One of America's most experienced financial service executives is Charlie Scharf. He's currently the CEO and chairman of Wells Fargo. Previously, he'd served as CEO of Visa and CEO of BNY Mellon. He's also held senior positions at JP Morgan and Citicorp. Recently, I had a chance to sit down with Charlie Scharf, meet with him in Washington, DC to talk about his extraordinary career.
Right now the Federal Reserve has a chairman, Jay Powell, and obviously there's some dispute about whether he should be investigated or not, at least in the view of the president. What is the view of the banking community? Do you think the Fed's independence is being compromised?
The independence of the Fed is critically important, not just here in the US but in other parts of the country. And when you think about just the way our governing system works, it's different than a place like China where there's long-term management, long-term goals, high coordination across all the different areas of government. Here we have a political infrastructure that turns over, which has points of views, and we have a more long-term structure in place at the Fed. The committee vote is extremely important. And so, creating the right kind of balance between fiscal and monetary policy to get to the best outcome is extremely important. There's no reason in my mind why the president should have a point of view. All presidents have for a long period of time. They've done it in different ways. This president does it very vocally in terms of what his points of views are. But even as it comes to who he's choosing to nominate for the Fed, in this case, he's chosen someone who has a point of view on what's going on in the world, AI, what it's going to mean for jobs, what it's going to mean for productivity, and it's got to be approved by Congress. But this idea that there's total separation is just not true. But it is true when it gets to the actual decision-making.
Eventually the person nominated by the president will be confirmed. Do you think it would be difficult for him to lower interest rates at this point given where the economy is?
Yeah, I think right now there's pretty clear consensus that it would be the wrong thing to do until the Iran conflict is clear what the end is in sight. There's real risk out there. 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 waiting to see how this all plays out. And that seems like the prudent thing to do.
What do you think the impact is on the economy of the war to date?
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. They're spending more money on gas but making adjustments in some of the other categories. 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, they're not laying off, but they're not hiring to the extent that they would hire. Neutral to just beginning to see some potential for some negative impacts. The real question is going to be is how long do oil and gas prices stay high? People always think about 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.
Is it better for banks generally if interest rates go up or go down?
There's the short-term impact and then there's the longer term impact. 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. 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. 95% of our revenues come from the US. We really live and breathe by the success of the US customer and the US business.
Are you worried about the value of the dollar? The dollar has gone down since President Trump has been in office.
I think it's something we've got to be conscious about. The position the US dollar has in the world. We can't assume that we just have this god-given right to be the reserve currency. But it's going to take a long time for people to get comfortable with something else other than the dollar and it's in our control.
What about the US debt? We have, you know, $39 trillion of debt.
And that's one of the issues that's got to get solved because you've got people who were in office for four or eight years. They've got their own agenda on what they want to accomplish. They're not going to be there to solve that problem. And they don't have the same kinds of immediate pressures that companies have when they become overleveraged.
Recently, the concern has been in the financial committee about something called private credit. So, is that legitimate concern? Is private credit about to crumble in some way?
No, I don't think private credit's about to crumble. When you look at private credit, 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 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 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. You will see credit deterioration at some point in time.
Has AI changed your job very much? Do you use AI in running Wells Fargo?
I personally do. We've enabled most of the company with some of the basic AI tools, but we're at the very beginning and 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. 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.
Revolut is a company with now a private market value of $75 billion headquartered in the UK and now they're trying to get a US banking license. Does that worry you as a potential competitor to Wells Fargo and other banks like yourself that they could build a whole banking system without any bricks and mortar?
We think about the competitive advantages that we have versus who we compete with. When you kind of step back and look over the last 10 or 15 years and say, 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 moats 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 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. 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. 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.
So today on Wells Fargo, what is the market capitalization, the market value today of Wells Fargo is what?
Okay. And how many employees do you have?
How many customers do you have?
Wow. It's a lot. And what about credit cards? You have a big credit card business. 20 something million cards.
Hey, have you ever used a credit card and had it denied?
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.
Is that person in charge of that division still there?
We've learned an awful lot. It doesn't get denied anymore.
But hasn't happened since.
Okay. What about the ATM business? Is that a profitable business for banks?
The ATM business, it's marginally profitable, but it's important. It's convenience. And 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. We can debate about 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.
Let's talk about your background. Where were you born?
I was born in Manhattan, raised in New Jersey.
What did your parents do?
