Wells Fargo Balance Sheet Report
Introduction
Wells Fargo & Company is a multinational American based financial services company with numerous offices spread across the United States of America. The headquarter of Well Fargo & Company is based in San Francisco, California. This company is the fourth largest bank in the world by market capitalization and also ranked the fourth largest bank by the total assets in the United States. Wells Fargo & Company provides services like insurance, banking, mortgage, investments, consumer and commercial finance spread out in locations more than eight thousand and five hundred. The company also provides more than thirteen thousand ATMs, online, social, mobile and phone, correspondence, and email to satisfy the financial needs of the customers.
Balance Sheet and Liquidity
During the year of 2019, the balance sheet of Wells Fargo & Company still remains strong or well-built with powerful credit quality and a firm level of capital and liquidity. In December 2019 on 31st, the total assets for this banking company were $1.9 trillion. The short-term investments and cash dropped $10.0 billion from 2018 December 31st. This had an infect on the company by lowering the cash balances, partially offsetting the company by increasing the securities that were purchased and the federal funds that were sold. In the sector of the debt securities, they were an increase of $12.4 billion from 2018 December 31st, principally because of the increase in trading activities in the area of the economy and also held-to-maturity debt securities (Bansal, 2018).
From the balance sheet, then there is an increase in loans by $9.2 billion from the report of 31st December 2018, primarily because of the increase in industrial and commercial loans, increase in loans from the commercial real estate mortgage, increase in loans from real estate 1-4 family first mortgage, increase in automobile loans, lease financing and increase in credit card loans, partially offsetting by the decrease in loans from the commercial real estate construction, decrease in loans from the real estate 1-4 family junior lien mortgage and loans from other installment and revolving credit.
There was an average deposit of $ 1.3 trillion in the year 2019 up to $ 10.4 billion from the year 2018. This highly reflects on the tome deposits, commercial deposits, and the mortgage escrow deposits. The average deposit of Wells Fargo & Company was 67 basis points in 2019 up 23 basis points from the year of 2018. This is mostly brought up by the increase in proportional pricing f0r the both continued deposits and new deposits.
The Nonperforming assets of the Wells Fargo & Company in 2019 December 31st were $ 5.6 billion which is down $1.3 billion from the year before. There was a decrease of $ 1.2 billion in the Nonaccrual loans from the previous year that is December 31st, 2018. This is simply brought up by a marvelous improvement in the company specifically in the sector of consumer loan including a drop in the consumer nonaccrual which is from the sales of the company’s residential real estate mortgage loans and also the recategorization of real estate 1-4 family mortgage nonaccrual loans to the mortgage loans that are being held for the main purpose of selling.
From the balance sheet of the annual report of Wells Fargo & Company, the total equity has decreased steadily from $ 208.08 billion on December 31st, 2017 to $ 197.07 billion on December 31st, 2018, and finally to $ 187.98 billion in December 31st, 2019.
Credit Risk
A famous investor said that banks basically go broke for the reason that they make loans that are bad. More specifically, banks are bankrupt mainly because they are poor or bad at managing the credit risk (simply means the risk that is faced when a debtor is unable to pay the funds he or she borrowed. The huge losses that are accompanied by the bad loans have strictly added up to the largest lenders of the nations because of the financial crisis, in which the Wells Fargo & Company is not excepted. In the past two years, Wells Fargo & Company has written off close to a total of $ 6 billion in bad loans. Compared to the Bank of America which has also written off close to $ 13 billion over the same period, it is nonetheless 5 times the figure that it was written off in the two years before the crisis (Wang, 2018).
Fortunately, there are pieces of evidence that lead to the good news by pointing to the improvement of the Wells Fargo score. Two years ago, the peak was 3.7%, the percentage of nonperforming loans Wells Fargo to the total loans has decreased to 2.6%. Quarterly net wrote off have been sliced in half in comparison to the peak. And also, there is a change in direction in providing for the loan losses, as Wells Fargo has started to choose or select the releasing of provisions as the conditions for credit are being continued to be amended.
Interest Rate Risk
Wells Fargo makes profit by borrowing funds to others at lower short-term interest rates and the same funds are then loaned out to other borrowers at a higher long-term interest rate. The difference between the two above is known as the net interest margin. Wells Fargo accounts lie anywhere between $ 10 billion and $11 billion, or even more compared to the half of the Wells Fargo total revenue at each quarter.
Operation Risks
Wells Fargo & Company has been experiencing a very rough session for the past two years, In the year of 2018, there was a conclusion from the regulator investigations of the Wells Fargo failures in risk management. The failure was driven by the negligence of risk management and Wells Fargo resolved that case for an unparalleled $1 billion. The failures in risk management at Wells Fargo are systematic in nature, generally, resulting in a highly visible scandal that can be prevented. In May 2018, Wells Fargo launched a new campaign known as the Re-Established with a specific target or regaining and getting new trust from the customers after their multiple risk management failures. The members of the public disagreed with the campaign claiming that the campaign looks like it is inauthentic and insincere.
For the past two years, Wells Fargo has been trying to expound or explain away for the events as highlighted, incomparable. Nevertheless, after the fines of billion dollars and multiple financial losses, and actions of penalizing regulatory, it looks like Wells Fargo & Company is joining finally the Logic Manager in addressing their operational risk as they called it a risk management failure (Sudjianto, 2017).
Reference
Bansal, V. (2018). A Statistical Inquiry into the Correlation of Income and Balance Sheet Metrics on Equity Valuation. Journal of Accounting and Finance, 18(5), 171.
Sudjianto, A. (2017). Quantitative risk management and stress test to ensure safety and soundness of financial institutions. IFC Bulletins chapters, 44.
Wang, Y. (2018). The Relationship Between Risk and Performance in Bank Wells Fargo Bank. Available at SSRN 3302064.