Welcome back on this the final day of the first quarter. Stocks wrapping up the worst quarter in four years. Take a look. Major indices sliding into correction territory down about 7 to 8% in the last three-month period as oil prices have spiked up better than 50% since this war began on Iran February 28th. The Wall Street Journal reporting that President Trump says he is willing to end the war in Iran even if the Strait of Hormuz remains closed. The administration now looking to allies to help reopen that shipping lane. Joining me now is the chairman and CEO of Wells Fargo, Charlie Scharf is with us this morning. Charlie, great to have you.
Great to be here. Thanks.
Thank you so much for being here and I want to get your take on the impact of this war on the macro story and the economy. What have you seen from your standpoint?
So, separate out the pure economy from markets and what people are nervous about in terms of what the future holds. The economy is still extremely strong when we look at it. Consumers are still spending even with increases in oil prices. They're spending, you know, 20, 30% more on oil, but they haven't stopped spending on everything else. Delinquencies are still strong. Employment is strong. Wages are still growing. Businesses are in good shape. So now, it's still very early on, but just when you just look at the health of the consumer and the health of the businesses that we serve, which is pretty broad across the country, things are in really good shape. Now, that's different than the markets, right? Where you've got markets that on the one hand, you know, you see drop in values, you see some nervousness, but you also have this debate about are people factoring the risks of the war in enough. And markets have debates and that will continue. But it does feel like there is a fragility or a nervousness in the markets which you don't yet see in the economy, which depending on how long the war goes on will either turn out to be okay or there could be a trigger which could, you know, make things a little bit worse.
Yeah. So, it's people are waiting to see how long this goes on, I guess, and how significant the spike in oil prices becomes. In terms of lending from your standpoint at Wells, what are you seeing?
People are cautious about borrowing. When I say people, I mean businesses are cautious about borrowing. Consumers are still borrowing roughly at the same rate that they were. Credit quality is still extremely strong. And the borrowing that we're doing at Wells is still within the parameters that we've always consistently done. But I do think then there's this nervousness of should I be investing? Should I be growing inventories which is holding people back as they're waiting to see how the war at this point plays itself out.
And you've been right in the middle of the excitement of the economy and that is data centers and financing some of those data centers. You know there is some worry that there's so much spending on data centers. What can you tell us about that? How big of an opportunity is that for Wells Fargo?
Well, I think to step back, people, I mean there are reasons to worry out there and you know people always ask about what the future's going to hold and the fact is I think we feel, I personally feel very good about what the rest of the year looks like. Doesn't mean that there aren't a bunch of risks out there. It doesn't mean that we can't be wrong and we got to be prepared for those. And when we think about just the amount of credit that's being extended in the data center space, when we think about, I'm sure we'll talk about the worries that exist within private credit, those are very real, but at the same time, there are real underlying businesses with real value propositions. And like anything else in life, they're going to be winners and losers. And we're all doing our best to make sure that we're financing and partnering with those that are going to be the winners.
I mean, it seems like your location being a California bank that in of itself gives you this great closeness to Silicon Valley, has that benefited Wells Fargo more than other banks in terms of data center finance?
Yeah. Like, you know, we're a national bank. I mean, we've got large presences in San Francisco, Los Angeles, Minneapolis, Des Moines, Dallas, New York, lots of places. And our customer base is very broad. But I think the most important thing for us in terms of how we position ourselves in this is we've had relationships for a long, long time. We've banked them. We've lent companies money of all sizes and all types. And we've got the expertise inside to work with those and bring people together. And so that's really the opportunity for us.
Can you convey or characterize the enormity of it? The lending to...
It's going to be trillions of dollars. You know whether it's three to five trillion dollars that's going to be needed to build out the infrastructure. And again what we understand is there are huge benefits for AI, I mean huge risks and huge benefits and the question is what's the business model going to look like to support all that spending and again not everyone is going to get it right. The hyperscalers have a huge advantage, you know those who control these large language models that continue to be on the forefront continue to invest, people are going to pay for that. And what's strange at this point is there's not this clear understanding of what that business model looks like. So you're doing a little bit on the come. But it's, you have to, there's no question that the benefits are there.
Let me get your take on what you're doing at Wells Fargo. I mean a real leadership pivot in terms of where your priorities are, I think. And of course you recently had the asset cap and regulatory orders lifted at the bank. What are the big opportunities for you at Wells Fargo right now now that you've got this lifted asset cap constraint away?
You know, I think about it like we are blessed with this amazing franchise at Wells on the consumer side, our middle market franchise, our wealth franchise, our corp investment bank. And even though we've had this amazing franchise, we've been operating on an unlevel playing field now for a very long time because as a bank, we lend, we take deposits, we provide other services, but we haven't been able to grow. And so there's been a limitation on what we can do for our customers. And so now being able to compete on a level playing field opens up the opportunity to serve customers in ways. So that means lending more for sure. It means taking deposits that we weren't able to take in the past. And then using that broad set of capabilities to be able to just deeply, more deeply penetrate consumers and businesses. So, we're incredibly excited about our opportunities to grow all of our businesses.
So, does this open you up to perhaps acquire a regional bank?
You know, we're not focused on acquisitions at this point. I think we're in a very unique position. We have this amazing franchise. We've been constrained. We don't feel the need to do any M&A whatsoever. We have a complete business with scale, depth and breadth of everything that we do. And so we have this great opportunity to grow organically and so other people are in different positions. We're lucky to be in this position of having these opportunities with what we have.
