New Wells CEO faces housing challenge
Wells Fargo & Co.’s new chief executive, who spent 25 years grinding out growth at the bank, now must nurse its huge mortgage business through the worst housing downturn since 1991.
John G. Stumpf, Wells’ president since August 2005, added the CEO title Wednesday, succeeding Richard Kovacevich, 63, who is expected to remain chairman until he turns 65 in late 2008.
The two executives helped build Minneapolis’ Norwest Corp. into a powerhouse that took over the original Wells Fargo in 1998, keeping its storied name, San Francisco headquarters and stagecoach logo.
The transition had been expected since Stumpf joined Kovacevich last year as the only insiders on Wells Fargo’s 16-person board. Wells shares rose 27 cents Wednesday to $35.33.
With nearly $500 billion in assets, more than 6,000 branches and 166,000 employees, Wells Fargo is the country’s fifth-largest bank and the largest based in California. It is second only to Countrywide Financial Corp. in home loans, with significant exposure to the battered sub-prime mortgage industry, where it is among the top 10 firms in loan origination and in servicing -- the tricky business of collecting bills from risky borrowers.
Concerns about sub-prime business have driven the ratio of Wells Fargo’s stock price to its earnings per share to 10% below such ratios of other large regional banks, compared with the 10% to 15% premium it used to command, said Joe Morford, an analyst with RBC Capital in San Francisco, who rates the stock a “buy” and calls the concerns overblown.
In an interview, Stumpf said Wells Fargo Financial, the company’s sub-prime lending arm, mostly avoided the highest-risk loan types that have caused havoc in the industry, concentrating instead on straightforward refinancings for homeowners who could prove their incomes and were using the cash to pay higher-interest debts.
The new chief stressed Wells Fargo’s diversity. The company is in 84 different businesses catering to individuals and companies, including life, health and crop insurance, private banking for the wealthy and casino financing on Indian reservations. About a dozen of those businesses are national, Stumpf said, with retail banking located in the high-growth states west of the Mississippi River.
The diversification is paying off in the bottom line. Wells Fargo’s profit rose 11% to $2.24 billion in the first quarter, with revenue jumping 10% to $9.44 billion. Commercial lending grew 11%, helping offset a $124-million write-off from declines in the value of mortgages to high-risk borrowers.
Loan losses rose 65%, but Stumpf said they were well within the bank’s projections, and mortgage applications grew 19% as the bank increased its share of the market.
“Sure they have sub-prime, but compared to the size of the bank it’s peanuts,” said Sung Won Sohn, a former executive vice president and chief economic officer at Wells Fargo who is now CEO of Hanmi Financial Corp., the largest Korean American bank.
During his rise at the bank, Stumpf, 53, has displayed a light side, role-playing as Elton John and Garth of “Wayne’s World” at corporate meetings and cracking up fellow executives by making fun of his own bosses. Sohn called Stumpf “probably the best comedian I know.”
Stumpf was the 10th of 11 siblings raised on a dairy farm outside Pierz, Minn., a largely German Catholic town about 100 miles north of Minneapolis.
At Norwest, he handled loan workouts and then car loans made through auto dealers before overseeing the bank’s expansion, first in Colorado and then in Texas. In the latter role, he acquired dozens of community banks to create one of the largest franchises in the state.
“When you pull together a bunch of banks like that, there’s a lot of plumbing and wiring issues, and he solved them all,” Sohn said.
Stumpf returned to Denver, where he oversaw Western regional banking operations, and then to San Francisco, where his responsibilities gradually grew until he became the operational chief for the entire bank.
Now that he’s the boss, Stumpf will face a question that Kovacevich often confronted: Will he engineer a takeover of a major Eastern bank to make Wells Fargo a truly national player? That isn’t likely, Stumpf said, because of concerns about compatibility as well as shareholder returns.
Wells Fargo, he said, already has its formula for success: selling more products to its customers and growing incrementally by opening new branches and making small acquisitions.
“We don’t have to do a transformational deal,” Stumpf said.
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