WELLS FARGO ANNOUNCES FIRST QUARTER EARNINGS
Richard Kovacevich likes to proclaim that Wells Fargo is much more than a bank. It's a refrain that has echoed throughout the banking business ever since the late 1990s, when the quest to become the ultimate full-service financial institution became an industrywide obsession. , he makes the message clear. "Most people think in terms of banks, brokerages, insurance companies; they haven't grasped the totality of financial services," says Kovacevich. "We're not in the banking business. We're in the money business."
It would be easy to dismiss this charismatic CEO as just another one-stop banking evangelist if Wells Fargo's record weren't so impressive
THE SECRET SAUCE
The key to Wells Fargo's success: mastering the cross-sell--the art of persuading an existing customer to buy more than one product. In this case, it's getting the checking account holder to use the bank's brokerage services, buy insurance or take out a mortgage or home-equity loan. In fact, the typical household buys about four products from Wells Fargo--twice the industry norm, says Accenture's Trevor Gruzin. And a client who buys four products is 35% more profitable than one who buys two products
The key to Wells Fargo's success: mastering the cross-sell--the art of persuading an existing customer to buy more than one product. In this case, it's getting the checking account holder to use the bank's brokerage services, buy insurance or take out a mortgage or home-equity loan. In fact, the typical household buys about four products from Wells Fargo--twice the industry norm, says Accenture's Trevor Gruzin. And a client who buys four products is 35% more profitable than one who buys two products
He also points to scores of initiatives, all of which emphasize convenience, service and flexibility. For instance, customers fill out only one application to get the "Wells Fargo Pack," which includes checking and savings accounts, a credit card, a home-equity loan and Internet banking. There's also a single sign-up form for all products available online, including mortgages and bill-payment services. And when you take out a mortgage, the bank offers you a home-equity loan automatically. It sounds simple, but such commonsense practices remain remarkably rare in the industry.
Other reasons why Wells Fargo has been able to succeed where so many banks haven't, says Kovacevich, include the way it compensates employees and fashions its business lines. Employees are rewarded for selling a greater number of products, rather than for pushing only those that are most profitable. Furthermore, business decisions are made at a regional, rather than a national, level. This, explains Kovacevich, lets local managers set prices, formulate packages and establish practices appropriate for their locale. As David Stumpf of A.G. Edwards notes: "[Wells Fargo] hasn't invented any great product. Instead, it's all about execution, leadership and consistency."
Wells Fargo (WFC 19.61, +4.72) isn't scheduled to officially announce first quarter earnings results until April 22, but came out this morning to let investors know it expects to earn $0.55 per share for the quarter. Analysts had forecast earnings of just $0.24 per share. Wells Fargo also indicated its combined net charge-offs are down sequentially and that the legacy Wachovia business is operating well.
Wells Fargo's announcement seemed to contradict a handful of pessimistic comments and reports, and helped restore investor confidence in bank stocks. Diversified banks advanced 28.9%, while the KBW Banking Index climbed 20.1%.
Leadership from banks and other financial stocks helped bring about broad-based buying in each of the major indices. In turn, all three major indices were able to log their best single session percentage gain in two weeks and close at session highs. Each index advanced more than 3%. Small- and mid-cap stocks fared even better; the Russell 2000 Small-Cap Index spiked 5.9%, while the S&P 400 Mid-Cap Index tacked on 5.5%.
There weren't any market-moving earnings announcements released today. However, plenty of retailers were out reporting same-store sales results for March. Though the numbers generally showed declines, they weren't necessarily as bad as many had expected. That, combined with a positive bias in the broader market, helped retailers climb 4.6%.
Wells Fargo's announcement seemed to contradict a handful of pessimistic comments and reports, and helped restore investor confidence in bank stocks. Diversified banks advanced 28.9%, while the KBW Banking Index climbed 20.1%.
Leadership from banks and other financial stocks helped bring about broad-based buying in each of the major indices. In turn, all three major indices were able to log their best single session percentage gain in two weeks and close at session highs. Each index advanced more than 3%. Small- and mid-cap stocks fared even better; the Russell 2000 Small-Cap Index spiked 5.9%, while the S&P 400 Mid-Cap Index tacked on 5.5%.
There weren't any market-moving earnings announcements released today. However, plenty of retailers were out reporting same-store sales results for March. Though the numbers generally showed declines, they weren't necessarily as bad as many had expected. That, combined with a positive bias in the broader market, helped retailers climb 4.6%.
WHO IS KOVACEVICH
A native of Tacoma, Washington, he grew up in Enumclaw, Washington. At Stanford University he received BS and MS degrees in industrial engineering, followed by an MBA degree from Stanford Business School in 1967. Early in his corporate career he was a planning and division general manager with General Mills before joining Citicorp.
At Citicorp he was made head of regional retail banking. Kovacevich was told by his team that Citibank had 30% market share but was losing 108 million dollars a year. Probing deeper, Kovacevich realized that they meant that Citibank had 30% checking account market share (in other words, 30 percent of all people who lived in the Citibank regions had a checking account with Citibank). In reality, Citibank only had 6% market share of deposits (the vast majority of money being in Savings and Loans, Credit Unions, and other institutions). Kovacevich expanded Citibank aggressively into other areas such as mortgages.
He then joined Norwest Bank as chief operating officer and head of the retail banking group in March 1986. At Norwest, Kovacevich confronted a similar situation. Norwest was mostly centered in Minnesota and Iowa at the time, with a relatively small population in both states. Kovacevich realized the only way he could keep growing the company would be to expand beyond banking services, into investment and insurance services as well. Kovacevich theorized that eventually it would be impossible for any bank to continuously grow if it did not do this. Kovacevich instituted the new strategies while serving as president of Norwest from 1989, chief executive officer from 1993, and chairman from 1995. The higher revenues, relative to stable fixed costs which this method produced allowed Norwest to purchase many other banks, culminating with the 1998 merger with Wells Fargo. After the merger, he was given the positions of CEO and president of Wells Fargo. In 2001 Kovacevich was elected chairman as well.
Kovacevich is responsible for many trends currently found in the financial services industry:
Calling branches "stores", instead of "branches". This is a reference to both the diversified products they sell, beyond normal banking products, and also to the sales focus the employees have. Washington Mutual and other banks at the present time are currently calling their branches "stores".
Expansion into non-traditional banking businesses, such as investments and insurance. This culminated in the Gramm-Leach-Bliley Act.
Integrated cross-sell strategy. This strategy is to market most products only to existing customers, primarily by employees, instead of each product line attracting its own customers via its own marketing. This method can be cheaper and more successful.
Kovacevich has also pushed many controversial views. He believes that FDIC insurance should be privatized, and that Fannie Mae and Freddie Mac should have no government backing in the event of a failure (quite the opposite of the course actually pursued by the United States Congress and the White House when the two lenders became insolvent in September 2008). He has also been very vocal against the expensing of stock options, and has twice disobeyed shareholder requests to do so.
He relinquished the presidency of Wells Fargo to John Stumpf in August 2005. On June 27, 2007, the board of directors elected Stumpf CEO, with Kovacevich retaining the chairmanship.
Besides Wells Fargo, Kovacevich is a director of Cargill, Inc., Cisco Systems, Inc., and Target Corporation. He is also vice president of the board of governors of the San Francisco Symphony, vice chairman of the San Francisco Museum of Modern Art, and a member of Governor Arnold Schwarzenegger's California Commission on Jobs and Economic Growth, the National Infrastructure Advisory Committee, and the Financial Service Roundtable.
In the political realm, he has been a member of Pete Coors for Senate, Romney for President, the National Republican Congressional Committee, and the New Leadership for America Political Action Committee.
At Citicorp he was made head of regional retail banking. Kovacevich was told by his team that Citibank had 30% market share but was losing 108 million dollars a year. Probing deeper, Kovacevich realized that they meant that Citibank had 30% checking account market share (in other words, 30 percent of all people who lived in the Citibank regions had a checking account with Citibank). In reality, Citibank only had 6% market share of deposits (the vast majority of money being in Savings and Loans, Credit Unions, and other institutions). Kovacevich expanded Citibank aggressively into other areas such as mortgages.
He then joined Norwest Bank as chief operating officer and head of the retail banking group in March 1986. At Norwest, Kovacevich confronted a similar situation. Norwest was mostly centered in Minnesota and Iowa at the time, with a relatively small population in both states. Kovacevich realized the only way he could keep growing the company would be to expand beyond banking services, into investment and insurance services as well. Kovacevich theorized that eventually it would be impossible for any bank to continuously grow if it did not do this. Kovacevich instituted the new strategies while serving as president of Norwest from 1989, chief executive officer from 1993, and chairman from 1995. The higher revenues, relative to stable fixed costs which this method produced allowed Norwest to purchase many other banks, culminating with the 1998 merger with Wells Fargo. After the merger, he was given the positions of CEO and president of Wells Fargo. In 2001 Kovacevich was elected chairman as well.
Kovacevich is responsible for many trends currently found in the financial services industry:
Calling branches "stores", instead of "branches". This is a reference to both the diversified products they sell, beyond normal banking products, and also to the sales focus the employees have. Washington Mutual and other banks at the present time are currently calling their branches "stores".
Expansion into non-traditional banking businesses, such as investments and insurance. This culminated in the Gramm-Leach-Bliley Act.
Integrated cross-sell strategy. This strategy is to market most products only to existing customers, primarily by employees, instead of each product line attracting its own customers via its own marketing. This method can be cheaper and more successful.
Kovacevich has also pushed many controversial views. He believes that FDIC insurance should be privatized, and that Fannie Mae and Freddie Mac should have no government backing in the event of a failure (quite the opposite of the course actually pursued by the United States Congress and the White House when the two lenders became insolvent in September 2008). He has also been very vocal against the expensing of stock options, and has twice disobeyed shareholder requests to do so.
He relinquished the presidency of Wells Fargo to John Stumpf in August 2005. On June 27, 2007, the board of directors elected Stumpf CEO, with Kovacevich retaining the chairmanship.
Besides Wells Fargo, Kovacevich is a director of Cargill, Inc., Cisco Systems, Inc., and Target Corporation. He is also vice president of the board of governors of the San Francisco Symphony, vice chairman of the San Francisco Museum of Modern Art, and a member of Governor Arnold Schwarzenegger's California Commission on Jobs and Economic Growth, the National Infrastructure Advisory Committee, and the Financial Service Roundtable.
In the political realm, he has been a member of Pete Coors for Senate, Romney for President, the National Republican Congressional Committee, and the New Leadership for America Political Action Committee.
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