If you want to do business with the biggest bank in the Western world, don't get on a plane to New York or London. The new place to go is sunny California.
Wells Fargo & Co., with its headquarters in downtown San Francisco, has shot ahead of the East Coast institutions that have long been the behemoths of the financial industry, including JPMorgan Chase & Co. andCitigroup Inc.
Although Wells Fargo still has fewer bank deposits than its closest competitor, its total stock market value is now about $178 billion — that's about $70 billion more than Citigroup and about $9 billion more than JPMorgan. It has even overtaken the largest bank in Europe, London's HSBC.
This newly assumed title is not just a quirk of the stock markets. It symbolizes an important shift that has taken place over the last year: Investors and bankers have increasingly lost faith in the old Wall Street model that helped New York consolidate its status as the financial capital of the world.
The new favorites in the banking industry are institutions that focus on the more straightforward business of taking in deposits and doling out loans. Wells Fargo is the only one of the four U.S. banks with more than a trillion dollars in assets that does not have a major Wall Street operation.
"A lot of the trading and Wall Street-type of revenues are just going to go away or become much lower," said Eric Oja, a bank analyst at Standard & Poor's. "Wells is already miles ahead in terms of that transition."
The bank has plenty to celebrate these days — on Monday its chief financial officer will ring the closing bell at the New York Stock Exchange to mark the company's 160th birthday this month. That comes a few days after the Federal Reserve announced that Wells Fargo stood up better than the nation's other mega-banks in stress tests.
Wells Fargo has zealously cultivated its image as a gigantic community bank. For instance, it has stuck with its iconic stagecoach logo instead of the geometric branding updates that others have tried. And the company has found an almost ideal personification in its chief executive, John Stumpf.
He grew up as one of 11 siblings on a dairy and poultry farm in rural Minnesota, where most of his family still lives. Although Stumpf now resides in San Francisco, where he walks to the office, he keeps the rounded vowels and homespun phrases of the Midwest and avoids the big displays of ego that have turned so many people off of Wall Street.
"I still know the price of milk, and the cost of commodities and education," Stumpf said in an interview with the Los Angeles Times.
Instead of talking about fast cars and fine wines, as is popular in East Coast circles, Stumpf is known for telling employees about his long power walks — during which he listens to the Bee Gees. He's even quick to hand out advice on how to prepare his family's gravy recipe.
"He spent an hour telling me exactly how to do it right, and then he followed up after Thanksgiving to make sure I did it right," said Lisa Stevens, head of Wells Fargo's retail operations in California.
The Wells approach seems to be working with customers. The bank regularly comes out ahead of its big peers in customer satisfaction surveys, and it is growing its loan portfolio at a time when many banks are cutting back.
Customers have responded, helping Wells Fargo overtakeBank of America Corp.in 2009 as the largest bank in California.
At a Wells branch in downtown Los Angeles, typist Jeanette Hall-Smith said she opened an account after having a bad experience with a bounced check at Bank of America.
"It's more of a warm atmosphere, and it's genuine to me. They take time out to really get to know a person," said Hall-Smith, 57. "I do have some mixed feelings because they're still strict when it comes to loans for individual people — they have a rigid criteria for people. So they're helping, but at a very slow pace."
Wells Fargo certainly has not avoided the scrutiny — or the fines and lawsuits — that have hit other big banks.
The company is the nation's largest servicer of mortgages and is paying
$5.3 billion as part of a nationwide settlement stemming from accusations that Wells Fargo and other big banks mishandled foreclosures — problems that were laid out in unflattering detail in a report from the Department of Housing and Urban Development's inspector general last week. Wells has also faced heat for introducing a $7 monthly fee for basic checking accounts in some states.
These problems come after the bank, like JPMorgan, received a $25-billion bailout through the government's Troubled Asset Relief Program. Wells repaid that money in 2009, but that hasn't halted criticism by the recent Occupy Wall Street movement.
For all his man-of-the-people demeanor, Stumpf has been the top-paid bank CEO, pulling down $19.8 million last year.
Protesters also showed up outside the home of the bank's chief financial officer, Tim Sloan, near Pasadena. Sloan thought it was unfair.
"Unfortunately a lot of the criticism of the financial services community is just misplaced, particularly as it relates to Wells," Sloan said. "We've made our share of mistakes, but when we make a mistake we listen and try to fix it."
Wells is not the only bank to benefit from the new world order in banking.
Over the last year, the financial firms with the best stock performance have all been large regional banks that focus on traditional lending and borrowing, led byUS Bancorp.The Minneapolis bank rose 23% during a time when the old standard-bearer of New York banking, Citigroup, fell 17%.
"The domestic retail bank is beating the hell out of international, market-driven banks," said Richard Bove, a bank analyst at Rochdale Securities.
Wells Fargo, which was founded in 1852 in the midst of the California Gold Rush, became a major player in Southern California when it bought First Interstate Bancorp in 1996. It became an industry giant in 1998 when it merged with the Minnesota retail bank Norwest, which is where Stumpf rose up through the ranks.
By the middle of the last decade, though, Citigroup and Charlotte, N.C.-based Bank of America seemed to be the wave of the future. They grew quickly both in the United States and internationally, infusing retail banking with opaque Wall Street trading operations. When the housing market was exploding in 2004 and 2005, Citi and BofA were both considered by investors to be worth more than twice as much as Wells Fargo.
In those years, Wells even fell behind in one of its traditional areas of dominance — mortgages. Industry experts now give Wells credit for consciously stepping away from the subprime mortgage market, along with other business lines that were minting money for Wall Street heavy firms.
"We saw many of our competitors tending to subordinate the rest of the customer relationship to whatever was sexy or exciting about investment banking," said Sloan, Wells' CFO. "We looked at that and said, 'Boy, this doesn't feel right.'"
The decision ended up sparing Wells many of the losses experienced by New York banks.
Wells turned down the opportunity to buy Calabasas mortgage giantCountrywide Financial Corp.Bank of America purchased it instead and has lost billions of dollars because of Countrywide's low-quality loan portfolio.
Instead of Countrywide, Wells bought struggling Charlotte bank Wachovia, which has ended up extending Wells' national reach with few of Countrywide's problems.
"It's not as if they did everything right, but they did most things right," said Scott Siefers, a bank analyst at Sandler O'Neill.
Wells also has not had to deal with many of the lawsuits, public criticism and new regulations that firms with big Wall Street operations are facing.
The so-called Volcker Rule, passed by Congress in 2010, has forced most of the largest U.S. banks to dump profitable but risky trading desks that made bets with the banks' money. And a rule passed by international bank regulators is forcing firms to hold more ultra-safe assets on their books.
Immediately after the financial crisis, it was Wall Street banks like JPMorgan and Goldman Sachs that roared back most quickly, booking record profits in 2009 and 2010. Over the last year, though, these banks have cut profit forecasts and laid off employees. New York Comptroller Thomas DiNapoli has estimated that Wall Street will lose 10,000 more jobs this year.
Wells Fargo is taking advantage of this situation by expanding its trading and investment banking operations. It recently opened big new offices in Chicago and Charlotte. But these business lines still account for less than a quarter of Wells' revenue, Sloan said, and the bank is seeing more of its growth from older strategies.
In California, the biggest state for Wells Fargo, and Los Angeles, the biggest single market for the bank, it is trying to get more customers to sign up for credit cards and more renters to buy homes. In a pilot program that debuted at a splashy two-day event in Los Angeles last month, Wells gave out $15 million to people who want to buy homes but cannot afford the down payment.
"Even though it's a member of the trillion-dollar-plus club, it's still at its core a pretty plain-vanilla bank," analyst Siefers said. "It's pretty much the same company it was a decade ago, only much larger."
Times staff writer Matt Stevens in Los Angeles contributed to this report.