In 1848, just after news had gone public that gold was discovered near Sutter’s Mill in California, a lot of money started pouring into the state. Two potential investors were Henry Wells of Vermont and William G. Fargo of New York. They had both made their fortunes from the budding express industry, which was built on delivering packages and payments to customers across the Eastern part of America.
They became a financial institution in 1852 when they organized Wells Fargo & Company, a small institution they started with just $300,000 in capital. They took advantage of lax regulation in the state, where neither banks nor express companies were watched closely. In fact, all one needed to open a bank at the time was a safe and an office to store the safe within.
Their relative late entry to the Western market meant the pair faced stiff competition. So the company attempted to out-offer its competition. They assisted with general forwarding of mail and packages, they acted as middle-men to buy and sell gold dust, and they managed a freight service that ran from coast to coast.
The company grew relatively quickly, establishing banking offices on key portions of the gold veins running through the mountains of California. They also established a network of freight and messenger outposts throughout the middle of America.
Wells Fargo almost went under in 1855, when poor speculation led to a mass market collapse. Many banks in the San Francisco area were run out of their money, but Wells Fargo was able to survive despite facing a run on its own banks. Their decision to keep money in San Francisco allowed them to pay out customers, rather than waste time funneling money back and forth to New York.