Wells Fargo & Company

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Wells Fargo & Company

420 Montgomery Street
San Francisco, California 94163
U.S.A.
(415) 477-1000

Public Company
Incorporated: 1968
Employees: 19,700
Assets: $46.62 billion
Stock Index: New York Pacific London Frankfurt

Wells Fargo & Company, a multibillion-dollar regional bank holding company, traces its earliest origins to a banking and express business formed in 1852 to exploit the economic opportunities created by the California gold rush. Throughout its colorful history, the company has provided innovative services to its customers and has demonstrated an ability to weather economic conditions that have ruined its competitors.

Soon after gold was discovered in early 1848 at Sutler’s Mill near Comona, 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 its 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.

On March 18,1852 they organized Wells, Fargo & Company, a joint-stock association with an initial capitalization of $300,000, to provide express and banking services to California. Financier Edwin B. Morgan was appointed Wells Fargo’s first president.

The company opened its first office, in San Francisco, in July, 1852. The immediate challenge facing Morgan and Danforth N. Barney, who became president in 1853, was to establish the company in two highly competitive fields under conditions of rapid growth and unpredictable change. At the time, California did not regulate either the banking or 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 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 gold dust, bullion, and specie; 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.

In 1855, Wells Fargo faced its first crisis when the California banking system collapsed as a result of over-speculation. A run 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 institutions, 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, afterward it faced virtually no competition in the banking and express business in California; 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 & 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 service was 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 Russell, Majors & Waddell, ran a stagecoach line from Salt Lake City to Missouri.

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, Wells Fargo’s general manager in California, replaced him.

The Wells Fargo stagecoach empire was short lived. McLane had reached an agreement with a railroad group that failed. 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 1868. The transcontinental railroad was completed in the following year, causing the stage business to dwindle and Wells Fargo’s stock to fall.

Central Pacific promoters, led by Lloyd Tevis, organized the Pacific Express Company to compete with Wells Fargo. The Tevis group also started buying up Wells Fargo stock at its sharply reduced price. In October, 1869 William Fargo, his brother Charles, and Ashbel Barney traveled to Omaha, Nebraska to confer with Tevis and his associates. There Wells Fargo agreed to buy the Pacific 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 (he had been appointed its second president on Henry Wells’ retirement in 1868). Lloyd Tevis replaced Fargo as president of Wells Fargo.

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 express 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 by 1876; and expanded its express services to Japan, Australia, Hong Kong, South America, Mexico, and Europe. In 1885 Wells Fargo also began selling money orders.

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.

Wells Fargo & Company Express had moved to New York City in 1904. In 1918 the government forced Wells Fargo Express 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). Wells Fargo continued some overseas express operations until the 1960s.

The two years following the 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, begun in New York in October, followed on the heels of this frenetic reconstruction period. The stock market had crashed in March. Several New York banks, deeply involved in efforts to manipulate the market after the crash, 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 a week for six weeks in a row. The years following the panic were committed to a slow and painstaking recovery.

In 1920, Hellman was very briefly succeeded as president by his son, I. W. Hellman II, who was followed by Frederick L. Lipman. Lipman’s management strategy included both expansion and the conservative banking practices of his predecessors. In late 1923, 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.

The war years were prosperous and uneventful for Wells Fargo. In the 1950s, Wells Fargo President I. W. Hellman III, grandson of Isaias Hellman, began a modest expansion program, acquiring two San Francisco Bay-area banks 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, renamed Wells Fargo Bank again in 1962. This merger of California’s two oldest banks created the eleventh-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.

In November, 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, who planned to retire in January, 1968, became chairman. Cooley’s rise to the top had been a quick one. From a branch manager in 1960 he rose to become 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, the former dean of Stanford’s business school, to join Wells Fargo’s board as chairman.

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. Credit cards would later prove a particularly profitable operation.

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 business like equipment leasing and credit cards rather than having to create special divisions within the bank. The charter conversion was completed August 15, 1968.

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 and purchased the rights to its own name from the American Express Corporation. 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).

Between 1970 and 1975 Wells Fargo’s domestic profits rose faster than any other U.S. bank’s. 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 Reserve 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 ½% 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 rates were higher.

Slowly Wells Fargo eliminated its excess debt, and by 1974 its balance sheet showed a much healthier bank. Under Carl 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.

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 Richard Cooley, now chairman of the holding company, told Fortune, ”it’s time to slow down. The last five years have created too great a strain on our capital, liquidity, and people.”

In 1981 the banking community was shocked by the news of a $21.3 million embezzlement 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. Richard Cooley announced the bank’s plan to scale down its operations overseas and concentrate on the California market. In January, 1983 Carl Reichardt became chairman and CEO of the holding company and of Wells Fargo Bank. Cooley, who had led the bank since the late 1960s, left to revive a troubled rival. 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.

Rather than taking advantage of banking deregulation, which was enticing other banks into all sorts of new financial ventures, Reichardt and Wells Fargo President Paul Hazen kept things simple and focused on California. Reichardt and Hazen beefed up Wells Fargo’s retail network through improved services like an extensive automatic teller machine network, and through active marketing of those services.

In 1986, Wells Fargo purchased its rival, the Crocker National Corporation, from Britain’s Midland Bank for about $1.1 billion. The acquisition was touted as a brilliant maneuver for Wells Fargo. Not only did the bank 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.

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 and costs were cut considerably.

Before and after the acquisition, Reichardt and Hazen had also aggressively cut costs and elminated 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 has been a very successful strategy for Wells Fargo, but after its acquisition of Barclays Bank of California in May, 1988, few targets remain. One region Wells Fargo may try to expand into is Texas, where it made an unsuccessful bid for Dallas’ 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. Also in 1989, Wells Fargo divested itself of its last international offices, further tightening its focus on domestic commercial and consumer banking activities.

Although Wells Fargo’s loan portfolio is still loaded with leveraged debt and real estate loans that some consider risky, the bank has vastly improved its loan-loss ratio in recent years. Wells Fargo is unusual among major American banks in its decision not to invest in international banking, but it has shown that it is an able competitor in the consumer and smaller-business market it has targeted.

Principal Subsidiaries

Wells Fargo Bank, N.A.; Crocker Miles Crossing; Crocker Bishop Companies; Wells Fargo Foreign Lending; Montgomery Estates; WFIC Ltd, Cayman; Crocker Holding, Inc.; Crocker Life Insurance Co.; Crocker Pacific Trading Co.; Wells Fargo Credit Corporation; Wells Fargo Insurance Services; Wells Fargo Securities Clearance Corporation; Wells Fargo Ag Credit; Wells Fargo Corporate Services; Wells Fargo Capital Markets, Inc.; Wells Fargo Financing Corporation; Wells Fargo Investment Advisors.