LIVE: Wells Fargo CEO Charlie Scharf Speaks to David Rubenstein

Yeah, I think right now there's pretty clear consensus that it would be the wrong thing to do. You know, until the Iran conflict is in terms of, you know, it's clear what the end is in sight, there's real risk out there. We don't know how significant it is. And I think as you hear voting committee members talk about it, there's a high degree of consistency, including I think from the Treasury Secretary, in terms of, you know, waiting to see how this all plays out, and that seems like the prudent thing to do.

Listen, what I would say is that the members of the Federal Reserve at all levels, from governors on down, are very accessible. They always want to talk about things that we're seeing in our markets, in our business, because it informs what they do, and very often we have the data before they do. I've not been part of a conversation where they ask what we would do if we were in their shoes. I think that's not the right conversation to have. I'm sure when you look across the different leaders, not just banks but non-banks, you talk to, and people have different varying degrees that they share. But ultimately, they're going to make the decision based upon all the things that they see, both in the physical data and all these conversations they have with folks like us.

Yeah, I think, listen, I think, you know, separate out markets versus the economy. Right now, from everything that we see, the economy is still extremely strong. We all just reported our first quarter results in the banking space. Loan demand is decent. Delinquencies on the consumer side are extremely well controlled. Consumer spend is growing on a year-over-year basis, week over week over week, anywhere between five and 7%. They're spending more money on gas, but making adjustments in some of the other categories, which is what, you know, you would have expected. And so they're kind of getting through it. Businesses have gone into this in strong financial shape. So those are all the good things, but then when you ask them how they feel, everyone's nervous. And so, you know, they're not laying off, but they're not hiring to the extent that they would hire. And so I would describe all these as, you know, neutral to just beginning to see some potential for some negative impacts, but it doesn't mean that these negative impacts are going to be really meaningful. The real question is going to be is how long do oil and gas prices stay high? I was with a client of ours who's a big, they make and sell retail apparel, and they were talking about the price of polyester and nylon going up 25%. Which is a huge driver of their cost, and that doesn't even take into account transportation or the other knock-on effects that you have. People always think about, you know, the gas pump, but it's all these other things that matter. They're fine for a while because they have long-term contracts to buy some of these things, but that will come down the pike. And if the conflict ends, the straits open up, production returns in some reasonable period of time, there will be this impact on consumer spend on some of these other things. But in that kind of environment, it won't be damaging. If this goes on for a longer period of time, it can be more damaging.

I would say again, I think I'd broaden it to the administration, the White House, very, very accessible. And by the way, totally different than the last administration. Not to get political about it, but the last administration, no interest in engaging other than one or two people in that administration. It was almost like if you were business, you were by definition not good, and if you were a bank, you were like the opposite, just off the spectrum, not good. So this administration, we don't agree with everything the administration is doing, and they don't like everything about us, but it's a very, very open conversation about policies, about regulation, about things that we see. And I think there's always this open door to conversation.

No, I don't think private credit's about to crumble. And when you look at private credit, private credit has grown dramatically. So if you just break it apart into its pieces, first thing people say, you know, is it so big at this point it's a systemic risk? And it's not today. When you just look at the size of private credit, it's not big enough to be a systemic risk broadly the way we think about systemic risks that have existed in the past. But it's credit, and there's been a huge amount of money that's flown into these products, both institutional and retail. And we've all seen this in the past when there's just a lot of money that needs to get invested because that's the only way that these firms get paid is to actually invest. It doesn't always work out well, and you know, we're in an area where we've been in this bull market for a long period of time. We haven't seen any recession in over a decade. COVID doesn't count for this, you know, because people haven't really lived through a real cycle. And so you will see credit deterioration at some point in time. And I wouldn't paint the picture of private credit separately from bank credit. I would say that in both instances, there are people that do it really well that are really conservative in how they do it. They understand their companies, and there are those that have piled in that are just looking for growth, looking to deploy assets, and they'll have problems. But again, some of the big names out there that we all know, they do it really, really well. They're really smart.

I was at JP Morgan Chase.

You know, you didn't know. I think you were concerned about what you didn't know what was going to come next. And we'll never know because I think the things that the government did, which in retrospect turned out to be somewhat controversial, whether it's some of the programs they put in place through the Fed, TARP, and all these things, that took the question away.

Not even close.

Not even close.

Alex, I think the markets got it right and the markets got it wrong. You know, it's one of these things where, you know, and markets are very funny, right? They get it right over a long period of time, but over a short period of time, sometimes they miss things, then they catch up. Sometimes they overcorrect. I mean, we see it in our own stock, right? Our stock can move, you know, one day, 8, 10%. We're the same company we were the day before, and then three months later we're back to where we started. And so you've got these anomalies that exist. And I think the reality is there is risk to not just software companies, but many other companies in terms of what AI allows the core users of it to do. And it's like the private credit discussion. Everyone's being painted with this broad brush of, you know, their future is in doubt, and that's just not the case. I mean, I think about ourselves, you know, think about the core platforms we use at Wells Fargo. It could be general ledger, HR systems, CRM systems. You know, in the new world, theoretically, could we go out and recreate those platforms by using AI? Absolutely. The risk to do that is extraordinary. And so what we'd rather have is we'd rather have partners who have great foundations to create their own AI models built on top of this, integrate it with ours, and then we can go do other things. So I think those that use AI themselves, and you start to see that, will actually become more valuable, and others who aren't in a position to do that will suffer.

I personally do. We've enabled, you know, most of the company with some of the basic AI tools, but we're really at the very beginning, and you know, we're kind of going through pieces because we've got to monitor it in a couple of different ways. Number one is how we use the tools ourselves to either become more efficient or deliver differentiated products and services for our customers. Number two is we lend a lot of money to a lot of people, and so understanding how AI is going to impact their businesses matters a lot to us. And then we've got the question of just how's AI going to change our business model. And those are the three different buckets that we think about it. We're most advanced in that order. But we're towards the beginning of it, but it's incredibly powerful, and we're going to see meaningful benefits.

No.

No, I mean, very, I would say, and I don't say that cavalierly even though I came across cavalierly. We think about it a lot. We think about the competitive advantages that we have versus who we compete with, and a huge amount of respect for them and the other fintechs that are out there. And I think, you know, when you kind of step back and look over the last 10 or 15 years and say, you know, what have the fintechs done to the banking space, I think first and foremost it's made it very clear to people who run banks that the modes that have existed that have allowed you to move slowly are no longer going to protect you. In fact, you've got government and regulators that are telling you you need to do more. So banks have woken up to the fact that, you know, you have to compete not just with regulated institutions but non-regulated institutions. And we come at this with this great position of strength, which is we have trust, we have the FDIC insurance, we have a huge customer base. And, you know, I've lived in other worlds too. When you're at a big company, you sit and look at small companies and say, oh my god, look how quick they can move, the great products, they understand the customer. All those things are true. And then when you go to one of those companies, you look at a company like us and say they have 70 million customers. Wow. And if they were to get some of these things right, think about how hard it's going to be for us to compete with them. So it puts a huge amount of pressure on us to have to deliver things in different ways if we didn't have that kind of competition. But we know it's there.

I think stablecoins, it's not clear. I think stablecoins across the globe will have a meaningful place. I think when you get outside the US, there are real reasons why stablecoins are very attractive. When you go to places like, you know, high inflationary places, Brazil, Venezuela, the rest of these places where it's historically been very hard to keep and hold dollars, stablecoins solve that problem for them. And so if you had a choice of keeping your money in local currency or US-backed stablecoin, you'd prefer to do that. So the question is what's the use case in the US because we don't have that problem. And so I think it's clear that cross-border payments are very inefficient today. They take too long. They're expensive. It's just not an easy experience. Stablecoins can make that look very different. So I think that is a real use case here in the US. Beyond that, it's not clear to me that there's a winning app there or winning edge. By the way, it doesn't mean that we're not going to partake in it. We're building stablecoin solutions both within the US banks and more broadly in case what I said is wrong so that we'll have something in place and be able to compete with a very broad network of participants. But it's just not clear yet.

You know, there's the short-term impact and then there's the longer-term impact. You know, we have a lot of money where we pay zero rates. And so when what we earn falls, then that squeezes our margins because we can't lower zero what we pay customers or 0.5 basis points. So, you know, higher rates, rising rate environment is certainly helpful for something like that. But what's most important is like what are the reasons underlying it, because the amount of money that we'll make in any given quarter from a favorable interest rate curve for us is diminutive compared to what it does to the underlying base of our customers. So if the economy is healthy, the economy is growing, inflation's under control, people are growing inventories, people are spending, that's what's going to really drive profitability of banks. And, you know, one of the things that we're, I think it's something that we're very blessed with is we're so focused on the US. 95% of our revenues come from the US. We really live and breathe by the success of the US customer and the US business.

I do remember it. You see it less than you used to. Still there.

No, I think the, well, let's be honest, right? If you're on the west coast, the stagecoach is iconic. Everyone on the west coast knows the stagecoach because that's where the history of Wells Fargo was. You come to the east coast, which was the old Wachovia set of banks, they don't know the first thing about what the stagecoach is. And so it's an important part of our heritage. But then the other thing you think about is when you think about like what's going on in the world, the speed of change, the rapid movement, stagecoach, you don't use it that much. So we still use it. It's kind of in the background a little bit because we don't want to disappear from who we are. But there's a right place for it.

They did. Henry Fargo and William Wells. I think I got it right.

They started a business that did two things. It really was there to support everything that was going on with gold on the West Coast, and it was both to help with financial needs as well as travel and movement of things across country. And ultimately, those businesses, it's a little more complicated than that, but ultimately those businesses split, and when the bank became incorporated in California, that became Wells Fargo, and then the express business became American Express, which then ultimately transformed itself multiple times in the early 1900s.

250, 260 billion.

200,000.

70 million.

70 million.

Credit cards, 20-something million cards.

You want to know the truth?

So, I get to Wells, and first thing I want to do is get a Wells Fargo credit card. And so I get the new card, and I was out to dinner with some good friends who run some big companies, and I pull out my card, and I got denied.

We've learned an awful lot. It doesn't get denied anymore.

Hasn't happened since.

The ATM business, it's marginally profitable. But it's important. It's convenience. And, you know, cash is becoming less important over a period of time. People are able to deposit checks on their phones and not having to go to ATMs anymore. But it's a little like branches. You know, we can debate about, you know, what the future's going to look like in 20 or 30 years, but customers tell you what they want and what they like. And they like convenience. There's still plenty of cash that circulates out there, especially in our customer base. And until they stop using ATMs, we're going to still have them for them. It's part of the value equation.

Well, we had multiple constraints. The biggest one that people know about is there was an asset cap put in place. So at the time, I think it was 2018, we were told that our assets at the time were 1.952 trillion, and they couldn't go higher than that until the consent order work was done to their satisfaction. And in addition, by the way, when I got to the company, we had 13 public consent orders.

It's very, very hard. So there are things you can't do and there are things you can do. You've got to be first of all very selective in looking at your balance sheet and saying, okay, it's not the worst thing in the world to say we need to become more efficient on our balance sheet. What's less efficient? Where do we make less money? How do we reallocate that balance sheet usage? You then turn to certain things and say we're just not going to be active about soliciting loans. We're not going to be active about soliciting deposits. We were very careful not to throttle consumer deposits because you tell a consumer to please bring your deposit elsewhere and you've lost that relationship. Large corporates understand. They understand we have an asset cap. They understand we want to take their money but we just can't right now. So we turned away massive amounts of deposits at the time. And we focused a lot on businesses that drove fee-based revenues. So, we've grown our credit card business dramatically, which includes a significant portion of increasing the spend. We've grown our trading capabilities. We've grown our investment banking advisory capabilities. We have our fee-based treasury management businesses. And so, you know, that along with our wealth management business where we get paid on fees, that's what we focused on. It wasn't the worst thing to do for us as a company because we were too reliant on interest income. Our NII as a percentage of the total revenues of the company was much higher than everyone else. And so we created a little bit more balance in doing this, but it's very, very hard when you're in the marketplace competing with other banks talking to the same shareholders. And we've got two hands tied behind our back because we can say all we want about growing these other businesses. The core thing of what we do is take deposits and make loans, and we couldn't make anymore.

It was the basics, you know, it was quite honestly there were a series of individual things that the regulators identified. They were right about them. We can argue about whether the punishment fit the crime, whether an asset cap was the right thing to do for a company like ours. But they weren't wrong about the underlying issues. And what happens is you get to the point where if you're not resolving the issues quickly enough, they say, 'Okay, we need to get your attention. We're not getting your attention.' So the next step is you can't grow. And so that's what they did.

You know, listen, it was first of all, it was very hard to leave because I was at Bank of New York Mellon, which I went in maybe a year and a half before I started these conversations, and I didn't intend to leave. I intended to stay there for the rest of my career if they would have had me. But I knew someone on the Wells Fargo board from another board that I'm on, and he was on me about you should engage, you should engage, you can be in New York. We have a lot more in New York than you think, which was important to me. And then I just, you kind of go through what Wells is, and I competed against them for years, and I believed, and I believe today more than ever, it's an incredibly important, amazing financial institution in this country, which lost its way on a series of things. And if you sit there and say if those things are all fixable and someone were to hand you the Wells Fargo franchise that had been underperforming, that had been restrained for so long, that's like a dream job. So you know, you got to take the risk that you believe you can get through these problems with the government, by the way, in a difficult environment with the Biden administration. But if you come out on the other side, it's incredibly exciting, and we're lucky enough that that's where we are.

Yes.