Wells Fargo (WFC) is among the top five banks in the United States, ranking in the third sport as of March 2022, after JPMorgan Chase and Bank of America. According to the company, it has more than $1.92 trillion in assets. The bank serves more than 64 million customers across the country and has more than 265,000 employees. The bank had a market capitalization of $165 billion as of July 2022. Wells Fargo reported net income of $21.5 billion earnings for the 2021 fiscal year.

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. So how does the bank make money? One way is by lending out money at a higher rate than it borrows. But there’s more to it than just earning money in interest. This article looks at how Wells Fargo earned its spot among the other big banks in the country.

Big, Regional Acquisitions

Wells Fargo was created by the 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, Wells Fargo merged with Norwest Corp. in 1998. A decade later, Wells Fargo bought out East Coast giant Wachovia. Add them all together, and Wells Fargo can now claim over 64 million customers from coast to coast. 

Today, Wells Fargo officially divides its operations into three categories for management reporting purposes.

Wealth and Investment Management

This segment services business clients and high-net-worth individuals (HNWIs) by offering them wealth management services, as well as investment and retirement products. Some of these services include financial planning, credit, and private banking.

Wholesale Banking

Wells Fargo’s wholesale banking division tends to the financial needs of U.S.-based and global businesses. There are 13 different business lines that fall under this category including business banking, corporate banking, commercial real estate, insurance, and credit risk.

Community Banking

This part of the bank’s operations services retail and small business clients with their everyday banking needs. Some of the services include checking and savings accounts, loans, mortgages. The bank serves these clients in its branches and by way of its automated teller machines (ATMs).

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, it also helps in other ways such as setting up foundations or solving inheritance issues before they arise. Every rich person knows—at least in the United States—that preserving one’s affluence can be almost as much work as it was to get wealthy in the first place. All told, Wells Fargo reported $2.2 trillion of net income from wealth management, in 2021. If that sounds substantial, it’s easily the least lucrative of the bank’s three areas of operations. 

The word wholesale 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’s wholesale division 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 that are manned by more than 30,000 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, net income from wholesale banking totaled $10.7 billion in 2019—far more than wealth, brokerage, and retirement operations.

Community Banking, Above All

Now let’s look at the community banking section. Community banking net income was $7.4 billion in 2019 on total annual revenue of $85 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.

According to the company, the community banking segment includes “checking and savings accounts, credit and debit cards, and automobile, student, mortgage, home equity and small business lending,” in addition to “the results of our Corporate Treasury activities net of allocations (including funds transfer pricing, capital, liquidity, and certain corporate expenses) in support of other segments and results of investments in our affiliated venture capital and private equity partnerships.”

Scandals 

The Federal Reserve imposed a cap on Wells Fargo’s assets worth more than $1.95 trillion due to its “widespread consumer abuses.” The cap caused the bank to lose hundreds of billions of dollars in stock market value. Wonder why? Here’s a long, but not exhaustive, list of the company’s scandals.

In December 2013, the L.A. Times reported that desperate branch employees opened fake accounts and credit cards in order to meet their sales quotas. At the time of the story, the bank denied all the claims. It was only three years later in 2016 that the company admitted that over 3.5 million unwanted accounts were opened.

Here’s why. 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 for existing Wells Fargo customers unbeknownst to them. The employees even used fake email accounts and personal identification numbers (PINs) 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.

Wells Fargo promised to refund customers who had improper fees as a result of this business practice and fired 5,300 employees. Even the bank’s chief executive officer (CEO) stepped down. According to the New York Times, Wells Fargo paid “more than $1.5 billion in penalties to federal and state authorities and $620 million to resolve lawsuits from customers and shareholders.” 

On April 20, 2018, it was announced that the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency fined Wells Fargo $1 billion for the mistreatment of its auto loans and mortgage consumers.

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

In August 2018, the company paid a penalty of $2 billion for allegedly misrepresenting the quality of residential mortgage loans a decade earlier.

Wells Fargo CEO Tim Sloan, who spent 31 years at the company and was trying to restore trust in the brand, stepped down unexpectedly in March 2019. “It has become apparent to me that our ability to successfully move Wells Fargo forward from here will benefit from a new CEO and fresh perspectives,” he wrote in a statement. Sloan faced pressure to resign from regulators and critics who saw him as too much of an insider to reform the bank’s culture.