Bank commits $125B to mortgages for Hispanics

Jane Wooldridge
Miami Herald

MIAMI – Any company with a 166-year-history is likely to have ups and downs. For banking giant Wells Fargo, the last few years have definitely been a low.

In 2016, following an investigation by the Los Angeles Times, the bank disclosed that its sales force had potentially created millions of fake accounts in order to meet sales quotas. The final number was 3.5 million accounts.

Last summer, Wells Fargo said it might have enrolled and charged car insurance for up to 570,000 auto loan borrowers without their knowledge; as many as 20,000 of those customers might have lost their vehicles partly because of that added expense. The company also has been sued over other shoddy sales practices.

In the aftermath of the 2016 scandal, then-chairman and chief executive John Stumpf stepped down. He was replaced as chief executive by longtime company executive Tim Sloan.

Today, Wells Fargo is the nation’s third-largest bank by market value. It has 263,000 employees nationwide, with 8,300 locations and 180 ATMS. In Miami-Dade County, the company has almost 2,000 employees, with 66 branches and 180 ATMs.

Sloan, who is based at the company’s San Francisco headquarters, visited South Florida for a keynote “fireside chat” Tuesday at the Greater Miami Chamber of Commerce’s annual economic summit. About 350 gathered for the event.

The Miami Herald talked with Sloan in an exclusive one-on-one interview. The executive – who visited Lauderdale by the Sea as a child for an annual family vacation – shared his views on his company and the economy. Here’s an excerpt from the conversation.

Q: Your company has been in the news for some deceptive practices. What do you tell customers to restore their confidence?

A: You need to reinforce to them that we take responsibility for any of the mistakes we’ve made. I want to put that context; Wells Fargo is celebrating 166 years in business this year, and we have not had similar challenges to what we had in 2017 throughout that entire period.

Second, you need to look internally and fix anything that needs to be fixed, and we’re in the process of doing that. And then to the extent that any customer was impacted by any of the mistakes you made, you need to make it right by them, and we’re in the process of doing that.

Then you need to reinforce you’ve made fundamental changes within the company so that any of the mistakes we made are less likely to return again. For example, in our retail banking business, we had an incentive compensation plan that unfortunately encouraged the wrong behavior. We’ve ended that. We’ve changed our practices in retail banking; we’ve changed our management.

Then you need to reinforce to customers that it’s our focus to provide them with the best customer services and advice.

We want to be the best in the financial services industry. How do you that? You make sure you’ve got the best people; that’s why team member engagement (is a high priority). Then you need to be sure customers appreciate you and you continue to invest in the business and that’s why we continue to innovate.

Q: The banking sector played a significant role in creating The Great Recession. Is the U.S. still vulnerable to that kind of crisis, or has the country created enough safeguards to prevent a repeat?

A: When you turn the clock back, I would submit most of the excess of the Great Recession were caused by firms that don’t exist any more. Some were investment banks, some were savings-and-loans that went out of business or were merged into other firms.

That’s not to say that banks didn’t play a part in it, not at all. But I think what happened is post-Great Recession that those that were still standing, fairly or unfairly, got most of the blame.

When you look at what the excesses were that drove some of the issues in the Great Recession, you had encouragement in home ownership both from the public sector in Washington and the private sector that was unsustainable. The mortgage industry made too many loans to folks that really shouldn’t have qualified for loans. (Since then), housing policy has fundamentally changed. Underwriting today in the mortgage market is as good as I’ve ever seen in my 30-year career. That’s a real positive.

The other driver was leverage across the market in almost every sector. As I see investing and providing credit today, the quality of what we’re doing today is among the best in my career. You can see that in the industry in the (small) amount of the credit losses across the entire lending sector. At Wells Fargo, last year our loan losses were 31 basis points (.31 percent). That’s the lowest we’ve had in history.

While we don’t agree with all of the regulations (that followed the recession), some of it has been very good. Making sure the banking industry has very strong liquidity policies, we completely agree with that. We’ve been doing that for years. Having sufficient capital policies … we’ve been doing that for decades. That’s why we survived the Great Recession.

Q: In Miami, economic disparity is a tangible issue. What is the role of banks in providing access to lending?

A: We fundamentally believe that we can’t be successful as a company unless the communities that we do business in are successful. How can we assure that? We can just go about doing our business. We are the largest lender in the country, the largest mortgage lender, the largest agricultural lender and the largest small-business lender. We take our responsibility providing credit very seriously.

To be sure that we’re providing credit not to just folks who don’t need it, we need to focus on how we can provide credit to all sectors of the economy, particularly those that need it the most. Two years ago, we said we need to reinforce that we’ve got to create more home ownership in the right way and focus on diverse sectors. We created a $125 billion commitment for Hispanic home ownership over a 10-year period. Each year, we publish our goals and we are exceeding our goals. We’ve done the same thing in the African-American community; it’s a bit smaller there so the commitment is about $60 billion. We have to make sure our focus is continuing to lend for affordable housing; we’re the largest affordable housing lender. We’re going to increase our commitment to small businesses and women-owned businesses; that’s also equity investing.

And it’s also how we think about our philanthropy. We’ve historically been one of the most generous companies of investing in communities through money and our team-members’ time. We’ve raised the bar on ourselves. Last year, we gave about $286 million; this year, we’ll increase that to $400 million. Longer term, we’ve targeted 2 percent of our profits after-tax income. Last year, we made about $22.2 billion after tax. Our expectation is that as we continue to be successful, we’ll continue to invest in communities.

Q: What impact will the tax bill have on the economy this year?

A: The more that we can put income into the hands of consumers and businesses, the better off we are. It’s economics 101. To the extent now that tax rates are down, that companies are investing more in the U.S., that companies are paying their employees more, I think it’s going to be very positive.

We just updated our Wells Fargo Gallup small business survey, small businesses are more optimistic than they’ve been in years. When I talk to our customers, they’re much more optimistic in terms of bringing jobs back here and investing in the economy. I look at our equipment finance business, the backlog now is the highest it’s been in years.

Post the tax reform, we were one of the first companies that came out with the changes we would make. We are increasing our minimum wage, (which) is going up to $15 per hour; with add-ons, that will impact a little over 70,000 team members. We also announced in November that we would be granting restricted stock rights for 50 shares for full-time employees, 30 for part-time employees.

Q: What keeps you up at night?

A: I worry about the risks that are beyond our control. I worry about cybersecurity; we spend billions of dollars each year defending Wells Fargo, as do others. That’s one of the biggest risks we face as a country today. I worry about some of the geopolitical risks; there’s a fellow in North Korea that may or may not have the ability to shoot a nuclear missile over America. The Black Swan events – that’s what worries me.