In his book “Good to Great,” Jim Collins tells the following story: In the 1970s and 1980s, Bank of America and Wells Fargo Bank had similar revenues and profit margins. Bank of America was led by a strong, egotistic CEO who, by dint of his personality and commanding nature, had assembled a passive team of “yes” men.
Wells Fargo, on the other hand, had assembled one of the most dynamic management teams in the industry. At Wells Fargo, people posed tough questions to one another and weren’t afraid to challenge the status quo. They felt free to challenge each other’s thinking. Their relationships were founded on mutual trust rather than mutual fear.
In the early 1980s, banking deregulation took place, triggering a revolution in the industry. The industry’s traditional profit margins were threatened. Wells Fargo’s management team saw the changes coming and focused on cutting costs. They recognized that banking was becoming a commodity business, with thinner profit margins than before. “Run it like you own it,” became their mantra.
In contrast, BofA reacted slowly. The country club culture prevailed. No one challenged the status quo. The result? Over a fifteen-year-period, from 1983 to 1998, Wells Fargo’s stock outperformed BofA’s by 500 percent.
That story comes to mind as I contemplate the new financial landscape. Wells Fargo’s takeover of Wachovia gives it the most branches of any bank in the United States. BofA’s takeover of Merrill Lynch makes it the largest brokerage in the world. BofA becomes the number one underwriter of global high yield debt. Wells is positioned to get new deposits. Both will see their shares purchased by the U.S. government under Treasury Secretary Paulson’s bailout plan.
So which bank will emerge the better? I’d bet on Wells Fargo. In this climate, I’d rather be the country’s largest commercial bank than the world’s largest holder of high yield debt. Stay tuned!
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