I am writing a Bank Analysis on Wells Fargo.

These are the numbers I came up with from the FDIC database:
1) Profitability
Basic Spread: 4.556% while the all other U.S. Banks are 4.019%

Return on Assets: .675% and the national average is .073%

Return on Equity: 8.73% and the national average is .785%

2) Risk Management
Capitalization Ratio: 7.728% and the national average is 9.36%

Leverage Ratio/Capital Multiplier: 12.94 and the national average is 10.68

Primary Liquidity Ratio: 7.944% and the national average is 12.234%

Credit Risk Loss Rate: 5.67% and the national average is 5.096%

Would you recommend a close friend to bank at Wells Fargo given this information?

My opinion is no. Although they are profitable they engage in risky behavior. They maintain low capital which is vital for a bank's survival so that they don't go insolvent.

Also did Wells Fargo's acquisition of Wachovia affect their risk management? Is my opinion reasonable? And what could cause Wells Fargo to have a low primary liquidity ratio when compared to other banks?

Thanks in advance for your assistance.

To determine whether you would recommend a close friend to bank at Wells Fargo based on the provided information, it's important to consider the key factors: profitability and risk management. Let's analyze the numbers you've presented.

1) Profitability:
- Basic Spread: Wells Fargo's basic spread of 4.556% is higher than the national average of 4.019%. This indicates that the bank is generating higher net interest income compared to other banks.
- Return on Assets (ROA): Wells Fargo's ROA of 0.675% is significantly higher than the national average of 0.073%. This implies that the bank is efficiently utilizing its assets to generate profits.
- Return on Equity (ROE): With an ROE of 8.73%, Wells Fargo outperforms the national average of 0.785%. This suggests that the bank is more effective at generating returns for its shareholders.

2) Risk Management:
- Capitalization Ratio: Wells Fargo's capitalization ratio of 7.728% is lower than the national average of 9.36%. A lower capitalization ratio indicates that the bank has less capital as a percentage of its total assets, which may signify higher risk.
- Leverage Ratio/Capital Multiplier: Wells Fargo's leverage ratio of 12.94 exceeds the national average of 10.68. This indicates that the bank relies more heavily on borrowed funds to finance its operations, potentially increasing its risk exposure.
- Primary Liquidity Ratio: Wells Fargo's primary liquidity ratio of 7.944% is lower than the national average of 12.234%. This suggests that the bank may have a lower ability to meet short-term obligations, which can be a concern during times of financial stress.
- Credit Risk Loss Rate: Wells Fargo's credit risk loss rate of 5.67% is slightly higher than the national average of 5.096%. This implies that the bank may have a slightly higher rate of loan losses.

Based on these factors, your opinion that it is not advisable to recommend Wells Fargo to your close friend seems reasonable given the lower risk management scores compared to national averages. Maintaining low capital and a low primary liquidity ratio makes a bank more vulnerable to potential financial hardships, as it may have limited resources to absorb losses or meet its financial obligations.

Regarding the impact of Wells Fargo's acquisition of Wachovia on risk management, it's important to note that mergers and acquisitions can have varying effects on a bank's risk profile. The acquisition may have introduced additional risks or changed the risk dynamics within Wells Fargo, but further analysis and data would be required to assess the specific impact.

Lastly, the potential reasons for Wells Fargo having a lower primary liquidity ratio compared to other banks can include factors such as a higher concentration of illiquid assets, a greater reliance on short-term funding sources, or different business strategies that prioritize riskier activities. To delve deeper into this topic, a more detailed examination of Wells Fargo's balance sheet and liquidity management practices would be necessary.

Remember, when formulating your recommendation or opinion, it is crucial to consider additional factors beyond the numerical figures, such as the bank's reputation, customer service, and any qualitative data available.

Disclaimer: The information provided in this response is based on the numbers and analysis you have presented. It is essential to conduct thorough research and analysis before making any final recommendations or decisions.