What Is Wells Fargo Competitive Position

III. Marketing and Competitive Position
Wells Fargo has started rebuilding trust with their customers by sending out email blasts with a marketing strategy geared to reinforce their commitment to ethics and integrity focusing everything the bank does on the customers they serve.
Finances
The purpose of the financial analysis is to evaluate the financial stability of an organization. The analysis can help identify areas for possible improvement, and areas of strengths that will enhance or compliment the strategic plan of the organization. Investors as well as regulatory commissions and government agencies utilize Financial Ratios to obtain a perspective on the performance of a company when compared to its competitors over a period of time. Basically,
the ratios will display the financial health and profitability of an organization. This financial analysis on Wells Fargo will help us understand the current financial position of the institution as well as the possible prediction of future scenarios due to the recent scandals. This analysis will compare Wells Fargo to the major competitors in the banking industry, specifically Bank of America, N. A. and J. P. Morgan Chase. It will also reveal which area or service reflects the negative impact due to the unethical scandal currently under investigation at Wells Fargo.
In the banking industry a financial stability rating of at least 4% is required. This rating is an indication of how healthy the financial institution is and how it balances its capital and liabilities. To calculate this rating, the assets, the amount of equity, the number of current loans held by the bank, how much is held in reserve are all taken into consideration. A higher rating is an indication of a better position for the institution.
The Tier 1 Common Capital Ratio will tell how well the financial institution can hold off during financial stress while remaining solvent. The ratio is the measurement of the core equity capital compared with the bank’s total risk-weighted assets. The capital will include the sum of the bank’s equity capital plus the disclosed reserves, the common stocks and retained earnings and any other comprehensive income. The preferred stocks are excluded from this calculation.
The risk –weighted assets are those that are weighted for credit risk. The current tier 1 common capital ratio of Wells Fargo is 11.98%, (Appendix B). Meanwhile for Bank of America is 11.90%, and Chase is 12.5%. Although the 3Q 2017 result for Wells Fargo indicates a strong position amid the scandal, it shall not be interpreted as a solid position. This is due to the fact that in the last and current months the findings of the ongoing investigation at Wells Fargo continue to indicate that there is more trouble ahead for the organization.
Return on equity ratio is the amount of net income returned as a percentage of the shareholder’s equity.
In other words the ROE is the measurement of the profitability that shows how much profit the bank generated utilizing the shareholder’s money. The current return on equity ratio for the 3Q 2017 for Wells Fargo is 9.06%, while Bank of America has 8.1%, and Chase has 11%. At this time Wells Fargo remains stable when compared to the major competitors. Although the ROE for Wells Fargo for the previous period ending in June 2017 was 11.6%, the reported increase could be the result of the undergone adjustments by Wells Fargo due to the recent scandals and the current investigation. It is too early to establish a strong comparison for this ratio. (Appendix
C).
When customers trust their financial institution they are willing to deposit their money there. The growth or loss of such deposits is an indication of the quality of the bank and of the confidence of its customers. Bank of America and Chase reported a 1% increase in the total deposits over the last quarter of 2017. For the same period Wells Fargo reported an increase of 2% on customer’s deposit. This is encouraging for management and their strategic plan due to the scandal surrounding this institution.
Wells Fargo’s financial stability ratio for 2017 is 4.68 (Wells Fargo vs. Bank, 2017). When compared to the other two major financial institutions Bank of America scored 4.70 and J.P. Morgan Chase scored 4.80. Clearly, Wells Fargo is not the leader in financial stability at the moment. Furthermore, Credio takes into consideration the customer reviews and JD Power Ratings to calculate the Smart Rating. (Wells Fargo vs Bank, 2017). An indication of an overall quality bank is the result of a quantitative rating based on account fees, number of branches, annual deposit growth, interest rates, ratio of equity to non-current loans, and financial information from the Federal Deposit Insurance Corporation, (FDIC). Wells Fargo and Bank of America scored 93 while Chase obtained a score of 94 out of a 100. Overall Wells Fargo is still considered as a good quality financial institution in paper.
Wells Fargo News Release (Appendix D) reports a net income of $4.6 Billion for the third quarter ending in September, 2017.
However, due to higher operating losses as a result of the recent scandal and current investigations the total revenue of $21.9 billion is down 2% year-over-year (YoY) and down 1% over the last quarter, thus reflecting lower non-interest income. While the total average deposits of $14.4 billion are up 4%, the total average loan is down 1% or $5.1 billion. The (ROE) return of equity at 9.06% is down from 11.95% in the second quarter of 2017 (Appendix E). The efficiency ratio is up 4.4% from the second quarter of 2017. This is an indication that despite the capital levels remaining strong in the third quarter compared to the prior quarter, the efficiency ratio was in a negative trend as a direct result of the scandal discovered last September, 2016 and its continued developments. The purchase of $49.0 million shares of common stock has a direct effect on this capital position. However, the earnings per common share reflect a $.020 diluted earnings per common share for the third quarter when compared to the second quarter of
2017.