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Finance

World's most valuable bank shuns risk, focuses on home market

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The San Francisco-based bank is No. 1 in U.S. retail deposits.   © Reuters

NEW YORK -- The world's most valuable bank by market capitalization is not the biggest in America by assets, nor even the second-largest. Fourth-ranked Wells Fargo gives investors peace of mind not by its size, but by a conservative, Main Street-focused business model that avoids high-risk investment banking.

     "The kitchen tables are more important for us than the investment-bank-league tables," Chairman and Chief Executive Officer John Stumpf told The Nikkei in a recent interview.

     San Francisco-based Wells Fargo is the only top American bank headquartered on the West Coast. Beyond this geographic distance, it stands apart from Manhattan-based JPMorgan Chase and Citigroup -- the largest and third-largest U.S. banks by assets -- for its ambivalence toward growth in investment banking.

     What it lacks in this department it makes up for with strength in retail and commercial banking. Wells Fargo ranks first in the U.S. in retail deposits, mortgage origination, auto lending, middle-market commercial lending and commercial real estate origination. These businesses may seem humdrum by comparison with Wall Street, but they are steady earners. Wells Fargo reported a $21.8 billion net profit for 2013, surpassing JPMorgan for the first time.

Best deal ever

Wells Fargo gained a formidable presence in the East with its 2008 acquisition of Wachovia Bank -- "the best deal we've ever done," in Stumpf's words. "Maybe the best deal ever done anytime anywhere in the world."

     The Lehman Brothers collapse that September sent shock waves through U.S. banking. An early consequence was a run on Wachovia, then one of the country's biggest lenders. In the regulator-led search for buyers that ensued, Citi got the nod first. Wells Fargo had told the Federal Deposit Insurance Corp. that it needed more time to study the deal, according to Stumpf.

     "If we couldn't figure it out, we didn't want to buy it," he said.

     After days of due diligence, Wells Fargo found Wachovia to be in decent shape. It offered $15 billion for the embattled bank, beating Citi's bid, which was predicated on government assistance.

     This acquisition gave Wells Fargo coast-to-coast reach. Not all crisis-era banking deals went off as smoothly. Bank of America, now No. 2 by assets, incurred colossal losses on arguably ad hoc acquisitions. And Citi's American network still pales beside Wells Fargo's.

     Wells Fargo is "committed" to the U.S., Stumpf said. The bank earns 97% of its revenue domestically, and what international operations it has are "mostly to serve our U.S. customers when they do business abroad," he explained.

      A parallel in Japan might be Resona Holdings. But the two banks look on vastly different levels of potential growth in their home markets.

     "There are oceans of opportunity still in this country," Stumpf declared.

     Even with a market cap of $280 billion, the 160-year-old bank thinks of customers as "guests" rather than "counterparties," he said. Wells Fargo prides itself on customer service, keeping tabs on its own performance via in-house surveys. Its new ATMs, a selling point, have a typically American feature: instant donations to domestic and international disaster relief funds. The first of these campaigns raised some 200 million yen ($1.6 million) for northern Japan's tsunami-ravaged Tohoku region.

     Stumpf has worked at Wells Fargo for 33 years. "I don't know all of our 265,000 people, but I know someone in every business," he said.

     "This is not just a place I go to work. This is family to me," a rather Japanese view, he added.

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