Here is a good read from The Economist on how Wells Fargo may restructure under its new leadership with Charles Scharf, the former CEO of Visa, who was recently tapped to reposition the bank which was once ranked as the top valued bank in the world.
- WELLS FARGO has reinvented itself before.
- In a vault beneath the bank’s headquarters in San Francisco is an archive of papers and objects from the 1860s, when the company’s stagecoaches criss-crossed America delivering packages.
- Advertising posters tout the security of their wagons, thanks to the sharp-shooting skills of the marksmen that accompanied them.
- As first the railroads, then the telegram and later a government-run delivery service threatened the survival of the firm its bosses adapted, using customers’ trust in their brand to expand their banking business.
PaymentsJournal reported on Mr. Scharf’s ascension to the head of the long-troubled business, writing that he is a strong executive that has the depth of character and the breadth of banking to reposition the company. And, with experiences at Chase and Visa, he can undoubtedly restore confidence in the card business.
The Economist story continues:
- Charlie Scharf, who took over as the bank’s chief executive on October 21st, must transform Wells once again.
- He comes from BNY Mellon, a smaller bank based in New York. It is rare for a giant lender to pick an outsider to run it.
- Charlie Scharf, who took over as the bank’s chief executive on October 21st, must transform Wells once again.
- He comes from BNY Mellon, a smaller bank based in New York. It is rare for a giant lender to pick an outsider to run it.
- The bosses of America’s other largest banks—JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley and Goldman Sachs—are seasoned insiders.
Wells is not the only bank that needed repositioning, though its issues are unique.
- In 2016 America’s largest banks could mostly be split into two groups. The full-service banks—Bank of America (BoA), JPMorgan and Citigroup—did everything, from underwriting initial public offerings to lending to corporate and retail clients.
- The specialists, Goldman Sachs and Morgan Stanley, offered investment banking and wealth- or asset-management services. Wells, with its giant retail bank and limited exposure to risky investment banking, was the odd one out. That helped it sail through the financial crisis and become the world’s most valuable bank.
- But Wells has been firefighting since. Meanwhile JPMorgan, its biggest rival, has bounded ahead. Its balance-sheet has grown by nearly 10% since the end of 2017 (see chart 1), while Wells has gone nowhere.
- Specialist investment banks are also treading onto Wells’s turf. In 2016 Goldman Sachs launched Marcus, a consumer arm that has gathered $46bn-worth of deposits. The bank has partnered with Apple to launch a credit card.
- It is also drumming up commercial custom. “Goldman is used to doing business with the C-suite,” says Ms Graseck, “now they also want to do business with the treasurer.”
However, there is a road map.
- He has form: at both the firms he has led before, BNY Mellon and Visa, a payments giant, he invested heavily in technology and cut costs.
- Shortly after his appointment was announced, an analyst asked Mr Scharf whether compliance, efficiency or digitisation would be the priority.
- He said that all were, and that solving them together was a “virtuous circle”.
But, there are also headwinds, as The Economist notes:
- The catch is that for Wells to become America’s leading tech-savvy bank for consumers would require it to have a high degree of trust from customers and regulators.
- Instead a deficit of both is Mr Scharf’s toxic inheritance.
- Wells’s bosses have changed its direction before. Mr Scharf must decide where the wagon goes next.
As we noted last month, Charles Scharf is a terrific choice to lead Wells out of the chaos. He is fresh blood, young enough to see through his operational redesign, and a credible banker that can move Wells from circling the wagons to driving the train.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group