Handelsblatt Interview

Why Bigger Can Be Better

john stumpf-bloomberg
John Stumpf is CEO of Wells Fargo, the world's largest bank by market capitalization. He argues that bigger can sometimes be better, even in the world of finance.
  • Why it matters

    Why it matters

    U.S. banks arguably remain “too-big-to fail,” a risk that politicians had hoped to avoid in the aftermath of the 2008 financial crisis. Wells Fargo is trying to make a case for why even big banks can be safe.

  • Facts


    • The largest bank in the world with a market capitalization of more than $220 billion, San Francisco-based Wells Fargo was born in 1852 out of the California Gold Rush.
    • John Stumpf started his banking career as a repo man going after customer debt. He is a 35-year veteran of Wells Fargo and was named its chief executive in 2007.
    • About 97 percent of the bank’s revenues are generated in the United States. Less than 5 percent of revenues are generated by investment banking.
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In his 35 years at Wells Fargo, John Stumpf has made the unconventional journey from repo man in the company’s loan administration department to chief executive of the world’s largest bank by market capitalization.

Mr. Stumpf, who arose from modest beginnings on a small farm in Minnesota as one of 10 siblings, never in his wildest dreams imagined he would one day become a big-time banker – let alone head of the biggest on the planet. But after a series of lateral promotions took him around the country, he emerged with the necessary perspective to steer the 164-year-old bank through the financial crisis more than just intact.

Now, Mr. Stumpf proudly notes there were only two companies that earned more than $5 billion (€4.5 billion) in the first quarter of this year: Apple, and Wells Fargo. Compare that to Deutsche Bank, Germany’s largest bank, which seems more like a community bank with its earnings of €236 million in the first three months of this year.

In principle, Wells Fargo’s meteoric rise should sound warning bells for politicians that cried “never again” after taxpayers were forced to bail out the world’s largest banks in the aftermath of the 2008 financial crisis.

The words “too-big-to-fail” now send shudders down the spines of many policymakers on both sides of the Atlantic, who have been cracking down on large banks with tough new financial regulations designed not only to make the financial sector less risky, but also to shrink banks down to size.

That drive for smaller banks has worked in Europe, where banking titans ranging from Barclays to Deutsche Bank to Credit Suisse to Unicredit are all being forced to cut employees and gut much of their investment banking operations. The cost: Many of these banks are unprofitable, and desperately searching for sectors where they can still earn money.

Things have gone differently in the United States, where big banks have largely returned to profitability since the financial crisis, leaving their European rivals in the dust.

When things get challenging is when we make our best deals. That’s when we have our best opportunity.

The downside: Regulators recently admitted they cannot guarantee that a future banking collapse won’t result in taxpayer funds being put on the line. No wonder that the presidential election campaign in the United States has led to numerous calls for big banks to be broken up.

Why should Wells Fargo get a pass? Mr. Stumpf said he doesn’t want any special treatment: Banks should be allowed to fail if they get into trouble. He insisted that his bank is well-capitalized, and safer than many others because it has largely shunned risky investment banking. Mr. Stumpf told Handelsblatt that will “never” change. Instead, he see opportunities for the bank to expand into wealth management and credit cards, two areas the bank has lagged behind its U.S. and even Euroepan rivals.

In this exclusive interview, the U.S. banker with German roots explains why business is booming at the San Francisco-based bank – and why it should be allowed to continue.

Handelsblatt: Mr. Stumpf, Wells Fargo came through the financial crisis very well with its traditional commercial banking model. But every business model has its own risks. Are there scenarios that could put yours at risk?

John Stumpf: This company started 164 years ago on this location. We tend to have a very conservative business philosophy. We don’t take a lot of risk. We always have carried high capital levels. We’ve seen many business cycles – some influenced by wars, some by overspending, the Great Depression and the Great Recession – and when things get challenging is when we make our best deals. That’s when we have our best opportunity.

For example?

In 2008, when Wachovia had challenges, we were able to buy them at a very, very attractive price.

So today we are a dominant U.S. bank because of what we did during the boom times. We didn’t do the crazy stuff. So when the bad times come we have the capital to be able to do something.

What risks could nevertheless threaten your bank?

Today, 97 percent of our revenues are in the U.S. That’s not because we don’t like our international business. But the business we do internationally is more the result of our U.S. customers doing business internationally, as opposed to having an international presence. How could we, for instance, compete in Germany with Commerzbank and others? We couldn’t. So we stick to what we know.


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But you are very dependent on the domestic economy.

The biggest risk we have in our bank is: If the U.S. goes bad, we go bad. There’s a poker game called Texas hold ‘em. If you think you’ve got a really good hand, you put in all your chips. We’re all in on the U.S. So the risk in our business model is about the risks that you find in the real economy.

What are those risks?

Energy, though it happens to be only 2 percent of our loans. But that’s still 2 percent. When housing went poorly, that would affect us. But actually these are really strengths for us. Where would you rather be than in the U.S.? The U.S. economy is a pretty good long-term bet. It’s 25 percent of the world economy.

There have been challenges for your energy business recently.

That’s a cyclical business. Prices go up and prices go down. Just like in any other business we tend to make our best transactions when things are down.

I don’t believe in ‘league tables.’ I don’t worry about size. I just want to make sure we are serving customers.

Even with the challenges in oil and gas, our credit losses last year – at a third of a percent of our loans – were the best in my 35 years with the company. Even with elevated losses in oil and gas, the loss rate is the lowest of all big banks in the U.S. because we are very conservative and most of our loans are secured.

Are you getting out of the oil and gas business?

We stay with our borrowers if we believe there is a life after the downturn. In some cases there will not be; there will be consolidation. We see the oil and gas business as an important part of what we do, though it is not a very large part of what we do.

There has been some speculation about whether Wells Fargo wants to go more into investment banking?

It’s a small piece of our business. When we bought Wachovia, they had a bit more. We reduced and eliminated some of those businesses and we kept some. We kept the part of investment banking that was related to the customer. For example, a customer wants to issue some debt, some bonds, to buy a business or restructure their debt. We would do that for them.

So you don’t want to compete with Goldman Sachs or JP Morgan?

Our whole investment banking business is less than 5 percent or so of our revenues. I don’t believe in ‘league tables.’ I don’t worry about size. I just want to make sure we are serving customers. In one of our last quarters, about 90 percent of the fees we have in that business come from customers that have been with us 15 years or more. We don’t think of ourselves as an investment bank.

That won’t change?


Where will growth in your traditional banking business come from?

There are still 6,000 banks in the U.S. and only three of us have a national distribution: Bank of America, Chase and Wells. We are getting tons of new business. In fact, in the last two years we grew by the equivalent of the ninth-largest bank in the United States – just our growth. We grew $121 billion of U.S. loans, $146 billion of U.S. deposits and $305 billion of overall assets. What’s happening here is, consumers are changing. When I was 18, my dad took me to the little bank in my hometown and opened up an account with me. Young Millennials don’t do that today. They like Google, Apple, Amazon, Facebook, and they like Wells Fargo. They like big brands.

So you are growing at the expense of your smaller rivals?

Exactly. This is probably the most important number: we are growing net new primary checking accounts at over 5 percent a year. It’s booming. These are the best times we’ve ever had.

Are investors completely happy with you?

Warren Buffett keeps buying more of our shares and he’s a 10 percent owner.


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But some investors want to see more. What are they asking for?

They are saying, ‘Where is the top-line growth. Where is the bottom-line growth?’ You hear that more from analysts, but also some investors. And the answer I give is: if you look at the core building blocks of long-term shareholder value creation – for us it’s more loans, more deposits, deeper relationships – not all of that shows up in the top line or the bottom line in the same quarter or the same year. But when we reported our first quarter earnings, we were the only one of the six largest basks in the U.S. to show revenue growth year-over-year.

Are there areas in which you’d like to grow significantly?

There are a couple of areas. We have about 11 percent of the deposits in the country. People have their money with us, but not their wealth. We only have about 1 or 2 percent of their wealth. People don’t think of Wells Fargo when it comes to wealth management. They think of maybe of Northern Trust, Credit Suisse, UBS or Morgan Stanley. As part of Wachovia, however, we got a terrific group of private wealth bankers and we are growing that business. It’s a longer sales-cycle business. But if there’s one big opportunity, this is it. There’s going to be a big transfer of wealth from the Baby Boomer generation to the next generation and we want to participate in that.

But everybody wants to participate in it.

Yes, so the question is, ‘Why us?’ We think of it in three different spots: the very high net-worth customers who make up only about 10,000 to 12,000 families in the U.S., who everyone wants to bank; the affluent who have $3 million to $10 million; and then you have the emerging affluent. We are spending time in all three areas, but this latter area is by far the biggest opportunity.

Five years ago, these fintechs said they would ‘eat our lunch.’ Now they say, ‘Let’s do lunch.’

It’s going to take a while because they don’t have all that much money right now. That being said, we already are really successful in wealth. We make about $2 billion a year after tax in that business, putting us in the top tier of wealth managers in the U.S. But here’s the secret: for people who bank with us but have their wealth advisor somewhere else, if they would just bring that money back to us we could double the size of our company. So we’ve got oceans of opportunity. That’s the biggest opportunity we have in the company.

Where else do you want to expand?

The second big opportunity is credit card. We are the largest debit card issuer in the United States. On the credit-card side, we are probably the No. 7 player. I used to not care that much about credit card. I care more today because the new generation is using less cash. Even though we use more currency in the U.S. than almost any place else, they are starting to move into cards. And once cards get embedded, for example, with Apple Pay on your phone, we are going to be the last generation to use the term debit card and credit card. There won’t be cards.

Does the pace of technological change in payment systems worry you?

No. Five years ago, these fintechs said they would ‘eat our lunch.’ Now they say, ‘Let’s do lunch.’ Most of the technological companies in the payment space are located here in the San Francisco area and we are partnering with most of them.

In which areas are you partnering?

We have an incubation center. We also have a venture capital company. Plus we make our own investments in helping companies develop, because many of these little companies are much more nimble than we are as a large company. And assume we have partnerships with the big names, the names you know.

It is important for you to be on the West Coast?

What’s happening here is really like no place in the world. And Stanford is the key. Stanford is not only a great business school. It’s like a company. The way they work with the private sector and the public sector is unbelievable. They commercialize their ideas.

But couldn’t it be that the Apples and the Facebooks of the world are taking over the financial industry as they have other sectors?

Well, we welcome them in. We have a whole group of regulators we would love to introduce them to. The barriers of entry in financial services are very high.

Will Blockchain, the technology behind Bitcoins, revolutionize your industry? 

There might be some applicable parts of it. But having banks as the intermediary for payments is going to be around for a long time. Do you want a single point of failure? I don’t think so.


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You have 6,000 branches across the country. But if customers conduct all future business with mobile phones, isn’t the local branch dead?

No. It’s alive. In the U.S., you can’t open a new account online. You must open your first account in person. The average Millennial opens up their first account within two miles of where their mothers live. They come in to one of our branches, open an account and then they mostly bank with us mobile. They come back once every six months for a visit for some issue, like an uncle dies and leaves them two million. They take that to the branch. They don’t put it in the Internet. Why do you think Apple has stores? Apple could sell its devices online. Why do you think Amazon now is starting to build stores? It’s a physical reminder of the brand.

But that could change over time.

If we find that branches are not required some day, then God bless America – think of how much expense we could take out. But the people who are shutting their branches today are not growing. Maybe that will change. That’s a big question for the future.

There’s a lot of talk about ethics and banking. Is it easier with a traditional banking model to keep to ethics than with other models, like investment banking?

I think so, because we play team ball here. Most of our people get compensated primarily with fixed sums. We are much more of a real economy, mainstream bank.

What ethical standards are important to you?

We spend an enormous amount of time here talking about our values: telling the truth, putting customers first, admitting mistakes and mutual value exchange. But we don’t always get it right. And when our people don’t get it right, we coach them.

Where did you get your moral compass?

From my parents. I think the core makeup of a person is already there by the age of six.

There are no doors here on the entire floor. And the carpet has seen better days. What does that say about your management style?

The carpet is from 1971. We are very frugal. We don’t really care about hierarchy. I’ve been here 35 years. The 10 people who report direct to me have an average of 28 years with the company. I know them, I know their spouses, I know their children, and sometimes I know their grandchildren. I talk to a team member and a customer every day unannounced. You do not build a culture overnight. A culture takes a long time. Culture and recognition are way under valued in business.

Does it help in general that you are not a Wall Street Bank?

I think there is some truth to that. With some customers there is mistrust. But we don’t do everything right either. When you have the kind of volumes we have, there’s going to be enough wrong that we are still trying to raise the bar.

There is still this discussion that banks are too big. Wells Fargo is the largest bank in the world based on market valuation.

But it’s a very simple bank.

Still, regulators are putting pressure on big companies, and you have felt that as well, to create living wills for what happens in case they fail. Do you really believe this can work in a financial crisis?

First, no company in any industry, especially in the financial sector, should be too big to fail individually. Failure is an important part of capitalism the same way success is. Second, capital is important, liquidity is important and a living will is very important. We have some work to do on some deficiencies in our living will and we are going to put all hands on deck. But if something happens to a country or an overall economy, then it’s really not the banks that need to be protected; it’s the whole economy that needs to be protected.


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If you look to the presidential election in the fall, you have one candidate who rails against banks and another who rails against all multicultural things. Does that worry you?

There’s lots of rhetoric that happens in a campaign season. I don’t think there’s going to be a lot of new legislative things that are going to impact our industry. More what is going to happen is on the regulatory side.

Is the sector too heavily regulated?

My concern is that we don’t so overregulate our industry, such that it sucks some of the lifeblood out of the economy. We are not going to tax our way into prosperity in the U.S., we are going to save our way. We are not going to redistribute our way. We are going to grow our way into prosperity. Has it gone too far? I don’t know.

A personal question, Mr. Stumpf: you come from a poor farming family. And now you are the boss of the biggest bank in the world. How?

I never set out to be the CEO. I never expected this in my wildest dreams. When I came to work at the bank, my first job was as a repo man. I couldn’t even use my own name. It was too dangerous. On Mondays I was Joe Smith, on Tuesdays I was Mike Morgan. Probably the biggest thing that helped me in my carrier is that I did many things that would look stupid on paper, like horizontal promotions, and I met people and saw other parts of the country. It gave me a much broader perspective of who we are.

And these experiences made you the boss of the world’s biggest bank?

But to be serious, a lot of people could have done this job. When I was named CEO nine years ago, there were four or five other people who were good candidates. You know what happened to them? They all stayed here. We all kept working together.

What’s next for you?

Within two years, I will be too old to work by our definition. And that’s a good rule because you want new people and new ideas.

Mr. Stumpf, thank you for the interview.


Astrid Dörner and Frank Wiebe are  Handelsblatt correspondents in New York. To contact the authors: adoerner@handelsblatt.com,  wiebe@handelsblatt.com

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