John Stumpf Q & A

What Wells Fargo plans to do on a bigger stage

Excerpts:

Q: In the investor presentation, the company said the consolidation will allow $5 billion in annual savings. Where will that savings mainly come from?

A: There's a lot of obvious things, like you only need one CEO. Well, maybe you need more than one, but you're only going to get one. You only need one Internet platform, there are myriad things. Some of it will be people, no question about that. We're going to work hard to minimize job losses, but there will be job losses.

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Q: What did Wells Fargo do right? Why is it now in the position where you're buying a major competitor, becoming one of the biggest banks in the nation, while many of its peers are struggling or dying?

A: We did not have a crystal ball better than anyone else. We did not see this downturn to this degree. We didn't avoid all the mistakes because we feel the pain that our customers feel and we made some loans that I wish we would not have made. I think the major thing is, we did not confuse our reason for being in business and the results. In other words, our mission statement is to help customers achieve financially and the result of that is, (we) make money. We didn't do it the other way around.

We were the No. 1 mortgage company in this county in the early part of this decade and all of a sudden we started to see people do things that we didn't understand: negative (amortization loans), Pick a Pay or option (adjustable rate mortgages).

We gave up tens of billions of dollars in loan origination volume and millions and millions of dollars in profit. But we didn't see how doing this would help customers succeed financially. We don't think lending money to somebody who we know can't pay us back serves anybody. Others did that because they were interested in short-term profits and they got nailed.

Q: Can you give us any color on how Wells Fargo has used the $25 billion in government bailout funds it received?

A: We were asked to participate in the (Troubled Asset Relief Program) funds. The government made a $25 billion investment in preferred stock in Wells Fargo and they get some warrants. We're Americans first and we're bankers second. If this strengthens the industry, and we benefit from a strong industry as do our consumers and small business customers, then that's terrific.

It adds to our capital and we use that to operate our business, we don't segregate those funds out and say, we're using these funds for this loan and we use this capital for that. It's all part of the same capital.

We've been making loans all along. In fact, we didn't grow our balance sheet two years ago or three years ago, when people said there was no risk in these assets and we said we think there's risk. Since the credit pressure (that began in the middle of 2007), we've been growing loans and our balance sheet by double-digit rates because we're getting paid for the risk today, we're winning new relationships, we're winning new customers.

Q: Wells Fargo and other banks appeared before Congress and answered questions about how they were using the TARP funds. There seemed to be some explicit pressure to use the funding for lending. Given that loose lending is what led our economy to this point, should the government be pressuring banks to lend in your view?

A: At least in Wells Fargo's case, we cannot responsibly say to anyone, we will make X number of loans into the future without any conditions. We will make all the loans that we can make responsibly, profitably, with proper risk and proper concentration limits. Part of the reason we're in this soup is there were a lot of people who thought loans were the goal.

Comment: Full article is a worthwhile read.