Wells Fargo CEO touts changes
Three-decade veteran of the company is working to transform its reputation after a run of scandals
Wells Fargo’s CEO talks about how the banking giant hopes to regain customers’ trust after a series of scandals — including paying $2.1 billion to settle an inquiry into faulty mortgage accounts.
W ells Fargo is in the midst of a yearslong effort to improve its reputation. Its recent marketing campaign touts the bank as established in 1852 and re-established in 2018 with a recommitment to customers.
Many lost their trust in Wells Fargo after it made national headlines in September 2016. Aggressive sales goals had prompted employees to open millions of unauthorized accounts.
Then came a seemingly endless stream of wrongdoings. On Wednesday, for instance, the Justice Department announced that the bank agreed to pay a $2.1 billion civil fine to settle allegations that some of its lending activity contributed to the 2008 financial collapse.
Wells Fargo has been working to turn around its reputation
since these scandals emerged. Its CEO John Stumpf retired. Then in came a new CEO in October 2016: Tim Sloan, a three-decade veteran of the bank. He was in Houston this week to address employees in a town hall. He also met with the regional leadership team and spoke to the Chronicle.
Q: With your tenure at Wells Fargo, some might consider you as part of the bank’s old regime. How do you respond to people who ask if you’re the right person to lead the company now?
A: It’s a fair question, and a number of our stakeholders have asked me that question. If I had stepped into this role, not made any changes and just said, ‘Ah, you know, these things are not that big of a deal,’ then I wouldn’t be the right person for this job. But when you look at the amount of change that we have made to rebuild trust with all of our stakeholders, it’s been pretty significant. The board has changed. The board governance has changed. The management team has changed. How we’re organized has changed in that we centralized a lot of our activities, particularly our enterprise control functions like risk and finance and technology. We’ve changed the way that folks are compensated. We’ve introduced a lot of innovation.
Q: How did you change compensation?
A: There’s nothing wrong with providing incentives and motivations for people. How we were doing it was what needed to change. The incentive plan that we had in place incented our team in our retail branches for selling products. There’s nothing wrong with selling products. The key is to make sure that it’s the right product that the customer needs. So we retooled and restructured our incentive plans, which we have in place in our retail banking business today, to focus on different attributes like customer experience and customer loyalty scores. Did our customers have a good experience in the branches? Would they recommend you to one of their friends or their family? Are we seeing a growth in primary checking accounts? We’ve seen those grow now sequentially in three quarters. And we’re also measuring things like growth in relationships, as opposed to the number of products that you sell, and the number of times that you interact with a customer to provide that advice.
Q: The first major issue was the opening of unauthorized accounts. But after that, other issues came to light such as charging auto insurance premiums to customers who already had the coverage. What are you doing to address some of those things?
A: We’re looking across the company at all of our operations, policies, procedures and making sure that we’re doing things right. And to the extent that we find something we’re not doing right, we’re being very transparent about it. In the short term, that can create some negative headlines. But in the long term, that’s another way to rebuild trust. Then you fix whatever might be broken and, to the extent that customers are impacted, we’re remediating.
Q: How have efforts to regain trust been going?
A: You earn back their trust over time. It doesn’t happen necessarily immediately. We’ve seen the customer experience and loyalty scores — which are collected frequently, independently — continue to increase. We’ve introduced new products and services. So it’s about continuing to focus on our operations. To the extent we make mistakes, we’ll make it right by customers. But it’s also about moving forward in terms of providing better customer service and products on a very innovative basis.
Q: Has Wells Fargo been adding customers since implementing these efforts to regain trust?
A: This is a very competitive business, no doubt, but we’ve been adding customers in almost every one of our businesses.
Q: How’s recruitment? Has it been difficult to recruit people to work for Wells Fargo?
A: 97 percent of all the job offers we made last year were accepted. Having said that, the job market is getting tighter. So we’re being very mindful that we’re providing the right benefits and the right compensation to our team. We want to make sure they’re connected to the success with the company. The other measure I’m really proud of is that we’re seeing our voluntary turnover now down to its lowest level in over five years. Which is a little bit counterintuitive when you think about the challenge we’ve had and the strong economy.
Q: As the head of a major bank, how do you think the economy is looking?
A: Second-quarter GDP growth was 4.1 percent. I think the two underlying drivers for that indicate there’s more strength in the economy. Those drivers were business investment and consumer spending. One of the other statistics, which I think is really interesting, is that on Friday the Commerce Department released the update of the consumer saving rate. We were all operating under the belief that the consumer saving rate was relatively low at 3 percent or 4 percent over the last few years. But the revisions were that for 2017 the consumer saving rate was almost 7 percent. I think it indicates that consumers have the ability to continue to spend a bit. Add onto that the fact that we’re seeing a reduction in unemployment rate and wage growth start to pick up. When I talk to our customers, the biggest concern they have is finding people to fill open jobs. So we’re what I would describe as cautiously optimistic.
Q: Are you cautiously optimistic that the rest of this year will see a good economy? Next year?
A: Definitely the rest of this year, but I think you could see growth continuing into next year, too. But, you know, it’s anybody’s guess. I wish my crystal ball was perfect.
Q: What is the bank doing to prepare if there is a slowdown?
A: In 2006 and 2007, there was this belief that the economy would grow forever and we’d never have another recession. And that was absolutely wrong. While you can be optimistic or cautiously optimistic about the growth in the economy today, you do have to make sure that you’re managing the company so you can withstand any sort of economic downturn. So we’re making sure that we’re underwriting credit appropriately. We’re making sure that we’re managing counterparty risk or market risk appropriately. We have thousands of people in Wells Fargo who worry about your question: What happens if we have some sort of volatility in the economy or an economic downturn tomorrow? And what will we do?
Q: Was there anything big you learned during the Great Recession that you’re making sure to pay better attention to right now?
A: Oh yeah. It’s amazing what you can learn in the midst of a challenge. For example, we thought in the run-up to the last recession that auto loans would have higher losses than home loans. We, and the entire industry, were wrong. When a consumer under stress had to make a decision about which payment to prioritize, they generally prioritized their car because that’s how they got to their job. That was a real learning experience for all of us. So things like that, really across every one of our different products and services.
Q: So what about Houston specifically? What is your economic outlook in Houston?
A: We’re very bullish. You’ve got a very, very strong port that we think is effectively run and competes quite well against both West Coast and Eastern ports. You’ve got a very vibrant energy and chemical industry that, because of the challenges they went through with lower prices and margins, have become much more innovative and efficient. We see that in our customers in terms of the cost it takes to find and produce a barrel of oil or MCF of natural gas. The medical system here is very good. The educational system. The fact that Texas has lower tax rates than the rest of the country. Even though it’s more dependent on the energy industry than, say, any other major city in the U.S., it’s still a lot more diversified today than it was a few years ago, five years ago and 10 years ago. So we’re very bullish on the region and the city.