Capital Markets Example for Free

Introduction

This paper will examine the capital markets which a source of channel between suppliers and users of capital to gain greater profits. Main purpose of capital markets is to create an environment where the buying and selling of various instruments like equity and debt take place. It’s an avenue where savings and investment facilities provide capital from retail and institutional investors and its users of these capital markets are different businesses, government and individuals. Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output. These markets consist of primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities. Another way to classify financial markets is by the maturity of the claims. For example, a financial market for short-term financial assets is called the money market, and the one for longer maturity financial assets is called the capital market. The traditional cutoff between short term and long term is one year.

That is, a financial asset with a maturity of one year or less is considered short term and therefore part of the money market. A financial asset with a maturity of more than one year is part of the capital market. Thus, the debt market can be divided into debt instruments that are part of the money market, and those that are part of the capital market, depending on the number of years to maturity. Because equity instruments are generally perpetual, they are classified as part of the capital market. A third way to classify financial markets is by whether the financial claims are newly issued. When an issuer sells a new financial asset to the public, it is said to “issue” the financial asset. The market for newly issued financial assets is called the primary market. After a certain period of time, the financial asset is bought and sold among investors. The market where this activity takes place is referred to as the secondary market. One of the company that use capital market practices is Wells Fargo. It is a publicly traded company which was established in March, 1852 by its founders Henry Wells, William G. Fargo, and associates. It started out as resource to monitor its transportation of its money but as the time changed Wells Fargo used that stagecoach image it created as its backbone and a symbol for its marketing strategies.

In the fall of 2008, Wachovia bank faced a near collapse of its share price and weakening confidence because of its exposure to troubled mortgage assets. Wachovia Corporation, headquartered in Charlotte, North Carolina, was incorporated in 1967 and was registered as a financial holding company and a bank holding company. These events marked another shakeup for the troubled U.S. banking sector saddled with heavy losses from the bursting of the real estate bubble. The merger of the former Wachovia Corporation (NYSE:WB) and First Union Corporation was effective Sept. 1, 2001. In October of 2007, Wachovia and A.G. Edwards & Sons, Inc. (NYSE:AGE) announced an agreement under which Wachovia would acquire A.G. Edwards, which will be combined with Wachovia Securities, LLC to create a retail brokerage firm with $1.1 trillion in client assets and nearly 15,000 financial advisors. The company indicates that the combined entity has a national footprint of 3,350 brokerage locations, including 1,500 retail offices in 50 states and in Washington D.C. Founded in Winston-Salem, N.C. as Wachovia National Bank on June 16, 1879, Wachovia grew to be one of the largest diversified financial services companies in the United States. It traded on the New York Stock Exchange under the symbol WB.

Wachovia provided a broad range of retail banking and brokerage, asset and wealth management, and corporate and investment banking products and services to customers through 3,300 retail financial centers in 21 states, along with nationwide retail brokerage, mortgage lending, and auto finance businesses. Globally, Wachovia served clients in corporate and institutional sectors and through more than 40 international offices. Wachovia is acquired In 2008, Wells Fargo & Company acquired Wachovia Corporation to create North America’s most extensive distribution system for financial services, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet, and other distribution channels across North America and internationally. The integration of Wachovia and Wells Fargo is complete, and all Wachovia accounts have been moved to Wells Fargo. Wachovia was burdened by a sagging $122 billion portfolio of option-adjustable-rate mortgages it took on with its purchase of Golden West Financial Corp. in 2006. (Wells Fargo, 2015)

Capital markets are consists of the stock and bond markets which are followed on their daily movements and analyzes the economic situation on the world stage as every market in the world is effected by each other. We furthermore, look into the various institutions that operate on capital markets like stock exchanges, commercial banks and different types of corporations, which include non-bank institutions such as insurance companies and mortgage banks. Operating in the capital markets institutions are granted a wide range of access which helps in generating more capital for long-term purposes, for example in a merger or acquisition, to develop a line of business or go into a new business and various other capital projects. Entities that are raising money for these long-term purposes come to one or more capital markets. In the bond market, corporate bonds are used by companies to issue debt. And on the otherhand governments like local or federal issue similar bonds know as government bonds. Since governments are not publicly held so they don’t issue equity. Following the same pattern, companies are able to raise money by issuing equity in the stock market. They are considered as the seller in the market for issued equity or debt. Now, the buyers or investors usually invest in the stocks or bonds of the sellers in the market and then trade in them. There are two types of market entities:-

1. Primary Market- here it’s a first time issuer of the securities on the market.
2. Secondary Market- here on the securities are already issued and being traded among different buyers.

For sellers, make money off the sale in the primary market is more profitable then equity in the secondary market. Wells Fargo best services its clients by following its vision, of providing financially sound advice to its customers for them to achieve a satisfied and successful venture on the capital market. Their belief that different customers across all business segments can be better served, and save time and money, if they bring all their financial services to one trusted provider that knows them well, provides trusted guidance and advice, and can serve their full range of financial needs through a wide choice of products and services. It’s about building lifelong relationships one customer at a time. The impact of Wells Fargo, on its competitors, and the industry are that there is always a need to watch consumer behavior to see how people will spend their money and why they choose a certain bank or lender to help them make the decisions to spend or save their money. Banks always have to see what motivates consumers to pick the banks they pick. Technology can play a major role in that decision, so banks always need to find ways to be up to date on technology as well as given that to the public securely. These trends pose opportunities to the banking industry because the more a bank like Wells Fargo can keep up with the trends of society, the more business they will receive. (Frank J. Fabozzi & Franco Modigliani, 2009)

Conclusion

This paper looks at the Wells Fargo’s weaknesses include confusion due to large-scale activity. Being an enormous company it is hard to personally know all individuals within the banking community. They are often the targets of fraud, and counterfeiting due to how large they are. Other weaknesses might include ability to obtain brand loyalty. In today’s society, with so many other large scale competing banks, getting brand loyalty from individuals can be complicated. Many people have accounts in more than one bank, and several individuals’ change from bank to bank depending on offers they are given at different times. References Frank J. Fabozzi & Franco Modigliani (2009) Capital markets: institutions and instruments (4th edition). Wells Fargo. (2015). 

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