Bank of America (NYSE:BAC) Winning in Wells Fargo’s (NYSE:WFC) home country

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By Ross Schwartz on October 20, 2014 Market

Home-field can be a huge advantage in sports. However, considering business, the FDIC gives data regarding every metropolitan area present in the United States and it proves this concept wrong in the business world.

While considering the FDIC, some institutions might keep dominating each market for example Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC), have been on the top most of the list at times in every metropolitan area which is the reason why they are called megabanks.

These banks show us the result of home-field advantages if it exists or not. These banks do not have headquarters in New York hence referring to cities with regional finance as homes. A home-field advantage will surely show in banking if it is present.

Beginning with Charlotte, it has more than around 3.8 times in deposits than Wells Fargo (NYSE:WFC). Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) have some sort of virtual monopoly however.

Considering San Francisco, the home of Wells Fargo (NYSE:WFC) and San Francisco 49ers. If this theory is true, Wells Fargo (NYSE:WFC) should show a command of the deposit base in this market.

However, Bank of America (NYSE:BAC) has a bigger deposit share in the area compared to Wells Fargo (NYSE:WFC). Hence banking doesn’t really go with this theory. However, it might be the other way in small cities where local headquarters do exist. These banks have more of a command on deposits.

Deposit markets aren’t really that critical to the overall outlook of a bank. It is not as important as where the cost is coming from rather than the cost in itself.

Wells Fargo (NYSE:WFC) may easily give high-interest savings special accounts to residents in San Francisco so that it can increase the amount of market share hence giving the company an edge over competition. However, if Wells (NYSE:WFC) carries this out then it may also be increasing the costs of its funds. With an increase of fund costs, there will automatically be lower profits which wouldn’t do the company much good as every company aims for more profits overall and not just a bigger market share with less profits.

Warren Buffett explained why Wells Fargo (NYSE:WFC) is overall the best bank in the United States keeping all others in mind. The strong as well as low cost deposit base that the company makes gives it a competitive advantage over rivals which has aided the company over the years.

Therefore home-field advantage doesn’t seem so useful considering banks. Bank deposits are the most important components in banks hence care must be taken for these deposits. Huge banks like Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) have the ability to increase their deposits that in turn lower their costs in funds and give greater profitability.

Warren Buffet stated in an annual meeting at Berkshire Hathaway that emerging technology is a threat to cash cow companies. Not many investors are moving towards this market as experts say that it will amount to more than $2 trillion in total.