Galloping away from Wells Fargo


Dear Mr. Berko: In August of 2014 you told me not to buy Wells Fargo. And in April of 2015 you said that the company would increase its earnings and dividend but that you didn't care for the stock. This is a huge bank with a great growth record. I'd like to sell my 50 shares of Costco that I bought at $108 and buy 200 Wells Fargo at $56. Please tell me why you wouldn't buy Wells Fargo stock. — SB: Oklahoma City
Dear SB: I don't trust its executive personnel; I don’t trust branch management; and I don’t trust its board of directors. Even though Wells Fargo (WFC) now trades at $48 and is expected to increase its revenues, income and dividends again this year, and even though six brokerages rate WFC as a “strong buy,” my sense of probity won’t allow me to recommend it. Recommending WFC suggests that I approve of its crooked and unacceptable business practices.

Wells Fargo is headquartered on Montgomery Street in San Francisco, a couple thousand miles west of Wall Street. Because of its distance from Wall Street, I believed WFC wasn’t infected by the cupidity, the insatiate venality, and the foul, extortionist and larcenist conduct that defined, Bank of America, J.P. Morgan, Citigroup, Morgan Stanley, Goldman Sachs, etc. Wow, was I wrong.

An ex-WFC Florida employee, and others, have described to me the incredible pressure that devolved upon WFC employees to order credit cards for customers without permission, sell overdraft protection to customers who don’t need it and forge account holder’s signatures. Then WFC management had employees open ghost checking and savings accounts with forged applications for customers. These accounts were never used nor authorized but resulted in monthly service fees. Reportedly, WFC employees opened accounts for homeless people and sold them identity and theft protection to generate monthly fees.
Other employees assigned a second PIN number to customer’s debit cards then opened online banking accounts (without permission) that automatically debited account fees from authorized accounts. Then WFC took money from authorized accounts to pay fees for unauthorized accounts. And when the unauthorized fees were not paid, WFC forced those customer’s accounts into collection.

The ex-employee explained that tellers are required to report certificate of deposit transactions (primarily those of easily influenced seniors) to generate insurance or annuity purchases by introducing trusting seniors to a sales person. And those annuity commissions were as high as 8 to 12 percent, while certain life insurance commissions exceeded 100 percent. According to my sources, WFC employees have assigned sales goals that are enforced by frequent monitoring and the results are reported to WFC’s district managers each day for review. Employees attend daily sales meetings and objecting employees who don’t meet quotas are fired. Tellers earn 3 percent of the fees they generate while the bank’s sales people earn between 15 percent and 30 percent. The litigation over these alleged practices would be mindboggling.

Don’t sell Costco (COST-$151), which has one of the best business models in the retail industry. Unlike its big-box industry peers, COST’s business model generates net profit margins at almost 3 percent, higher than Wal-Mart’s 2.3 percent. COST generates about $165 million in revenues per unit location vs $90 million per unit at Sam’s Club. On a square foot basis, this translates to $1,100 net sales, versus $400 for Wal-Mart and $680 for Sam’s club. That’s impressive! And in contrast to its big-box peers, COST’s international operations in the U.K., Taiwan, Korea and Australia produce 14 percent returns, well above its 7.2 percent capital costs. COST’s membership fee model, and its high customer quality base, compared to Wal-Mart and Sam’s, generates the highest near-term cash flow visibility in the retail sector. And its loss-leader capabilities model (much superior to Wal-Mart’s) will continue to create good market share gains over the long term. COST is so remarkably efficient that it collects cash from customers before it has to pay its suppliers. Revenues and earnings should improve by 10 percent this year and 23 brokerages suggest a high target price of $200. If you had bought 100 shares at COST's IPO price of $10 in 1985 and reinvested all dividends, it would be worth $107,000 today. Please keep Costco.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@ To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at