future of finance

Here’s why Warren Buffett loves Wells Fargo

June 16, 2014
June 16, 2014

Sometimes it’s good to be boring. At least that’s the mantra Wells Fargo should tout to shareholders. The 162-year-old California-based bank (which was actually founded in New York City), is on the brink of becoming the most highly valued financial institution in US history, according to the Wall Street Journal. Wells Fargo’s current valuation—$279.92 billion—is just shy of eclipsing Citigroup’s high-water market capitalization of $282.75 billion, set back in February 1991. (Wells Fargo shares are up 13% so far this year, besting the 2.7% gain for the S&P 500 financial sector.)

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Besides being one of the biggest banks in the US—it is top in market value, but ranks fourth by assets—Wells is also probably one of the most boring. The vast majority of its revenues are derived from plain-vanilla lending to consumers and businesses. Still, the stability of the bank’s returns have earned it loyalty from the star investor Warren Buffett, who made Wells his number one position at his company, Berkshire Hathaway, which owns a stake worth around $24 billion. And the bank’s staid streak served it well in the run-up to the financial crisis. Unlike many competitors, Wells Fargo sidestepped the worst of the subprime mortgage lending and toxic securities that brought much of the financial system to the brink of collapse. Wells’ relatively small investment banking operation is also a boon, as trading activity has been slumping. More recently, however, Wells Fargo bankers have shown interest in subprime auto lending. The bank is now one of the country’s largest providers of subprime auto loans. And lately, the bank has been busy trying to offer its existing clients more financial products such as loans and credit cards (a process known as cross-selling), given the slowdown in home lending, a sector that it dominates.

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