How does Wells Fargo & Company (WFC) actually make money? Well, they’re a bank, meaning they lend money at a higher rate than they borrow it. There isn’t supposed to be much more to it than that.

Banking is the ultimate intangible industry, moving assets from lower-valued to higher-valued uses in the most impalpable of ways, but that still leaves plenty that distinguishes Wells Fargo from its major U.S. competitors. Starting with its size and its reach. Wells Fargo has a market capitalization of $255.13 billion as of December 3, 2018, making it the third-largest bank in the United States. The multinational bank reported third-quarter earnings on October 12, 2018, with revenues about flat year-over-year at $21.9 billion.

While those figures may be impressive, they tell a different story about Wells Fargo than the bank’s customers might. Since 2016, patrons of the multinational bank have weathered several scandals, losing their data, money, and, most recently their homes in the process. Wells Fargo has spent decades, not to mention billions, building a reputation of integrity and trust among customers, but now they must learn from that experience and take note for the future. The company has since replaced legacy CEO John Stumpf, reoriented its company goals towards transparency, and apologized to customers and employees. Now, it remains to be seen whether Wells Fargo’s efforts will pay off — or whether the company will find itself in national headlines and federal court going forward.

Big, Regional Acquisitions

Wells Fargo was created by a merger of large super-regional banks. Founders Wells and Fargo created their namesake in 1852 to cater to the growing population of gold miners and related hangers-on in California, which back then was in the early stages of its transition from distant backwater to most populous and economically powerful state in the union. After close to a century and a half of steady growth, in 1998 Wells Fargo merged with Norwest Corp. A decade later, Wells Fargo bought out East Coast giant Wachovia. Add them all together, and Wells Fargo can now claim 70 million customers from coast to coast. 

Officially, Wells Fargo divides its operations into three categories for management reporting purposes. These segments are Wealth and Investment Management; Wholesale Banking; and Community Banking. 

Serving the Rich and the Mass Market

Wealth and Investment Management means financial services for rich people. This end of Wells Fargo’s business doesn’t just dispense advice, e.g. on how to minimize taxes, but also helps set up foundations, solve inheritance issues before any might arise, etc. Every crazy rich person knows, at least in the United States, preserving one’s affluence can be almost as much work as it was to get wealthy in the first place. All told, Wells Fargo made $2.6 billion of net income off wealth management, brokerage and retirement in 2017. If that sounds substantial, it’s easily the least lucrative of the bank’s three areas of operations. 

As for “wholesale,” that word has a slightly different meaning in banking than it does elsewhere. Plenty of banks don’t even use the term, but at Wells Fargo it’s a catch-all for underwriting, and selling asset-backed securities, along with other types of banking for large corporations and even other banks. 

Not Just Retail Banking

Actually, that doesn’t even begin to cover it. Wholesale Banking includes, for instance, equipment financing. If you want to buy a dragline for your surface mining project, and don’t have the $35 million or so on hand to pay for it with cash, Wells Fargo can front you the money. Wells Fargo also handles crop insurance, commercial real estate, energy syndicated loans and more. Many of the Fortune 500 companies do at least some wholesale banking with Wells Fargo. That’s when they’re not transferring their risk. 

When a multinational with tens of millions of dollars in cash on its balance sheet needs somewhere to store that cash, Wells Fargo wholesale is where they do business. To be a Wells Fargo wholesale customer, you need annual revenues of at least $5 million. Wells Fargo’s wholesale operations have even greater reach than its community operations do. The bank has wholesale offices in 42 states, manned by 32,000 employees. That’s to say nothing of its wholesale offices across the globe, from Santiago to Seoul, Calgary to Cairo, and Sydney to St. Helier. All told, profits from wholesale banking totaled $8.7 billion in FY 2017, far more than wealth, brokerage and retirement operations.

Community Banking, Above All

Which leaves community banking, and hopefully it’s not too much of a spoiler to inform you that that’s where Wells Fargo is most successful. Community banking earned Wells Fargo $12.1 billion in 2017, on revenue of more than $48 billion. That margin might seem high, but it really isn’t. If you’ve ever been skeptical of how you can possibly be so big a profit center to a bank, what with your modest checking account balance and your restrained use of your debit card, understand that community banking is more than just ordinary people depositing their paychecks and maybe buying the occasional mortgage. To cite just one example, credit cards contribute hugely to Wells Fargo’s bottom line, as the people busy running up 5-digit balances ought to know. Wells Fargo boasts that its customers average more than six “products” per household, and wants to get that number up to eight. 

Scandals 

In December 2013 it was revealed by the LA Times that some fake accounts and credit cards had been opened by bank employees desperate to meet their sales quotas. At the time of the story, Wells Fargo denied the claims. It was only three years later in 2016 that the company would admit that more than 3.5 million unwanted accounts were opened.

Here’s what happened: In order to get bonuses, Wells Fargo employees needed to hit huge sales goals that many felt were unrealistic. Instead of finding real customers, employees just created accounts in existing names of Wells Fargo customers, even using fake email accounts and PIN numbers to sign them up, seemingly hoping no one would notice. Small amounts of money were even transferred to these accounts to make them look real. Needless to say, people were not happy about this, and Wells Fargo has lost much of the trust it had spent years building up. 

Wells Fargo promised to pay a total of $6.1 million to customers who had improper fees as a result of this business practice, fired 5,300 employees, and had its CEO step down. 

In April 2018, it was announced that the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency will collectively fine Wells Fargo $1 billion for its mistreatment of its auto loans and mortgage consumers.

In June 2018, the SEC revealed an investigation found Wells Fargo had supported active trading by brokerage clients on high-fee debt products that were supposed to be held to maturity. The bank without admitting or denying guilt, settled by agreeing to repay $1.1 million in ill-gotten gains and interest as well as $4 million in penalty.

Less than half a year later, in December 2018, Wells Fargo announced that a “computer glitch” resulted in approximately 500 customers losing their homes. The announcement was revealed in a report with the Securities Exchange Commission, in which Wells Fargo revealed that they had incorrectly denied 870 loan requests. About 60% of the homeowners affected by the glitch went into foreclosure.

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