February 26, 2013
John Stumpf is president and CEO of Wells Fargo & Company, the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. In this exclusive interview, Mr. Stumpf discusses the safety and soundness of the financial services industry.
On Balance: Do you think the financial services industry has recovered from the financial crisis of 2008? If so, what do you think are the best indicators of that recovery? If not, what do you think it will take for the industry to fully recover?
Stumpf: As an industry, we’re in much better shape now than a few years ago. I would say that we’re out of intensive care and on the road to recovery. Our capital positions are stronger. Our risk profile has improved, many of the financial products that caused so much damage are now gone, and the most troubling mortgage-related issues are clearing up. Credit quality is improving, and housing is once again a bright spot. It’s important to remember that housing recoveries have led general economic recoveries throughout recent history. You could say the worst of the crisis is over, but significant challenges remain. Let me highlight just four:
First, we have too much money on the sidelines due to uncertainty about taxes, healthcare and fiscal cliffs. That’s not good for our economy and not good for our industry. We need to put that money to work.
Second, we are experiencing a cycle of increased regulation, which is introducing costs and added uncertainty across the industry. Some of this heightened scrutiny is appropriate. We need good, sound regulations, but we also need to avoid unintended regulatory consequences that punish consumers or place an unnecessary drag on the economy.
Third, we are striving as an industry to diversify our sources of revenue - and at the same time, competition from outside the banking industry is attempting to entice our customers. We have to be sharper than ever about our true value proposition.
Fourth, we have to stay focused on rebuilding the trust and confidence that our customers, communities and public officials have in our institutions. We can’t advertise our way out this situation. We need to earn back that trust every single day by doing what’s right for our customers and the communities we serve. Low trust levels for a prolonged period will affect consumer behavior as well as our regulatory environment.
On Balance: What specific measures has Wells Fargo taken to ensure the company will continue to operate safely and soundly into the future?
Stumpf: We’ve focused relentlessly on our customers - helping them succeed, earning more of their business day in and day out. We’ve grown without getting into businesses or products we don’t understand or don’t think would be in the long-term interest of our customers.
We’ve concentrated on what we do best—taking deposits, making loans, helping people buy homes, putting their children through college , planning for retirement and serving the financial needs of businesses—all within a very conservative risk management framework.
We’ve also strengthened our capital ratios to all-time highs, built on an already strong risk management culture, adjusted our underwriting standards, invested in advanced technologies to protect vital customer information, and continued to build out our mix of businesses that, by design, perform differently in different interest rate and economic cycles. At Wells Fargo, we like to say we have 84 horses pulling the stagecoach. When one of our 84 businesses slows down, another one picks up.
Our strength and stability is a result of who we are, what we do, and a stagecoach that is pulled by 84 horses across all types of terrain.
On Balance: What impact, if any, have new financial regulations had on product and service innovation?
Stumpf: You could say that increased regulation has come with two costs, when it comes to innovation. Increased time and money have been spent on compliance, draining resources that could have been invested in innovation. Additionally, increased regulatory uncertainty and fear of the unknown have dampened the appetite for the financial risk associated with innovation.
On the other hand, it’s also important to recognize that some regulations have sponsored important changes and innovations in the areas of mortgage banking, credit card lending, banking fees, and transparency of banking interactions. In some cases, regulation has been the mother of innovation.
We’re just in the first stage of a new regulatory cycle. There are still thousands of pages of federal legislation to work through, hundreds of white papers to write and read, and who knows how many round-table discussions and hearings yet to be held. I am in favor of sound regulations, playing by the rules, having a level playing field and regulators who have the authority to hold wrong-doers accountable.
Here’s what I tell my people: regulation is necessary in a free market economy. Let’s work responsibly with public officials and industry colleagues to foster fair and sound regulations. Then, let’s focus on what we do best and what we can control: how we serve our customers, how we manage our risks, how we go to market with needed innovations. If we have a level playing field with well-regulated competitors, then let the best team win.
On Balance: What do you think is the most common misperception about the financial services industry, and how would you address it?
Stumpf: I’d like to address this question from two points of view. From the outside, some would view us as the bad guys and argue that we caused the whole mess by venturing into dangerous territories populated with cooked-up financial instruments that no one fully understood and unprecedented levels of leverage and risk that were not sustainable. We’re the crew that built a financial house of cards that took the economy down with it. This is simply not true for the vast majority of the dedicated professionals in financial services and surely not the case with our company, Wells Fargo.
But here’s what we’ve learned. When a whole industry is portrayed negatively, we all get painted with the same brush. So, we have a lot of work to do in correcting the general view of who we are, what we do, and the role we play in individual, community and national well-being.
We also have some work to do in how we view ourselves. We’re not just big banks, small banks, investment banks, hedge funds, and insurance companies. We’re all part of a financial services ecosystem, with each component serving different customer needs and contributing in unique ways to healthy communities and a vibrant economy. There’s room for all us. We compete with one another, and we depend on one another. We need to see the common denominators that tie us together and respect our differences where they exist. Pointing fingers, taking sides, and talking one another down will get us nowhere fast. To maintain as strong financial ecosystem, we need a diversity of players to meet a diversity of customer needs, large and small.
On Balance: What would you say to the American people about the safety and soundness of Wells Fargo specifically and the financial services industry generally?
Stumpf: I’d say the industry is fundamentally safe and sound. Risk is being better managed. Leverage is better controlled. Capital levels have improved. The industry is focusing on the right things, and the riskiest players have been shaken out of the system. The American people can sleep well when it comes to the overall safety and soundness of the financial services industry. Sure, there’s plenty of pressure in the system. Consolidation will continue. Institutions without sufficient capital, market penetration, and operating leverage will fall by the wayside. But the industry, as a whole, is back on track.
Wells Fargo has never been stronger. We’ve enjoyed record earnings six quarters in a row, even during some very rough times for big banks. Our capital levels are at all-time highs. Our deposits, loans and fee income are all up. Each of our three major business segments—Community Banking; Wholesale Banking and Wealth, Brokerage and Retirement—are experiencing strong growth. And, we’re rewarding our shareholders who have been patient during the past several years with dividends that are leading the industry.
Our merger with Wachovia has been fantastic. We now serve one in three U.S. households and employ one in 500 working Americans. We’re fortunate to have one of the most experienced and accomplished senior teams in the industry. The average tenure of my direct reports is 28 years with Wells Fargo. So, you could say we’ve ridden a few rodeos together, and we haven’t gotten thrown yet. Our culture as a company is stronger and deeper than ever and continues to serve us well.