It hasn't been a great week for Wells Fargo & Co WFC. The firm caught negative headlines around CEO Tim Sloan’s $4.6 million raise as well as new federal sanctions for commissions on auto insurance policies.
At a visit with the Detroit Economic Club Thursday afternoon, Sloan had little to say on the latter.
“I don’t know if that’s accurate or not,” he said. “I don’t know where that information came from… Certainly in our auto business, we made some mistakes in terms of when we required our customers to have insurance on their vehicles when they weren’t otherwise providing it.”
Wells Fargo is in the midst of remediating customers impacted by earlier abuses, and while it has the checkbook out, it’s increasing Sloan’s pay 36 percent.
The raise drew criticism from the likes of Elizabeth Warren, but Sloan justified the year-over-year change as reflective of his tenure — unlike last year, he has now been CEO for more than a year. At the same time, last year’s compensation was reduced amid company challenges.
Sloan added that the board sets his compensation, and he declined a bonus awarded to all other executives because he doesn't believe enough progress has been made to merit one.
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Trouble Follows
Thursday’s press compounds recent accusations of misconduct, including predatory lending, the creation of fraudulent customer savings and checking accounts, and the forced sale of auto insurance on loan clients.
The Federal Reserve recently imposed an asset cap on the company effective until things improve, and Sloan said it was right to demand change.
“We needed to be very self-reflective and fix anything that was broken,” he said.
His team started by reaching out to 3.5 million retail customers that it suspected could have been affected by inappropriate product sales. It also replaced a sales-focused incentive plan with a new incentive plan based on customer experience and loyalty; reorganized the company to improve checks and balances; created new divisions; centralized all the product risk control functions; replaced ineffective leaders; and reevaluated procedures around its services.
“That, unfortunately, doesn’t create a lot of great headlines, because what you’re doing is you’re highlighting errors you have made,” Sloan said. “That’s a tough, short-term challenge that we had.”
However, he said the strategy has paid off. While a number of retail customers left amid the scandal, “the net number during this entire period continues to grow.” At the same time, employee turnover is down to its lowest level in seven and a half years.
Looking forward, Wells Fargo intends to continue making adjustments on non-consumer, non-commercial deposits with its $1.96 trillion balance sheet, and it’s working to expand its loan portfolio.
The Perks Of The Dodd-Frank Act
Wells Fargo is also a talking point following a Wednesday Senate vote to roll back regulations governing community banks. Sloan considered the Dodd-Frank amendments a “good move.”
“When you think about the systemic risk that a large bank has on the economy versus a medium firm or small firm, it’s just different, so there should be different rules, and I think it’s really appropriate that medium size and small banks in this country don’t necessarily have to operate with all the same rules as Wells Fargo,” he said.
He doesn't regard the altered policy a competitive disadvantage.
“We have incredible economies of scale, and I think leveling the playing field a little bit from a regulatory standpoint to give medium size and small banks a bit of a leap is the absolute right decision,” he said, noting Wells Fargo’s unique ability to invest $7.5 billion in technology every year.
Notably, Sloan professed support for many parts of the Dodd-Frank Act that “were absolutely appropriate,” including liquidity and capital rules.
U.S. Economic Outlook
Sloan expects the company’s growth to parallel national growth. Wells Fargo’s metrics indicate tax reform will put more money in the American pockets, encourage spending and fuel economic growth.
“There’s still a swath of Americans that have not benefited from the recovery, and we’ve got to focus on those, in particular, those Americans that want to work that haven’t come back to the job market,” Sloan said.
While there’s still work to be done, he registers more optimism around the economy than there has been in years and expects continued recovery in the U.S.
“Our expectation this year is that instead of an economy that’s growing between 1.5 and 2 percent Gross Domestic Product growth, it’s going to be between 2 to 2.5 percent, and that makes a big deals in terms of the number of jobs that get created in this country,” he said.
Washington’s Role
By Sloan’s assessment, the growth will be aided by tax reform, which increases U.S. competitiveness as foreign countries poach jobs. Oher policies could be less helpful, though.
“Unfortunately I think some of the current trade actions are potentially counterproductive,” he said. “NAFTA, for all its weaknesses [...] has been one of the most successful economic arrangements in world history… We’ve got this tremendous opportunity to continue to growth these three economies in a very, very peaceful way, and the worse thing in the world would be to somehow blow up NAFTA.”
Although it wouldn’t directly impact Wells Fargo, whose businesses in those markets are immaterial, the pact’s dissolution would be detrimental to the auto industry and ripple across the economy, he said. However, talks with other business and policy leaders have bolstered his optimism in the treaty’s continuation.
Related Link: Fellow Banks Lose Faith In Wells Fargo, Downgrade On Fed Risk
Killing The National Debt
The last eight years have seen a doubling of the deficit, and Sloan said the fix is ultimately cross-generational.
“I think the solution to it is not necessarily to take a hard right or left turn and reduce benefits to folks that really need them in this country,” he said. “I think the solution to it is to take a very long-term, 50-, 100-year approach and think about how to save a little bit every year to start to pay off the deficit.”
Sloan expects the Fed to continue to raise short-term interest rates, U.S. long-term rates to rise slightly with global rates over time and inflation to increase a bit over the next few years. Notably, he considers technology to have a muted effect on inflation as it disrupts the job market and the speed with which goods and services are delivered.
Altogether, though, he anticipates no stunting of economic growth. “I don’t think it’ll be that big of an impact on the economy,” he said.
The Place For Fintech And Blockchain
The technology impacting inflation is also changing the banking game.
Wells Fargo is increasing its investment in fintech, particularly surrounding data collection and mortgage applications. “It’s affecting our growth strategy in a big way,” Sloan said.
At the same time, the company currently manages 15 to 20 projects exploring blockchain applications, from title settlements to trade credit to credit default swaps.
Cryptocurrency is out of the question, though.
“I’m personally not a big believer in cryptocurrencies,” Sloan said. “One reason is that most of them are used today by people that are doing things that are dishonest.”
He doesn’t foresee anyone using it as a currency considering it’s backed by no government or economy or military. “It’s a tulip,” he said. “That’s all it is.”
Wells Fargo CEO Tim Sloan speaks to the Detroit Economic Club at MotorCity Casino Hotel on Thursday, March 15. Photo by Dustin Blitchok.
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