Wells CEO downplays impact of tough Fed order

Don’t expect any major turnover in the ranks of Wells Fargo’s commercial bankers following the Federal Reserve’s unprecedented move last week to restrict the company’s asset growth.

That was the message from CEO Tim Sloan, who discussed the Fed order at an investor conference Tuesday morning. The central bank on Feb. 2 barred Wells from growing any larger until it addresses a host of risk-management issues, an action stemming in part from Wells' recent string of retail banking scandals.

Wells has said that the Fed’s asset cap may reduce 2018 earnings by as much as $400 million. But since the surprise announcement, questions have lingered in the industry about whether the cap could ultimately hurt the bank’s ability to keep top-performing commercial bankers on staff.

Sloan said he doesn’t expect that to be a problem.

“I don’t anticipate any sort of outflow of relationship managers,” he said.

Since the Fed order was imposed a week and a half ago, Wells Fargo executives have reiterated to employees that business is operating as usual at the San Francisco bank, Sloan said. He also noted that in 2017 Wells recorded its lowest employee turnover rate in six years.

“If you communicate to our relationship managers that we’re open for business, and they see no difference in how we’re making decisions, then not only do they hear it, they believe it and they act upon it,” Sloan said.

The comments, made at a conference sponsored by Credit Suisse, offered a positive spin on a regulatory action that shocked the banking industry.

In addition to the cap on growth, the Fed also announced that Wells had agreed to replace four additional members of its board — three by April, and one by the end of the year. (Wells has not identified which board members are leaving.)

During a conference call with analysts immediately after the Fed’s announcement, Wells executives said they had identified several noncore businesses to shrink, to hold the line on growth. Those include $200 billion of noncore commercial deposits, roughly $149 billion in deposits from financial institutions, plus additional portfolios of short-term investments and trading assets.

At the conference Tuesday morning, Sloan said he doesn’t expect the Fed’s order to affect Wells Fargo's core base of commercial clients.

“I actually think that commercial corporate, commercial real estate, middle-market relationships can be even stickier than consumer relationships,” Sloan said, citing the significant amount of work it takes for companies to move their treasury management to a new bank.

When asked about performance in the company’s embattled retail bank, Sloan said the work of recovering from the phony-accounts scandal is ongoing. Data from employee surveys and a “variety of reports” on consumer deposits show signs of progress, he said.

“They’re all pointing to slow but steady recovery,” Sloan said. “It’s never as fast as I would like, but it’s absolutely occurring.”

As of Dec. 31, total average deposits in the company’s community banking division increased 4% from a year earlier, to $738 billion.

After revelations of the phony-accounts scandal in late 2016, Wells began providing monthly updates to investors on retail banking activity, showing detailed metrics such as customer-initiated checking account closures. Its last monthly report was on March 1.

When initially asked about the metrics he checks every morning to track the progress of the retail division, Sloan briefly changed the subject.

“Truth be told, when I woke up this morning, I checked the Olympics,” Sloan said, referencing the gold medal won Monday by U.S. snowboarder Chloe Kim in PyeongChang, South Korea.

“It’s amazing to me,” Sloan said, noting that he was getting off the topic.