Wells Fargo CEO is exploiting benefits of merger with Norwest

Phil Levine

Wednesday, April 5, 2000 | 11:08 a.m.

Can a bank with 6,000 U.S. offices, 90,000 employees and $217 billion in assets achieve success touting the benefits of financial individualism?

Dick Kovacevich, chief executive officer of Wells Fargo & Co., believes the answer is yes and wants the nation's sixth-largest bank to provide customers a soup-to-nuts menu of personalized financial products and services.

"We don't necessarily have to be the biggest (bank)," he said. "But we want to offer a range of products and services that recognize every client is different. So, we're not going to say to each customer 'hey, you look like you could use a CD today.'

"Instead, our goal is simply to provide whatever financial services each customer may need. We want to be much more than just a bank."

Kovacevich is visiting Las Vegas this week, meeting with Wells' employees and reviewing the bank's Nevada operations.

Although his stated goal may not be to grow Wells into the nation's largest bank, recent acquisitions have significantly increased the Nevada presence of the San Francisco-based financial giant.

Kovacevich took over the reins of Wells' corporate stagecoach following its merger with Minneapolis-based Norwest Corp.

Today, the new Wells Fargo operates 6,000 U.S. offices and more than 2,800 retail branches spanning 23 Western states.

Kovacevich says the differences between the old Wells Fargo and Norwest actually helped make the merger more successful.

"We were able to take full advantage of the different strengths of each bank," he said.

"For example, Wells was very prominent in higher growth -- but more volatile -- Western markets. Norwest, however, was a more dominant bank in the Midwest where markets tend to grow slower but are also less volatile."

Kovacevich said Wells' previous strengths in online banking, small business lending and commercial real estate fit well with Norwest's leadership in the mortgage sector.

In stark contrast to its merger with First Interstate Bank, Wells' union with Norwest is seen by industry watchers as a well-executed transaction.

"I think many (analysts) have been pleasantly surprised at how well the merger went, especially given their differences," said Joe Morford, analyst with Dain Rausher Wessels of San Francisco.

"Management has done an excellent job in integrating Norwest's products and sales strengths with Wells' operating efficiency."

In Wells' Nevada operations, Kovacevich cites the bank's long-standing ties to the gaming industry as another example of the synergy created by the Norwest merger.

"The old Wells Fargo was a pioneer in financial dealings with the gaming industry," he said. "Frankly, that's a business I didn't know much about (coming from Norwest.)

"But we believe it's as important to be involved with the gaming sector in Nevada as it is to be involved with the agricultural industry in Iowa. We want to be part of each community we do business in."

Other large Nevada banks, including Bank of America and U.S. Bank, are also active players in the gaming sector.

Although banking stocks have lagged in recent months, Wells' stock has been one of the stronger performers in the sector.

The company's stock price is currently trading at about $42 per share. While that's off from its 52-week high of $50, the stock's been on the rise for the past several months.

In Nevada, as elsewhere, Wells' merger-related growth finds the company nipping at the heels of longtime rival Bank of America.

In the wake of the Norwest merger, Wells has 114 Nevada branches with assets of $4.3 billion, compared to B of A's 75 Nevada offices with total assets of $4.6 billion.

The Norwest merger also boosted Wells' position in the home mortgage industry.

Prior to its merger with Wells, Norwest was a giant in mortgage origination and construction loans; the old Wells Fargo was not a major player in the mortgage sector.

For its part, the old Wells Fargo was a leader in small business loans; in 1998, the bank provided $9.9 billion in loans to small companies.

Although best known for its signature 19th century Western stagecoach, the new millennium finds Wells embracing the brave new world of e-commerce.

Wells currently boasts about 1.6 million online banking customers.

Kovacevich acknowledges the growing importance of online commerce to his company's future growth.

"We have been a leader in online banking for some time now," he said. "I'm not saying that 90 percent of our customers will bank online anytime soon. But I believe the Internet is going to be an important channel for our customers forever more.

"We didn't start out with 6,700 ATMs, but grew that way in response to customer demands. If customers ask for more ATMs -- or more online banking -- we will provide it for them."

In March, Wells introduced its eStore Business Solutions package created specifically for mid-sized businesses. The product provides a range of online services, including catalogs, merchandising management and warehouse and fulfillment technology.

Wells also recently announced several other e-commerce related partnerships.

Last month, the bank assumed a minority stake in online auctioneer eBay Inc.'s Billpoint subsidiary. As a result of the deal, credit card payments for purchases made on eBay can go directly through eBay using Wells' bill-processing technology.

Wells' subsidiary Norwest Mortgage is also one of several financial institutions partnering with technology giant Microsoft Corp. in the creation of a new online mortgage venture dubbed HomeAdvisor Technologies Inc.

Terms of the deal were not disclosed, but Norwest Mortgage will have an equity interest in the company.

In recent months the question of ATM fees was pushed to the forefront following lawsuits filed by two California cities against Wells and B of A.

The suits, brought by San Francisco and Santa Monica seek to limit the banks' abilities to charge non-customers ATM user fees.

Kovacevich provides an animated response to queries about ATM fees.

"Look, I only have two questions regarding that issue," he said. "Why should we provide our competitors' customers with a free service? Is that the American way?

"The vast majority of people know it's unfair to expect us to do that. That's why the judges in California have so far dismissed this issue.

"I don't like paying $3 for popcorn at the movies? Should we pass a law outlawing that? Fair-minded people understand they are paying for the convenience of a service provided."

Back in Nevada, the ongoing battle for the hearts and wallets of bank customers took a byzantine turn last week with the rejection of a proposed merger between the state's third and fourth-largest financial institutions.

Shareholders of Zions Bancorporation, parent of Nevada State Bank, gave thumbs down to the union of their company and crosstown Salt Lake City rival First Security Corp.

Industry experts speculate Wells may be one of the potential suitors of either Utah bank, although First Security is seen as the more likely candidate for acquisition.

If Kovacevich has his sights set on either bank, he's not saying.

"That was a unique situation, as far as I can tell," he said. "Usually, mergers either do or don't work out after they're completed.

"I wouldn't want to speculate about future partnerships. We are always interested in growing our company, but we see that coming from selling more products to customers rather than through acquisitions."

A Wells Fargo purchase of any big Nevada banking operation would likely run into antitrust problems, thus requiring the sale of branches to maintain competition in the market.

Also reshaping Wells Fargo's future is legislation passed last fall by Congress loosening restrictions on the nation's financial institutions.

The Bank Modernization Act removed decades-old limitations on the partnerships permitted between banks, insurance companies and securities firms.

Hoping to capitalize on the new law, last month Wells completed its acquisition of Seattle-based brokerage firm Ragen MacKenzie Inc.

Critics of the new legislation, including Nevada Sen. Richard Bryan, have expressed concerns about the sharing of private customer information between banks and their new partners.

Not surprisingly, Kovacevich is a big booster of the new bank regulations.

"Ask yourself, how can we provide personalized financial advice if we don't have all the necessary information to do so," he said.

"Can an insurance agent provide you the best possible insurance without gathering information and going out to find the best rates and policies available?

"I understand why some people may have some concerns, but our policy about not sharing personal information with third-party marketers is clear. It's just good business practice. If we hope to increase our sales to customers, we can't leave them with a bad taste in their mouth."

Despite recent stock market volatility, Kovacevich remains an unbridled economic optimist.

"The economy is unbelievably strong right now," he said. "There is no chance of a recession until maybe second quarter 2001 at the earliest.

"I think that (Federal Reserve Chairman Alan) Greenspan is raising interest rates because it's really the only tool he has to slow our red-hot economy. Even if our growth is cut in half, this will still be a good year economically."

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