Wells Fargo Co., currently the third-largest bank in Los Angeles, says it plans to pursue a strategy of acquiring smaller community banks and other financial-service companies.
The ultimate goal is to gain additional market share by opening more branches in underserved areas, while at the same time retaining some of the customer loyalty typically associated with community banks.
It's a striking contrast to the recent pattern of big banks being bought by even bigger banks leading to massive layoffs and branch closures. The strategy was devised by top management of Norwest Corp., which acquired Wells Fargo last year and adopted its name.
"The new Wells Fargo has an appetite for acquiring branches in attractive areas of Southern California," said Paul Watson, the bank's vice chairman and the highest-ranking official now in Los Angeles. "And Norwest's formula of buying community banks has been proven to work very well at building market share."
In line with Norwest's pre-existing strategy of offering customers an extensive array of financial products, Wells Fargo's acquisitions will not be limited to banks.
"We will be looking at a broad spectrum of financial services in Southern California. Nothing is too small," said Lynn Pike, Wells Fargo's regional president for Los Angeles. "It will go beyond community banks and include mortgage, insurance and investment companies."
To that end, Wells recently set up a mergers-and-acquisition team headed by former Norwest M & A; experts.
The expansion strategy could be especially effective in Los Angeles because years of consolidation in the local financial community have left L.A. almost devoid of major bank headquarters. There are, however, many smaller community banks.
"There has been a fair amount of consolidation in that market," said Joe Morford, an analyst at Van Kasper & Co. in San Francisco. "So if Wells is looking to expand in Southern California, they will likely need to piece together a number of community bank franchises."
That could help Wells gain ground in L.A., where it is a distant third in terms of deposits and assets behind BankAmerica Corp. and Washington Mutual Inc.
And community banks come relatively cheap, according to analysts and banking executives.
In an era of low interest rates, most community banks are finding their profit margins squeezed. And while many customers profess to want the personalized service associated with smaller institutions, they also want the convenience, technology and broad array of services offered by large banks. Such services are typically too expensive for a community bank unless it has ties to a bigger partner.
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