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Credit Analysis

Along the area of credit risk, Well Fargo has been quite successful in insulating itself from the volatile and risky credit market by concentrating its lending operations to a wider market along retail banking which can be called a core source of stable income and deposit base compared with a more wild-fluctuating corporate accounts which can put Wells Fargo to a riskier position during difficult times.

Its broad diversification into 80 plus businesses provided Wells Fargo with the financial muscle to utilize these target areas into fresh growth opportunities which is the bank’s identified core competence and advantage over its peers and competitors. Wells Fargo has a relatively good credit profile in its $63 billion portfolio. Its huge focus on the retail sector assisted by its 6,000-strong servicing branches and even 9,000-strong mortgage service centers enable it to closely monitor credit operations with a high 44 percent first lien position.

About half of its credit exposure is on fixed rate, hence protected from both low and high-end fluctuations in the highly volatile credit market. With the acquisition of Wachovia, Wells Fargo was able to double its retail customer base to 16 million and its retail distribution system through stores, ATMs and commercial

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lending offices. With its strong online retail baking, it is able to intensify its collection. On the other side of the credit picture, Wells Fargo is rated high by the both Moody’s and Standard and Poor. Investors Service as well as the Fitch’s Ratings.

Some sectors even as Wells Fargo Bank as the world’s safest US bank (WP, 2008). This is reasonably due to its conservative credit and operations control policy structure adopted by management. Leverage With $1. 42 trillion in resources, Well Fargo is able to leverage positively its position vis-a-vis its liability component with the Wachovia acquisition which further strengthened its cross-selling potential in various areas such as non-interest bearing deposits amounting to $89 billion which was further strengthened to $145 billion with the Wachovia equivalent.

Mortgage origination reached $225 billion and credit card penetration to 50 per cent total. Based on Table 1, Well Fargo’s stable leverage position is provided by its long-term position that enables it to take advantage of it debt/equity resources to the maximum with plenty to spare. There are a number of factors that further contribute this favorable leverage position. Among them the significant retail component of its portfolio and its noninterest bearing deposits providing the solvency muscle towards the long term.

In addition, the above figures put Wells Fargo a strong leverage position against its debt primarily due to the exceptional capability to generate cash through acquisitions, retail banking and even preserving its cash position through a series of stock dividend distribution that further reduced its reliance on its core liability position in favor of equity positioning. Table 4 shows the productivity and efficiency factor in terms of gross and net revenues generated per employee.

This indicates the depth by which employees of Wells Fargo participate in revenue generating activities which can likewise be benchmarked along the compensation factor the bank is providing each employee. On a comparative basis, this will showcase the degree of annual productivity and contribution by each employee towards the total income produced by the company, This is helpful in determining and comparing the efficiency factors of various units of the bank toward identifying which units and branches are able to produce more in terms of revenues and other forms of business.

Wells Fargo’s philosophy of control priority before integration remains stable and creates the efficiency factors along with other operational interventions and policy structure such as due diligence mindset of its top management careful planning of integration processes along liquidity, credit granting, trading among others, rather than just mere integration acceleration.

Industry best practices wherever these come from, will continue to pervade its operations to ensure customer satisfaction henceforth growth and profitability. These efficiency packages are what Wells Fargo calls the go-forward systems configurations and best of breed approach. Fortunately, Wells Fargo and Wachovia each possess excellent systems assuring its customers with excellent services and its shareholders value in their investments with bank management expected to generate significant savings in the strategic period.

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