SNL Financial Bush on Banks – Shocking.....blog

May 29, 2014

I hope you get my drift here. If I, as a pretty close observer of American banking, can be shocked by something going right for a change, I can only imagine how the average person on Main Street must still see the state of the banking industry. After all, what have been the most recent headlines? A $2.5 billion settlement between Credit Suisse and the DOJ for allowing wealthy Americans to avoid taxes; the likelihood that there will be other criminal charges against large banks; the nasty little ($4 billion) faux pas on the Bank of America CCAR submission; and on and on. The most recent banking industry news has not been exactly a barrel of monkeys, to put it mildly.

OK, we all know the reasons for the continued doom and gloom hanging around the banks. There are legitimate issues — the Bank of America CCAR mistake did not exactly inspire confidence in large-bank balance sheet integrity (or the Fed's CCAR process, for that matter) and Credit Suisse deserved to be punished for a practice that went on for years and which at least some senior management clearly knew to be illegal and dangerous to the franchise. And there is an ongoing need to resolve the housing industry issues that linger and to determine exactly how the mortgage industry, a bedrock of the American economy, will function in the future. But my view is that the ideological wars that should have been over long ago — but are now inflamed by the whole issue of "income inequality" and whether that condition is real, or not — continue to cloud the issue of banking industry health and thus inflict real damage on national growth.

I would strongly recommend a viewing of the Wells Fargo webcast for those who would like to think about the direction of American banking and feel better about the industry that will emerge as the ideological smoke lifts. For one thing, it struck me just how sober the industry has become in the wake of the financial crisis, and how that is a very good thing compared to some of the foolishness of past years. One need only contrast the adult behavior of Wells' CEO John Stumpf and his management team — yes, some of them are Minnesotans and thus naturally sober and low-key, but some are not — with the chest-thumping plans for global domination that were the hallmark of some of these banking-industry meetings in the past.

I still cringe when I think about Ed Crutchfield of First Union crowing over his very expensive acquisition of Signet Bankshares in 1997: "I just kept stacking billion-dollar bills on the table until Mac said yes." (How did that work out for you, Ed?) I cannot imagine that any bank CEO today would be caught dead making such a boast, nor would most of them imagine throwing away their stock's P/E multiple for an inconsequential deal. Indeed, the subject of possible acquisitions got scant mention during the WFC Investor Day, with most of the attention instead devoted to the mechanics of making the branch network more efficient, changing retail delivery preferences, controlling operational risk (a big topic), and other such important but relatively mundane and unexciting subjects.

John Stumpf said several things in his opening remarks that caught my attention and got repeated by other presenters in various forms during the day. (The webcast is a long one, and I would recommend the Stumpf session, along with the last two presentations — risk management and corporate treasury — as the ones to watch in order to get the gist of the day.) The first thing that struck me was his discussion of Wells' maniacal devotion to measuring "lots of different things" — their emphasis on cross-sell metrics is well-known — as part of their belief in the "science" of banking . He also, as anyone who knows this company would expect, devoted a fair amount of time to discussion of WFC's very well-developed corporate culture, which he called "uniquely ours" and one that emphasized a "company of pronouns — we and ours." (Gee — what do you think the New York guys would make of that?)

There were another couple of points in the Stumpf commentary that were noteworthy. He pointed out that 97% of Wells Fargo's revenues are generated in the U.S. and that his bank is "all in on America" — a clear point of differentiation from his large-bank peers, all of whom seem intent on expanding outside the U.S., political and operational risk be damned. And in what I thought to be his most pointed remark, he emphasized that Wells Fargo is a "real economy company" — i.e., one lending to and advising the country's small businesses, farmers and manufacturers — and I noted scant discussion during the day's sessions on the topic of trading revenues, the issue that is currently dogging Citigroup, JPMorgan Chase and Bank of America, to mention only a few. And while Jamie Dimon made a comment a few months ago to the effect that he expected Wells Fargo to be serious competition for JPM in the capital markets within a few years, that arena does not seem to be a subject of great interest for John Stumpf.

My point here is not to champion Wells Fargo — they do a perfectly good job of that on their own and famously have Warren Buffett among their many ardent admirers — but to point out that there are banks large and small in America that are doing fine in what is a very difficult environment and will do even better when we get a better economy. Indeed, John Stumpf talked about the undervalued nature of the Wells deposit franchise, and that regrettable condition is shared by the many banks throughout the nation that are struggling to keep their branch networks profitable (or at least to keep losses there to a minimum) in the face of Fed policies that seem aimed to retard bank profitability.

One thing is for sure — we need to hear more from the bankers who are doing well and who are optimistic both about the futures of their companies and the banking industry as a whole. I count among that group Bill Demchak of PNC, Richard Davis of U.S. Bancorp, Kevin Kabat of Fifth Third, Bill Rogers of SunTrust, Kelly King of BB&T, and on and on. And let's include Joe Evans of State Bank in Georgia, Jack Barrett of First Citrus in Florida, Doug Kennedy of Peapack-Gladstone here in western New Jersey, and the hundreds of other community bankers who operate remarkable and growing companies largely under the Wall Street analyst radar, and whose growth through acquisition will account for much of the deal activity (and much of the excitement) in banking over the next few years.

Here's an idea. Since Goldman Sachs still commands Wall Street's attention (and they're doing God's work, to boot), I suggest that they sponsor a multiday conference highlighting the nation's best banks, both large and small. And as for Bank of America, Citigroup, JPMorgan Chase, Credit Suisse, et al. — you can stay home.

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