A Rich San Francisco History
Wells Fargo opened for business on Montgomery Street in San Francisco on July 13, 1852 to provide banking and express services to the West. Rapid expansion followed to the mining camps and new cities and by 1866 covered 3,000 miles of territory with stagecoaches. By 1918, Wells Fargo operated express offices in 10,000 communities nationwide. That year, the federal government nationalized the express network to serve the war effort, leaving Wells with just one banking office in San Francisco. Today, they have 9,000 banking locations across the United States.
Peter Gruebele, executive vice president and San Francisco region head for Wells Fargo Middle Market Commercial Banking shares his insights with the San Francisco Chamber of Commerce on business expansion and risks.
What should a business think about when considering expansion?
Considering expansion or new business opportunities without a thorough examination of the working capital implications other key risks can be a recipe for failure. Successful risk takers understand the hazards first. Recently a study of corporate agility by Accenture, one of the world’s leading management and technology consultants, found high-performing companies assess risk quickly and thoroughly, perform a “What if?” analysis, and move forward decisively. First, a company’s risk analysis should assess uncontrollable factors. Next, it should examine forces that could affect financial outcomes of expansion.
How do interest rates affect growth?
In December 2015, after seven years of consistent U.S. monetary policy, the Federal Reserve approved a quarter-point increase in its target funds rate. Since 1983, the Federal Reserve has enacted six rate tightening cycles, each lasting approximately 14 months. On average, the Federal Reserve has increased rates 2.8 percent per cycle.
If businesses haven’t tested their expansion plan for a 3 percent interest rate hike, they haven’t adequately assessed risk analysis. And if a company doesn’t run that model, it can be assured that its financial institution will. Banks are fundamentally in the business of buying and selling money. And we know that interest rates will rise, even if we can’t predict when.
What do you predict foreign exchange rates will do in the near term?
Whether a business’s sales or purchases are dollar denominated or not, currency volatility affects its costs and prices. Since 1975, exchange rates have taken at least 20 major reversals in direction, with trends lasting from one to five years. Expect currency markets to remain volatile in 2016 due to uncertain domestic and international monetary policy. Pay attention to currency volatility in “What if?” scenarios, particularly as companies consider expansion in new markets.
What other risks should companies look out for?
The risks presented here are only a few to consider when undertaking expansion. Others on the list are customer and supplier concentrations, changes in regulation, environmental concerns, and — one of the most important risk factors ― management. Has the company ever done anything like this before? What is its track record of execution on new opportunities? What has its reaction time been to unexpected bumps in the road? Building flexibility into expansion plans will help companies navigate risks and grow without breaking the bank.