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Wells Fargo: What Sets It Apart from Its Peers?

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Feb. 14 2017, Updated 3:35 p.m. ET

What sets Wells Fargo apart from its peers?

Wells Fargo is the largest mortgage lender in the United States, operating primarily as a retail and commercial bank (XLF). Wells Fargo is one of the few large banks that engages in minimal trading and investment banking operations. Its income is primarily derived from the traditional loan-making business. It is also Warren Buffett’s (BRK.A) largest holding.

In the past ten years, Wells Fargo’s (WFC) book value has grown twice that of JPMorgan Chase (JPM) and ten times that of Bank of America (BAC). It has been one of the most profitable banks in the United States, generating ~1.2% return on assets in 2016.

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Focus on traditional banking

Wells Fargo (WFC) focuses on traditional banking operations, such as writing loans and taking deposits. This relatively simple model reduces the risk in relation to peers JPMorgan (JPM), Goldman Sachs (GS), and Citigroup (C), which offer riskier services such as trading and investment banking.

US-focused operations

Wells Fargo’s operations and investments are more centered on the United States than its large-cap peers, making it much less sensitive to global events.

In 4Q15, WFC’s non-US exposure accounted for 4.4% of its total assets. In contrast, for Citigroup, JPMorgan Chase, and Bank of America, this ratio stood at 52.3%, 11.4%, and 10.9%, respectively.

Most profitable among peers

Wells Fargo has been the most profitable of its peers, posting returns of 10% on shareholder’s equity and 1.2% return on assets (or ROA) in 2016. During the same period, JPMorgan Chase (JPM) and Bank of America (BAC) generated ROA of 1.0% and 0.82%, respectively.

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