), which began operations July 1, 1918, with Caldwell as chairman of the board and George C. Taylor of American Express as president. Wells Fargo continued some overseas express operations until the 1960s; as an operator of bank armored cars, it did business, in turn, as Wells Fargo Armored Security Corporation, Wells Fargo Armored Service and, since 1997, Loomis Fargo & Company
Loomis Fargo & Company
Loomis is an armored car company. The modern company was formed in 1997 by the consolidation of two armored security concerns, Wells Fargo Armored Service and Loomis Armored Inc...
.
The two years following the 1905 merger tested the newly reorganized bank's, and Hellman's, capacities. In April 1906 the San Francisco earthquake
1906 San Francisco earthquake
The San Francisco earthquake of 1906 was a major earthquake that struck San Francisco, California, and the coast of Northern California at 5:12 a.m. on Wednesday, April 18, 1906. The most widely accepted estimate for the magnitude of the earthquake is a moment magnitude of 7.9; however, other...
and fire destroyed most of the city's business district, including the Wells Fargo Nevada National Bank building. The bank's vaults and credit were left intact, however, and the bank committed its resources to restoring San Francisco. Money flowed into San Francisco from around the country to support rapid reconstruction of the city. As a result, the bank's deposits increased dramatically, from $16 million to $35 million in 18 months.
The Panic of 1907
Panic of 1907
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...
,which began in New York in October, followed on the heels of this frenetic reconstruction period. Several New York banks, deeply involved in efforts to manipulate the stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
, experienced a run when speculators were unable to pay for stock they had purchased. The run quickly spread to other New York banks, which were forced to suspend payment, and then to Chicago and the rest of the country. Wells Fargo lost $1 million in deposits weekly for six weeks in a row. The years following the panic were committed to a slow and painstaking recovery.
Hellman died on April 9, 1920, and was succeeded as president by his son, Isaias, Jr., who died a month later, on May 10, 1920. Frederick L. Lipman was then elected president. Lipman's management strategy included both expansion and the conservative banking practices of his predecessors. On January 1, 1924, Wells Fargo Nevada National Bank merged with the Union Trust Company
Trust Company
Trust Company can refer to:*Trust company, a company acting as a trustee*Trust Company *Trust Company, predecessor to SunTrust Banks...
, founded in 1893 by I. W. Hellman, to form the Wells Fargo Bank & Union Trust Company. The bank prospered during the 1920s and Lipman's careful reinvestment of the bank's earnings placed the bank in a good position to survive the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. Following the collapse of the banking system in 1933, the company was able to extend immediate and substantial help to its troubled correspondents.
Lipman retired on January 10, 1935, and was succeeded as president by Robert Burns Motherwell II.
1940–1970
The war years were prosperous and uneventful for Wells Fargo. Isaias W. Hellman III was elected president in 1943. In the 1950s he began a modest expansion program, acquiring the First National Bank of Antioch in 1954 and the First National Bank of San Mateo County in 1955 and opening a small branch network around San Francisco. In 1954 the name of the bank was shortened to Wells Fargo Bank, to capitalize on frontier imagery and in preparation for further expansion.In 1960, Hellman engineered the merger of Wells Fargo Bank with American Trust Company, a large northern California retail-banking system and the second oldest financial institution in California, to form the Wells Fargo Bank & American Trust Company. Ransom M. Cook was president with Hellman as chairman. The same was again shortened to Wells Fargo Bank in 1962.
In 1964 H. Stephen Crane was elected president with Cook as chairman. This merger of California's two oldest banks created the 11th largest banking institution in the United States. Following the merger, Wells Fargo's involvement in international banking greatly accelerated. The company opened a Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
representative office and, eventually, additional branch offices in Seoul
Seoul
Seoul , officially the Seoul Special City, is the capital and largest metropolis of South Korea. A megacity with a population of over 10 million, it is the largest city proper in the OECD developed world...
, Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, and Nassau
Nassau, Bahamas
Nassau is the capital, largest city, and commercial centre of the Commonwealth of the Bahamas. The city has a population of 248,948 , 70 percent of the entire population of The Bahamas...
, as well as representative offices in Mexico City
Mexico City
Mexico City is the Federal District , capital of Mexico and seat of the federal powers of the Mexican Union. It is a federal entity within Mexico which is not part of any one of the 31 Mexican states but belongs to the federation as a whole...
, São Paulo
São Paulo
São Paulo is the largest city in Brazil, the largest city in the southern hemisphere and South America, and the world's seventh largest city by population. The metropolis is anchor to the São Paulo metropolitan area, ranked as the second-most populous metropolitan area in the Americas and among...
, Caracas
Caracas
Caracas , officially Santiago de León de Caracas, is the capital and largest city of Venezuela; natives or residents are known as Caraquenians in English . It is located in the northern part of the country, following the contours of the narrow Caracas Valley on the Venezuelan coastal mountain range...
, Buenos Aires
Buenos Aires
Buenos Aires is the capital and largest city of Argentina, and the second-largest metropolitan area in South America, after São Paulo. It is located on the western shore of the estuary of the Río de la Plata, on the southeastern coast of the South American continent...
, and Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
.
On November 10, 1966, Wells Fargo's board of directors elected Richard P. Cooley president and CEO. At 42, Cooley was one of the youngest men to head a major bank. Stephen Chase became chairman. Cooley's rise to the top had been a quick one. Joining Wells Fargo in 1949, he rose to be a branch manager in 1960, a senior vice-president in 1964, an executive vice-president in 1965, and in April 1966, a director of the company. A year later Cooley enticed Ernest C. Arbuckle
Ernest C. Arbuckle
Ernest C. Arbuckle was a business leader who was dean of the Stanford Graduate School of Business from 1958 to 1968.-Biography:Ernest C. "Ernie" Arbuckle was born on September 5, 1912, in Lee, New Hampshire. His family later moved to California, and he graduated from Santa Monica High School. He...
, dean of the Stanford Graduate School of Business
Stanford Graduate School of Business
The Stanford Graduate School of Business is one of the professional schools of Stanford University, in Stanford, California and is broadly regarded as one of the best business schools in the world.The Stanford GSB offers a general management Master of Business Administration degree, the Sloan...
, to join Wells Fargo's board as chairman when Chase retired in January 1968.
In 1967, Wells Fargo, together with three other California banks, introduced a Master Charge card
Charge card
A charge card is a card that provides an alternative payment to cash when making purchases in which the issuer and the cardholder enter into an agreement that the debt incurred on the charge account will be paid in full and by due date or be subject to severe late fees and restrictions on card...
(now MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
) to its customers as part of its plan to challenge Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
in the consumer lending business. Initially, 30,000 merchants participated in the plan.
Cooley's early strategic initiatives were in the direction of making Wells Fargo's branch network statewide. The Federal Reserve had blocked the bank's earlier attempts to acquire an established bank in southern California. As a result, Wells Fargo had to build its own branch system. This expansion was costly and depressed the bank's earnings in the later 1960s. In 1968 Wells Fargo changed from a state to a federal banking charter, in part so that it could set up subsidiaries for businesses such as equipment leasing and credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
s rather than having to create special divisions within the bank. The charter conversion was completed August 15, 1968, with the bank renamed Wells Fargo Bank, N.A. The bank successfully completed a number of acquisitions during 1968 as well. The Bank of Pasadena, First National Bank of Azusa, Azusa Valley Savings Bank, and Sonoma Mortgage Corporation were all integrated into Wells Fargo's operations.
In 1969, Wells Fargo formed a holding company—Wells Fargo & Company—and purchased the rights to its own name from American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
. Although the bank always had the right to use the name for banking, American Express had retained the right to use it for other financial services. Wells Fargo could now use its name in any area of financial services it chose (except the armored car trade—those rights had been sold to another company two years earlier).
1970–1980
Between 1970 and 1975, Wells Fargo's domestic profits rose faster than those of any other U.S. bank. Wells Fargo's loans to businesses increased dramatically after 1971. To meet the demand for credit, the bank frequently borrowed short-term from the Federal ReserveFederal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
to lend at higher rates of interest to businesses and individuals.
In 1973, a tighter monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
made this arrangement less profitable, but Wells Fargo saw an opportunity in the new interest limits on passbook savings. When the allowable rate increased to 5%, Wells Fargo was the first to begin paying the higher rate. The bank attracted many new customers as a result, and within two years its market share of the retail savings trade increased more than two points, a substantial increase in California's competitive banking climate. With its increased deposits, Wells Fargo was able to reduce its borrowings from the Federal Reserve, and the 0.5% premium it paid for deposits was more than made up for by the savings in interest payments. In 1975, the rest of the California banks instituted a 5% passbook savings rate
Saving (money)
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan. Saving also includes reducing expenditures, such as recurring costs...
, but they failed to recapture their market share.
In 1973, the bank made a number of key policy changes. Wells Fargo decided to go after the medium-sized corporate and consumer loan businesses, where interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s were higher. Slowly, Wells Fargo eliminated its excess debt, and by 1974, its balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
showed a much healthier bank. Under Carl E. Reichardt
Carl E. Reichardt
Carl E. Reichardt is a retired American business executive. He was president of Wells Fargo & Company from 1978 to 1984 and then chairman of the board of directors until the end of 1994....
, who later became president of the bank, Wells Fargo's real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
lending bolstered the bottom line. The bank focused on California's flourishing home and apartment mortgage business and left risky commercial developments to other banks.
While Wells Fargo's domestic operations were making it the envy of competitors in the early 1970s, its international operations were less secure. The bank's 25% holding in Allgemeine Deutsche Credit-Anstalt, a West German
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
bank, cost Wells Fargo $4 million due to bad real estate loans. Another joint banking venture, the Western American Bank, which was formed in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
in 1968 with several other American banks, was hard hit by the recession of 1974 and failed. Unfavorable exchange rates hit Wells Fargo for another $2 million in 1975. In response, the bank slowed its overseas expansion program and concentrated on developing overseas branches of its own rather than tying itself to the fortunes of other banks.
Wells Fargo's investment services became a leader during the late 1970s. According to Institutional Investor
Institutional investor
Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets...
, Wells Fargo garnered more new accounts from the 350 largest pension funds between 1975 and 1980 than any other money manager. The bank's aggressive marketing of its services included seminars explaining modern portfolio theory
Modern portfolio theory
Modern portfolio theory is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets...
. Wells Fargo's early success, particularly with indexing—weighting investments to match the weightings of the Standard and Poor's 500
S&P 500
The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
—brought many new clients aboard.
Arbuckle retired as chairman at the end of 1977. Cooley assumed the chairmanship in January 1978 with Reichardt succeeding him as president.
Meanwhile, Wells Fargo secured a major legal victory that would guarantee its long-term prosperity in its home market of California. On May 16, 1978, after eight years of litigation in both federal and state courts, the Supreme Court of California
Supreme Court of California
The Supreme Court of California is the highest state court in California. It is headquartered in San Francisco and regularly holds sessions in Los Angeles and Sacramento. Its decisions are binding on all other California state courts.-Composition:...
ruled in Wells Fargo's favor and upheld the constitutionality of California's statutory nonjudicial foreclosure
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
procedure against a due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...
challenge. Thus, Wells Fargo could continue to provide credit to borrowers at very affordable rates (nonjudicial foreclosure is relatively swift and inexpensive). Associate Justice Wiley Manuel
Wiley Manuel
Wiley W. Manuel was an associate justice on the Supreme Court of California from 1977 – 1981 and the first African American to serve on the high court. Governor Jerry Brown appointed Justice Manuel on February 12, 1977. Justice Manuel had served on the court for only four years before he...
wrote the opinion in Wells Fargo's favor for a unanimous court. The victory was especially remarkable since during the tenure of Chief Justice Rose Bird
Rose Bird
Rose Elizabeth Bird served for 10 years as the 25th Chief Justice of California. She was the first female Justice, and first female Chief Justice, on that court, appointed by then Governor Jerry Brown...
(1977-1987), the Court was notorious for its pro-plaintiff and anti-business bias.
By the end of the 1970s, Wells Fargo's overall growth had slowed somewhat. Earnings were only up 12% in 1979, compared with an average of 19% between 1973 and 1978. In 1980 Cooley told Fortune
Fortune (magazine)
Fortune is a global business magazine published by Time Inc. Founded by Henry Luce in 1930, the publishing business, consisting of Time, Life, Fortune, and Sports Illustrated, grew to become Time Warner. In turn, AOL grew as it acquired Time Warner in 2000 when Time Warner was the world's largest...
, "It's time to slow down. The last five years have created too great a strain on our capital, liquidity, and people."
Recession of the early 1980s
In 1981, the banking community was shocked by the news of a $21.3 million embezzlementEmbezzlement
Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted....
scheme by a Wells Fargo employee, one of the largest embezzlements ever. L. Ben Lewis, an operations officer at Wells Fargo's Beverly Drive branch, pleaded guilty to the charges. Lewis had routinely written phony debit and credit receipts to pad the accounts of his cronies, and received a $300,000 cut in return.
The early 1980s saw a sharp decline in Wells Fargo's performance. Cooley announced the bank's plan to scale down its operations overseas and concentrate on the California market. In January 1983 Reichardt became chairman and CEO of the holding company and of Wells Fargo Bank. Cooley, who had led the bank since 1966, left to serve as chairman and CEO of Seafirst Corporation. Reichardt relentlessly attacked costs, eliminating 100 branches and cutting 3,000 jobs. He also closed down the bank's European offices at a time when most banks were expanding their overseas networks. Paul Hazen
Paul Hazen
Paul Mandeville Hazen is chairman of the board of directors of Accel-KKR and KKR Financial Holding Corporation and the former chairman and chief executive officer of Wells Fargo & Company....
succeeded Reichardt as president in 1984.
Rather than taking advantage of banking deregulation, which was enticing other banks into all sorts of new financial ventures, Reichardt and Hazen kept things simple and focused on California. Reichardt and Hazen beefed up Wells Fargo's retail network through improved services such as an extensive automatic teller machine
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
network, and through active marketing of those services.
Purchase of Crocker National Corporation
In May 1986, Wells Fargo purchased rival Crocker National CorporationCrocker National Bank
Crocker National Bank was a United States bank headquartered in San Francisco, California. It was acquired by and merged into Wells Fargo Bank in 1986.-History:The bank traces its history to the Woolworth National Bank in San Francisco...
from Britain's Midland Bank
Midland Bank
Midland Bank Plc was one of the Big Four banking groups in the United Kingdom for most of the 20th century. It is now part of HSBC. The bank was founded as the Birmingham and Midland Bank in Union Street, Birmingham, England in August 1836...
for about $1.1 billion. The acquisition was touted as a brilliant maneuver by Wells Fargo. Not only did Wells Fargo double its branch network in southern California and increase its consumer loan portfolio by 85%, but the bank did it at an unheard of price, paying about 127% of book value
Book value
In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the asset. Traditionally, a company's book value...
at a time when American banks were generally going for 190%. In addition, Midland kept about $3.5 billion in loans of dubious value.
Crocker doubled the strength of Wells Fargo's primary market, making Wells Fargo the tenth largest bank in the United States. Furthermore, the integration of Crocker's operations into Wells Fargo's went considerably smoother than expected. In the 18 months after the acquisition, 5,700 jobs were trimmed from the banks' combined staff, 120 redundant branches closed, and costs were cut considerably.
Before and after the acquisition, Reichardt and Hazen aggressively cut costs and eliminated unprofitable portions of Wells Fargo's business. During the three years before the acquisition, Wells Fargo sold its realty-services subsidiary, its residential-mortgage service operation, and its corporate trust and agency businesses. Over 70 domestic bank branches and 15 foreign branches were also closed during this period. In 1987, Wells Fargo set aside large reserves to cover potential losses on its Latin American loans, most notably to Brazil and Mexico. This caused its net income to drop sharply, but by mid-1989 the bank had sold or written off all of its medium- and long-term Third World debt.
Concentrating on California was a very successful strategy for Wells Fargo. But after its acquisition of Barclays Bank
Barclays plc
Barclays PLC is a global banking and financial services company headquartered in London, United Kingdom. As of 2010 it was the world's 10th-largest banking and financial services group and 21st-largest company according to a composite measure by Forbes magazine...
of California in May 1988, few merger targets remained. One region Wells Fargo considered expanding into in the late 1980s was Texas, where it made an unsuccessful bid for Dallas's FirstRepublic Corporation in 1988. In early 1989 Wells Fargo expanded into full-service brokerage and launched a joint venture with the Japanese company Nikko Securities called Wells Fargo Nikko Investment Advisors. Also in 1989, the company divested itself of its last international offices, further tightening its focus on domestic commercial and consumer banking activities.
On August 24, 1989, Wells Fargo obtained another important legal victory from the California Court of Appeal for the First District. In an opinion by Acting Presiding Justice William Newsom
William Newsom
William Alfred Newsom III is a retired state appeals court judge, administrator of the Getty family trust, and the father of former San Francisco Mayor Gavin Newsom....
(father of politician Gavin Newsom
Gavin Newsom
Gavin Christopher Newsom is an American politician who is the 49th and current Lieutenant Governor of California. Previously, he was the 42nd Mayor of San Francisco, and was elected in 2003 to succeed Willie Brown, becoming San Francisco's youngest mayor in 100 years. Newsom was re-elected in 2007...
), the court held that Wells Fargo was not subject to tort liability for breach of the implied covenant of good faith and fair dealing
Implied covenant of good faith and fair dealing
In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract...
just because it had taken a "hard line" approach in workout negotiations with its borrowers and refused to modify or forbear enforcing the terms of the relevant promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
s. The borrowers had narrowly avoided foreclosure only by liquidating a large amount of assets at fire sale
Fire sale
A fire sale is the sale of goods at extremely discounted prices, typically when the seller faces bankruptcy or other impending distress. The term may originally have been based on the sale of goods at a heavy discount due to fire damage...
prices to raise cash and pay off their loans in full. By barring recovery against Wells Fargo for the losses incurred by borrowers as a result of its hardball tactics, the court enabled Wells Fargo to continue providing credit at low interest rates, secure in the knowledge that it could aggressively pursue defaulting borrowers without risking tort liability.
Recession of the early 1990s
Wells Fargo & Company's major subsidiary, Wells Fargo Bank, was still loaded with debt, including relatively risky real estate loans, in the late 1980s. However, the bank had greatly improved its loan-loss ratio since the early 1980s. Furthermore, Wells continued to improve its health and to thrive during the early 1990s under the direction of Reichardt and Hazen. Much of that growth was attributable to gains in the California market. Indeed, despite an ailing regional economy during the early 1990s, Wells Fargo posted healthy gains in that core market. Wells slashed its labor force—by more than 500 workers in 1993 alone—and boosted cash flowCash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
with technical innovations. The bank began selling stamps through its automated teller machine
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
s (ATMs), for example, and in 1995 was partnering with CyberCash
CyberCash, Inc.
CyberCash, Inc. was an internet payment service for electronic commerce, headquartered in Reston, Virginia. It was founded in August 1994 by Daniel C. Lynch , William N. Melton , Steve Crocker , and Bruce G. Wilson...
, a software startup company, to begin offering its services over the Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
.
After dipping in 1991, Wells's net income surged to $283 million in 1992 before climbing briskly to $841 million in 1994. At the end of 1994, after 12 years of service during which Wells Fargo & Co. investors enjoyed a 1,781 percent return
Rate of return
In finance, rate of return , also known as return on investment , rate of profit or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or...
, Reichardt stepped aside as head of the company. He was succeeded by Hazen. Wells Fargo Bank entered 1995 as the second largest bank in California and the seventh largest in the United States, with $51 billion in assets. Under Hazen, the bank continued to improve its loan portfolio, boost service offerings, and cut operating costs. During 1995, Wells Fargo Nikko Investment Advisors was sold to Barclays PLC
Barclays plc
Barclays PLC is a global banking and financial services company headquartered in London, United Kingdom. As of 2010 it was the world's 10th-largest banking and financial services group and 21st-largest company according to a composite measure by Forbes magazine...
for $440 million.
During 1995, Wells Fargo initiated discussions to merge with American Express. This merger would have been notable, since both companies were started originally by the same persons, Wells and Fargo. It was thought that this merger could give Wells a more global presence. However, egos clashed within the companies as to who would run the combined firm. One issue centered around technology. Even though American Express was going through a very expensive and ambitious technological upgrade, it still would have lagged greatly behind Wells Fargo's systems, posing tremendous integration risk. Also, there would have been regulatory issues, especially since American Express owned an insurance company, Investors Diversified Services (doing business as American Express Financial Advisors), and this would have had to been divested. In the end it was decided not to go through with the merger.
Takeover of First Interstate Bancorp
Late in 1995, Wells Fargo began pursuing a hostile takeover of First Interstate BancorpFirst Interstate Bancorp
First Interstate Bancorp was a bank holding company based in the United States that was taken over in 1996 by Wells Fargo. Headquartered in Los Angeles, it was the nation's eighth largest banking company....
, a Los Angeles
Los Ángeles
Los Ángeles is the capital of the province of Biobío, in the commune of the same name, in Region VIII , in the center-south of Chile. It is located between the Laja and Biobío rivers. The population is 123,445 inhabitants...
-based bank holding company with $58 billion in assets and 1,133 offices in California and 12 other western states. Wells Fargo had long been interested in acquiring First Interstate and made a hostile bid for First Interstate in October 1995 initially valued at $10.8 billion.
Other banks came forward as potential "white knights
White knight (business)
In business, a white knight, or "friendly investor," may be a corporation or a person that intends to help another firm. There are many types of white knights...
", including Norwest
Norwest
Norwest Corporation was a banking and financial services company based in Minneapolis, Minnesota, United States. In 1998, it merged with Wells Fargo & Co. and since that time has traded under the Wells Fargo name.-Early formation:...
, Bank One Corporation
Bank One Corporation
Some of the banks that were merged into these banks include:*Bank One**Security National Bank & Trust **Affiliated Bankshares of Colorado **American Fletcher Corp. **City National Bank and Trust Co...
, and First Bank System. The latter made a serious bid for First Interstate, with the two banks reaching a formal merger agreement in November valued initially at $10.3 billion. But First Bank ran into regulatory difficulties with the way it had structured its offer and was forced to bow out of the takeover battle in mid-January 1996. Talks between Wells Fargo and First Interstate then led within days to a merger agreement. When completed in April 1996, following an antitrust review that stipulated the selling off of 61 bank branches in California, the acquisition was valued at $11.3 billion. The newly enlarged Wells Fargo had assets of about $116 billion, loans of $72 billion, and deposits of $89 billion. It ranked as the ninth largest bank in the United States.
Wells Fargo aimed to generate $800 million in annual operational savings out of the combined bank within 18 months, and immediately upon completion of the takeover announced a workforce reduction
Layoff
Layoff , also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs...
of 16 percent, or 7,200 positions, by the end of 1996. The merger, however, quickly turned disastrous as efforts to consolidate operations, which were placed on an ambitious timetable, led to major problems. Computer system glitches led to lost customer deposits and bounced checks. Branch closures led to long lines at the remaining branches. There was also a culture clash before the two banks and their customers. Wells Fargo had been at the forefront of high-tech banking, emphasizing ATMs and online banking
Online banking
Online banking allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society.-Features:...
, as well as the small-staffed supermarket branches, at the expense of traditional branch banking. By contrast, First Interstate had emphasized personalized relationship banking, and its customers were used to dealing with tellers and bankers not machines. This led to a mass exodus of First Interstate management talent and to the alienation of numerous customers, many of whom took their banking business elsewhere.
Merger with Norwest
The financial performance of Wells Fargo, as well as its stock priceStock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
, suffered from this botched merger, leaving the bank vulnerable to being taken over itself as banking consolidation continued unabated. This time, Wells Fargo entered into a friendly merger agreement with Norwest
Norwest
Norwest Corporation was a banking and financial services company based in Minneapolis, Minnesota, United States. In 1998, it merged with Wells Fargo & Co. and since that time has traded under the Wells Fargo name.-Early formation:...
, which was announced in June 1998. The deal was completed in November of that year and was valued at $31.7 billion, with Wells Fargo merging into Norwest. Norwest then changed its name to Wells Fargo & Company because of the latter's greater public recognition and the former's regional connotations. Norwest also relocated the headquarters of the new Wells Fargo to San Francisco based on the bank's $54 billion in deposits in California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
versus $13 billion in Minnesota
Minnesota
Minnesota is a U.S. state located in the Midwestern United States. The twelfth largest state of the U.S., it is the twenty-first most populous, with 5.3 million residents. Minnesota was carved out of the eastern half of the Minnesota Territory and admitted to the Union as the thirty-second state...
. The head of Wells Fargo, Paul Hazen, was named chairman of the new company, while the head of Norwest, Richard Kovacevich
Richard Kovacevich
Richard M. "Dick" Kovacevich, is retired chairman of the board of directors and previous CEO of Wells Fargo & Company.A native of Tacoma, Washington, he grew up in Enumclaw, Washington. At Stanford University he received BS and MS degrees in industrial engineering, followed by an MBA degree from...
, became president and CEO. The new Wells Fargo started off as the nation's seventh largest bank with $196 billion in assets, $130 billion in deposits, and 15 million retail banking, finance, and mortgage customers. The banking operation included more than 2,850 branches in 21 states from Ohio
Ohio
Ohio is a Midwestern state in the United States. The 34th largest state by area in the U.S.,it is the 7th‑most populous with over 11.5 million residents, containing several major American cities and seven metropolitan areas with populations of 500,000 or more.The state's capital is Columbus...
to California. Norwest Mortgage had 824 offices in 50 states, while Norwest Financial had nearly 1,350 offices in 47 states, ten provinces of Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, the Caribbean
Caribbean
The Caribbean is a crescent-shaped group of islands more than 2,000 miles long separating the Gulf of Mexico and the Caribbean Sea, to the west and south, from the Atlantic Ocean, to the east and north...
, Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
, and elsewhere.
Integration
The integration of Norwest and Wells Fargo proceeded much more smoothly than the combination of Wells Fargo and First Interstate. A key reason was that the process was allowed to progress at a much slower and more manageable pace than that of the earlier merger. The plan allowed for two to three years to complete the integration, while the cost-cutting goal was a more modest $650 million in annual savings within three years. Rather than the mass layoffs that were typical of many mergers, Wells Fargo announced a workforce reduction of only 4,000 to 5,000 employees over a two-year period.Already president and CEO, Kovacevich became chairman as well when Hazen retired in May 2001. Another former Norwest executive, John Stumpf
John Stumpf
John Stumpf became Chairman for Wells Fargo & Company in January 2010. He was named Chief Executive Officer in June 2007, elected to Wells Fargo’s Board of Directors in June 2006, and has been President since August 2005....
, succeeded him as president in August 2005 and as CEO in June 2007; Kovacevich continues to serve as chairman today.
Later acquisitions
Continuing the Norwest tradition of making numerous smaller acquisitions each year, Wells Fargo acquired 13 companies during 1999 with total assets of $2.4 billion. The largest of these was the February purchase of Brownsville, Texas-based Mercantile Financial Enterprises, Inc., which had $779 million in assets. The acquisition pace picked up in 2000 with Wells Fargo expanding its retail banking into two more states: MichiganMichigan
Michigan is a U.S. state located in the Great Lakes Region of the United States of America. The name Michigan is the French form of the Ojibwa word mishigamaa, meaning "large water" or "large lake"....
, through the buyout of Michigan Financial Corporation ($975 million in assets), and Alaska
Alaska
Alaska is the largest state in the United States by area. It is situated in the northwest extremity of the North American continent, with Canada to the east, the Arctic Ocean to the north, and the Pacific Ocean to the west and south, with Russia further west across the Bering Strait...
, through the purchase of National Bancorp of Alaska Inc. ($3 billion in assets). Wells Fargo also acquired First Commerce Bancshares
First Commerce Bancshares
First Commerce Bancshares Inc. was a banking company whose main subsidiary, National Commerce Bank, was the largest bank in Lincoln, Nebraska. On July 17, 2000, First Commerce's banks became part of Wells Fargo Bank. At the time First Commerce had about 1400 employees and $2.3 billion in assets....
, Inc. of Lincoln, Nebraska
Nebraska
Nebraska is a state on the Great Plains of the Midwestern United States. The state's capital is Lincoln and its largest city is Omaha, on the Missouri River....
, which had $2.9 billion in assets, and a Seattle-based regional brokerage firm, Ragen MacKenzie Group Incorporated. In October 2000 Wells Fargo made its largest deal since the Norwest-Wells Fargo merger when it paid nearly $3 billion in stock for First Security Corporation
First Security Corporation
First Security Corporation was a multistate bank holding company in the western United States, primarily in Utah, Idaho, New Mexico, Oregon, Nevada, and Wyoming...
, a $23 billion bank holding company based in Salt Lake City, Utah
Utah
Utah is a state in the Western United States. It was the 45th state to join the Union, on January 4, 1896. Approximately 80% of Utah's 2,763,885 people live along the Wasatch Front, centering on Salt Lake City. This leaves vast expanses of the state nearly uninhabited, making the population the...
, and operating in seven western states. Wells Fargo thereby became the largest banking franchise in terms of deposits in New Mexico
New Mexico
New Mexico is a state located in the southwest and western regions of the United States. New Mexico is also usually considered one of the Mountain States. With a population density of 16 per square mile, New Mexico is the sixth-most sparsely inhabited U.S...
, Nevada
Nevada
Nevada is a state in the western, mountain west, and southwestern regions of the United States. With an area of and a population of about 2.7 million, it is the 7th-largest and 35th-most populous state. Over two-thirds of Nevada's people live in the Las Vegas metropolitan area, which contains its...
, Idaho
Idaho
Idaho is a state in the Rocky Mountain area of the United States. The state's largest city and capital is Boise. Residents are called "Idahoans". Idaho was admitted to the Union on July 3, 1890, as the 43rd state....
, and Utah; as well as the largest banking franchise in the West overall.
Following completion of the First Security acquisition, Wells Fargo had total assets of $263 billion with some 140,000 employees. It is the only bank in the United States to be rated AAA by Standard & Poor's
Standard & Poor's
Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...
, and was named "The World's Safest US Bank" based on long-term foreign currency ratings from Fitch Ratings
Fitch Ratings
The Fitch Group is a majority-owned subsidiary of FIMALAC, headquartered in Paris. Fitch Ratings, Fitch Solutions and Algorithmics, are part of the Fitch Group....
and Standard & Poor's and long-term bank deposit rankings from Moody's Investor Service for the year 2007.
Its strategy echoed that of the old Norwest: making selective acquisitions and pursuing cross-selling
Cross-selling
Cross-selling is the action or practice of selling among or between established clients, markets, traders, etc. or the action or practice of selling an additional product or service to an existing customer. This article deals exclusively with the latter meaning. In practice, businesses define...
of an ever-wider array of credit and investment products to its vast customer base. Under Kovacevich's leadership, Wells Fargo was posting smart growth
Smart growth
Smart growth is an urban planning and transportation theory that concentrates growth in compact walkable urban centers to avoid sprawl and advocates compact, transit-oriented, walkable, bicycle-friendly land use, including neighborhood schools, complete streets, and mixed-use development with a...
in revenues and profits and was the envy of the banking industry for the smooth way in which it had completed the Norwest-Wells Fargo merger as well as its knack for integrating smaller banks. There was speculation that the next 'stage' for Wells Fargo might involve a major merger with an eastern bank that would create a nationwide retail bank or a merger that would bring the bank one of the two other things it did not have—a global presence and a large investment banking
Investment banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
arm, but Kovacevich seemed content with the concentration on western U.S. banking and the broader finance and mortgage operations.
Acquisition of Wachovia
With the extraordinary circumstances of the financial panic of September 2008, however, Wells Fargo made a bid to purchase troubled WachoviaWachovia
Wachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
Corporation. Although at first inclined to accept a September 29 agreement brokered by the Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
to sell its banking operations to Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
for $2.2 billion, on October 3 Wachovia accepted Wells Fargo's offer to buy all of the financial institution for $15.1 billion. Citigroup on October 9 ended its effort to block the sale of Wachovia to Wells Fargo, though it still threatened to sue both for $60 billion.
Acquisition of Wachovia would expand Wells Fargo's operations into nine Eastern and Southern states. There would be big overlaps in operations only in California and Texas, much less so in Nevada, Arizona, and Colorado. Merger of Wells Fargo and Wachovia would create a superbank with $1.4 trillion in assets and 48 million customers. The proposed merger was approved by the Federal Reserve as a $12.2 billion all-stock transaction on October 12 in an unusual Sunday order. The acquisition was completed on January 1, 2009.
Such a smoothly fitting merger of Wachovia with a strong bank like Wells Fargo was attractive, especially as it did not require government assistance. Wells Fargo was more profitable than most of the 'megabanks' that had formed in the 1990s, with the reason perhaps lying in its more modest ambitions.
Board of directors
Elected April 29, 2008- John S. ChenJohn S. ChenJohn S. Chen is chairman, chief executive officer and president of Sybase, Inc. He is also a director of Wells Fargo & Company.- Education :...
- Lloyd H. Dean
- Susan E. EngelSusan E. EngelSusan E. Engel is an American business executive. She is the retired chief executive officer of Lenox Group, Inc., and currently a director of Wells Fargo & Company....
- Enrique Hernandez, Jr.Enrique Hernandez, Jr.Enrique Hernandez, Jr. is an American business executive. He is president and chief executive officer of Inter-Con Security Systems, Inc., and a director of Wells Fargo & Company.- Biography :...
- Robert L. JossRobert L. JossRobert L. Joss is an American educator and business executive. Long prominent in global banking, he was Dean of the Graduate School of Business at Stanford University, and is currently a director of Citigroup....
- Richard KovacevichRichard KovacevichRichard M. "Dick" Kovacevich, is retired chairman of the board of directors and previous CEO of Wells Fargo & Company.A native of Tacoma, Washington, he grew up in Enumclaw, Washington. At Stanford University he received BS and MS degrees in industrial engineering, followed by an MBA degree from...
, Chairman of the Board of Directors - Richard D. McCormickRichard D. McCormickRichard David McCormick is chairman emeritus of US West, Inc.. He is served as CEO of US West from 1990 to 1998. He is also a director of Wells Fargo & Company and an honorary chairman of the International Chamber of Commerce....
- Cynthia H. MilliganCynthia H. MilliganCynthia Hardin Milligan is a director of Wells Fargo & Company and a former dean of the College of Business Administration at the University of Nebraska at Lincoln....
- Nicholas G. MooreNicholas G. MooreNicholas G. Moore is currently a director at Wells Fargo & Company and retired chairman and chief executive officer of PricewaterhouseCoopers.Moore received his BS degree in accounting from St. Mary's College of California and his JD degree from University of California Hastings College of the Law...
- Philip J. QuigleyPhilip J. QuigleyPhilip J. Quigley is the retired chief executive officer of Pacific Telesis Corporation and a current director of Wells Fargo & Company. He is a board member of SRI International.-References:...
- Donald RiceDonald RiceDonald Blessing Rice is a California businessman and senior government official. He has been president and chief executive officer of several large companies including RAND Corporation, and has sat on numerous boards of directors, including Wells Fargo & Company...
- Judith M. Runstad
- Stephen SangerStephen SangerStephen W. Sanger is a former chairman and chief executive officer of General Mills and a current director of Wells Fargo & Company, Target Corporation, and Pfizer....
- John StumpfJohn StumpfJohn Stumpf became Chairman for Wells Fargo & Company in January 2010. He was named Chief Executive Officer in June 2007, elected to Wells Fargo’s Board of Directors in June 2006, and has been President since August 2005....
, President and Chief Executive Officer - Susan G. SwensonSusan G. SwensonSusan G. Swenson is president and chief executive officer of the North American regional division of Sage Software, and a director of Wells Fargo & Company....
- Michael W. WrightMichael W. WrightMichael W. Wright is a Minneapolis business executive who has served as chief executive officer of SuperValu and who currently is a director of Wells Fargo & Company....