WHEN Wells Fargo’s competitors were spending fortunes building up big investment-banking operations in the 1980s and 1990s, the bank’s chief executive at the time, Richard Kovacevich, refused to follow suit, joking that the business would be a good one to get into were it not for all the people who worked in it. Instead he concentrated on building up a nationwide network of branches (“stores” in Wells-speak) to take in deposits and sell mortgages, credit cards and insurance. This strategy was vindicated when the financial crisis struck, turning once lucrative investment-banking franchises into millstones. Wells, meanwhile, became the most profitable big bank in America.

But an odd thing happened in the process. Wells’s strength during the crisis allowed it to snap up Wachovia, a regional bank whose dense network in the eastern part of country perfectly complemented Wells’s in the west. Wachovia also happened to have a sizeable investment bank.

Many assumed Wells would promptly sell the unit, or shut it down. Instead, it has expanded it, even as other banks have been hacking away frantically at their...Continue reading