Charles Scharf, the newly installed boss at Wells Fargo, will have his plate full in 2020. Having left BNY Mellon to take on what has been dubbed the “worst job in banking”, Mr Scharf now faces the monumental task of turning round America’s fourth-largest bank by assets. At the top of his to-do list: restoring credibility with customers and appeasing regulators.
Once top of the industry in returns, valuation and reputation, Wells has struggled to grow since its fake accounts scandal broke in 2016. The scandal, which saw Wells employees open millions of fake accounts in the names of unknowing customers, cost longtime chief executive John Stumpf his job. His replacement Tim Sloan was out after just two-and-a-half years.
Mr Scharf should have better odds. As an outsider, the banking veteran enjoys some goodwill from regulators and investors. Still, Mr Scharf’s attempt to right the ship comes against a tough backdrop. Falling interest rates are expected to squeeze net interest income. Meanwhile, rivals including Bank of America, JPMorgan Chase and Goldman Sachs are all gunning for a slice of Wells’s retail banking business.
The scale of the challenges can be seen in Wells’s latest quarterly results. Net interest income for the September quarter fell by almost $1bn from the year-ago period to $11.6bn. Return on equity came in at a paltry 9 per cent, compared with 12 per cent a year ago.
One bright spot was retail deposits, which grew 2 per cent during the quarter. And despite its struggles, the bank continues to command a higher valuation than most of its rivals. The shares trade at 1.6 times book value, just behind BofA among the biggest banks.
Mr Scharf’s priority will be to convince regulators that it has cleaned up governance and fixed the aggressive selling culture that led to the fake accounts scandal. Only then will the cap on its balance sheet be lifted. It will take work but the upside is substantial if he gets it right.
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