Wells Fargo Profits on the Backs of Savers

Wells Fargo posted a first quarter profit today that exceeded analysts expectations.  CFO Howard Atkins came right out and said it was because they are no longer paying high rates on deposits.  Bloomberg states:

"Margins are better because of the competitive situation” after many of the “irrational players” were eliminated, Chief Financial Officer Howard Atkins said in a telephone interview. The bank’s net interest margin, the spread between what it pays depositors and receives on loans, was about 4.1 percent in the first quarter, compared with about 3.10 percent in the fourth quarter and 4.7 percent in the same period a year earlier.

Wachovia paid extraordinarily high rates to attract deposits last year, Atkins said. He also said that many of those accounts now are running off, which should benefit Wells Fargo’s profitability later this year.

Wachovia did have competitive rates last year that benefited savers.  Since then, the Fed has dropped rates to 0%, bringing down bank deposit rates.  As the spread between deposits and mortgage loans has widended, banks have reaped a windfall.  Savers are getting a double whammy, paying for saving the bank via TARP and also subsiziding them via low deposit rates.  At least mortgage rates have come down a bit although credit rates continue to remain high and even rise.

As a saver, you can make the best of a tough situation by choosing to deposit your money in a bank with a competitive interest rate. 


Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • Jb

    April 10, 2009

    If they think that these rates are going to stay low, they are wrong. There are many new competitors coming to market and rates won't stay low.

  • TomG

    April 12, 2009

    One only has to look at the savings rate vs the lending rate to know this. No big surprise, but with T Bill at almost zero, there is little choice.
    E*Trade Bank and Discover Bank have better rates.
    Wells Fargo does have great service.

  • Angelo_Frank

    April 12, 2009

    Nothing surprising about Wells Fargo. They have always had low deposit rates, high lending rates, and lots of fees. Bank of America also does the same thing. People bank with them just because of the high availability of branches and ATMs across the country. The average customer for these and the other big banks usually has little in the way of savings anyway, carries high credit card balances, gets $20 from the ATM at a time, and has a mortgage there because it was convenient. Meanwhile, the smart consumers are at the credit unions and smaller banks, saving money.

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