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Wells Fargo CEO thinks a rate hike could be good for the US -- and his bank

NEW YORK -- The CEO of the world's largest bank by market capitalization thinks his institution -- Wells Fargo of the U.S. -- may one day be a model for the industry's global heavyweights. That model? Stay huge, but in one country. After all, taxpayers never want to be on the hook for the potential bailout of a bank, especially if it gets into trouble lending in another country.

     So where does a bank grow if not internationally? John Stumpf sees plenty of growth left in the U.S. as the industry consolidates. And, he says, Wells Fargo can grow simply by building on its relationships with existing customers. In fact, Stumpf, who has been with the same bank for 33 years, is big on relationships in an almost corporate Japan way.

Q: So firstly, we want to learn what you feel are Wells Fargo's strengths? Your share price is doing very well, obviously supported by good results.

John Stumpf

A: I would say it starts with our culture. The company has been in business for almost 160-plus years. We started as a small business and it was always relationship-related. We don't think of our customers as counterparties; we think of them as our guests. Our team, 265,000 people, has a long tenure with the company. I've been with the company 33 years. My 11 direct reports, people who report to me, have an average of 28 years with the company. I know them. I know their children. In some cases I know their grandchildren. We look for long-term, deep relationships with our team members, with our customers, with our communities and our shareholders. Everything that we do tends to be conservative. So if you think of a money-centered bank that's into trading, deals, transactions, that's not how we think. We are not like that.

     The kitchen tables are more important for us than the investment bank league tables.

     We think about, can we work together around a kitchen table, with our customers, to serve them. And if we do that well, the rest will take care of itself. The reason we get up in the morning and go to work is to serve customers. The result is we make money. Never the other way around. We never put the stagecoach in front of the horses.

Q: You are now the biggest bank around the world in terms of market capital.

A: Today our market capitalization is over $280 billion, and we're proud of that, but we don't focus on that. You know, again, we would never have that if we didn't serve customers well, team members well, communities well. That's the result.

Q: What will be your targets from here, as a dominant force in the U.S.?

A: In the U.S., we have leadership positions in most of the businesses we're in. Ninety-seven percent of all of our revenue comes from the U.S. We are all committed to the U.S. We do have some business internationally, but it's mostly to serve our U.S. customers when they do business abroad. We pay more taxes than anybody else, any other bank in the U.S. We're No. 1 in mortgage lending, small business lending, auto lending, commercial real estate, agriculture. So one would say, well, if you're already No. 1, where is your growth going to come from?

     There are still 7,000 banks in the United States. It's a very fragmented business. So we have lots of opportunity to grow just within the United States as the industry consolidates, as the growth of the country continues. Our GDP is better than most places in the world. So we have years and years of growth. Let's take the mortgage business. People say, "Wells Fargo, you're the largest mortgage lender. How can you grow from there?" Half the customers who call us their bank, have a mortgage someplace else. We have 11% of the deposits in the country, we have only 1% of the wealth. So we have a lot of opportunities to cross-sell. There are oceans of opportunity still in this country.

     In fact, I think the banking model of the future might look more like our model, where you're in one country as opposed to in multiple countries -- as a dominant. Because I think legislators around the world and taxpayers don't want to bail out a bank in a different country, for the business they do someplace else. We're happy about our business model and we think we have lots of growth available to us.

Q: How much do you think the U.S. will grow in 2015?

A: The consensus growth of 2015 is somewhere in the [2.5%] range. Our view is that the United States will be on the higher end of the consensus, and we might hit 3%. A lot will depend what is going to happen in the rest of the world. How strong will Japan come out? How much stimulus will the Europeans put into their economy? Is China going to be 7% or 6%? How about Russia? Those will make a huge difference.

Q: Six years ago, under the financial crisis, how did you determine Wachovia was a bank worth acquiring?

A: I'll tell you a story: I was on an airplane, coming back from a meeting in New York City. It was a Friday night. It was late in September of 2008. When the plane came up to the gate I pulled out my cell phone. There were two messages, and they were both from Sheila Bair, the chairwoman of the FDIC. And she said, "Wachovia is likely not going to make it through the weekend. There's a run on their deposits." So we worked, hundreds of people analyzing Wachovia. And I had known Wachovia well. If you took the United States and separated it, the West from the East, Wells was strong in the West and Southwest, Wachovia was strong in the East and the Southeast. We loved their franchise. But by Sunday night the FDIC said, "What is your price?" And we said, "There is no price. We don't understand this, we need more time." That's the conservative nature of Wells Fargo.

     Even if we thought it was going to be a good deal, if we couldn't figure it out, we didn't want to buy it. So Monday morning we woke up and it looked like Citigroup had done a deal with them. But it didn't look like it was done. So we kept working, Monday, Tuesday, Wednesday. By Thursday night we had figured it out. We had enough time then. We made the offer Thursday night, and the rest is history. It's the best deal we've ever done. Maybe the best deal ever done anytime anywhere in the world. Because we paid $15 billion for it. Last year we earned $22 billion after tax. Half of it is from the acquisition. We will have paid for this in two years. And I have to give a lot of credit to the Wachovia people, to their customers, their communities. They welcomed us with open arms. But culturally we were very compatible.

Q: How do you see the health of the U.S. mortgage market? Are we ready for a rate hike?

A: Housing is still very affordable in the U.S. Interest rates on mortgages are very low. And I believe with the improving employment situation, and we're starting to see some wage increases, and with the gas prices coming down that's like a bonus or a raise for the American consumer. I think yes, you can see some rate increase in mortgages. I think the housing market is still very attractive even if you see rates moving up from here.

     I think if a rate hike happens in the proper way that reflects the strength of the economy, it'll be good for the economy, because it'll say to people, "Oh, things are pretty good. Now's the time to buy a house. I have more confidence, because after all, the Fed is raising rates. It wouldn't be doing that unless things are good." And for us, half of our income comes from fees from services, half of it comes from the net interest margin. And our margins have been squeezed ... because interest rates have come down. A rate hike means you're going to see expansion of the margin, and that will be good.

Q: Will you tell me more about your win-win relationship with Mr. Buffett, your biggest shareholder?

A: [Warren] is the best investor the world's ever known. He's even a better human being than he is an investor. He is a wonderful man. He has a wicked sense of humor, he doesn't take himself too seriously, and what he has taught us more than anything is, "Don't do something you don't understand." If you don't understand it, there's nothing wrong with that. Just don't do it. And his real magic, of his investing, is doing what he understands and taking a very long-term view.

     I talk to him maybe once a quarter, not more than that. And he's not on the board. And when we talk, we never even talk about the numbers. He'll talk about long-term trends. He'll talk about culture. He'll talk about things that are very broad. He has a very -- even at 84 years old -- he has a very long-term view of the world. We love having him as our largest investor, and I think he's been handsomely rewarded for his trust in us. It's his largest investment of any company. He has around 9% of the shares, and [those holdings are] probably worth over $25 billion.

Q: Finally your career is quite unique as a top bank CEO. You have spent your entire career with one bank.

A: I know this bank so well. I don't know all of our 265,000 people, but I know someone in every business. And when you have that much time with one company, you feel a deep respect for the culture, for the people, for the history. I feel differently about this company because of the years. It's been my life. And the same thing is true for the people who work here, for the people around me. This is, you know, and maybe that is more Japanese, in that view: This is not just a place I go to work. This is family to me. 

Interviewed by Nikkei staff writer Yamato Sato

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