What Does Wells Fargo's Profit Mean To Me?

Wells Fargo’s acquisition of Wachovia was the biggest bank merger in US history. The merger was finalized in the fourth quarter of 2008 and with the joining they had 6.1 billion in charge-offs. So how do you come back from that and what does that mean to us – the taxpaying citizens who are bankrolling these institutions?

A few things need to happen to turn the financial industry around and with it our economy:

First we need credit flowing, if banks don’t lend businesses don’t grow, people won’t spend, and homes cannot be bought and sold.

Second we need banks to be profitable again, they need to have capital, they need to have sources to get their capital from and they need to be able to sustain themselves without the governments help.

Third we need to see these banks grow. We have lost institutions, seen mergers, and most if not all have shrunk which means they laid people off. If we can get banks growing again we will put people back to work with jobs and lending resources.

Finally we need the banks to build back the trust they lost. If we don’t find a way to support our lending institutions we will not see a sustainable growth which means a longer recession and possibly another decline.

Where is Wells Fargo seeing their profits come from? Well Wells Fargo owes a big thanks to their Wachovia merger.

"This was the deal that made them," said banking industry consultant Ken Thomas of Wells Fargo's acquisition of Wachovia, citing its strong franchise value and small businesses lending operation. "It was a very good decision by Wells Fargo. Wachovia could not have survived on its own. They had a run on deposits."

According to Howard Atkins in a CNBC interview today Mortgage business is booming, deposit inflow is good, there is good volume and profitability. The housing market is not out of the woods yet, but Wells is seeing good activity most notably in California. Wells Fargo had 190 billion in mortgage applications in the first quarter, a good majority of that from California. They closed loans for 800,000customers across the country, with California being a big percentage of those loans. Atkins says Wells is extending a lot of credit, trying to keep credit flowing, and their losses are behind them. With this news Wells Fargo stock surged up 25% today. Atkins plan to keep them going; “extend credit, be profitable, and grow”. Sounds good to me!

This news from Wells Fargo has already stimulated a good day on Wall Street, its shares, according to BBC News, led US banking stocks higher and helped to push the broader Dow Jones average up 2.3%. Bank of America shares gained 20.7%, Citigroup rose 8.5% and JP Morgan climbed 11.4%.

For you and I this means some people may have gained back some of their 401K, mutual fund, and stock losses today. The hope from news like Wells Fargo’s profitability will go a long way in changing our perceptions of how our economy is progressing and how soon we will see our way out of this downturn. As we know perception often times dictates our actions, so as our outlook changes so too will our spending, hiring, and growth potential. So let us hope that Wells Fargo is only the first this quarter to give us good news, and we see more announcements like this throughout the next two quarters.

By Bridget Ayers owner of GSW Consulting who blogs at

The Get Smart Blog