Wells Fargo & Co. Chief Executive Officer John Stumpf said customers, not just the bank, will bear the financial burden for U.S. regulations that cover services ranging from home loans to credit cards.
“I can’t guarantee that we won’t pass on some of those costs,” Stumpf, 56, said in an interview at his San Francisco office. “We’ll try to tighten our belt and absorb some of the costs of compliance, but some costs may change and customers might pay for their financial services in new ways.”
Stumpf’s comments add to evidence that new rules mean new expenses for consumers as banks make up for lost revenue and increased costs. JPMorgan Chase & Co. CEO Jamie Dimon said July 15 the legislation may translate into higher fees and credit-card rates, and Bank of America Corp.’s Brian T. Moynihan told shareholders a day later he’s looking for ways to soften the impact on annual revenue, which the lender said could be $2.3 billion.
Wells Fargo, with the biggest U.S. branch network, is already passing on costs by charging for checking accounts and raising interest rates on credit cards and loans, said Richard Bove, a banking analyst at Rochdale Securities LLC. The bank ended free checking last month by adding a $5 monthly fee for customers who don’t meet certain conditions.
“This bank does not intend to sit there and get nailed,” said Bove, who recently upgraded Wells Fargo shares to a “buy.” “Wells Fargo has moved well ahead of the crowd, and everyone will follow.”
President Barack Obama signed into law last week a 2,300-page overhaul of financial regulation that gives the government authority to unwind failing financial firms, imposes new rules on derivatives markets and creates a consumer-protection agency to monitor loans and services. Stumpf said it’s too early to judge the costs for Wells Fargo, in part because the bank is looking for ways to offset expenses and lost revenue.
Even with the bill’s shortcomings, Congress got many parts of it right, Stumpf said in the July 22 interview. The creation of a systemic risk regulator will prevent another crisis from being sparked by the collapse of a large financial firm, he said. The Financial Stability Oversight Council, a super-regulator, will monitor Wall Street’s largest firms and other market participants to spot emerging systemic risks.
“Too-big-to-fail has been dealt with,” said Stumpf, whose bank holds $1.2 trillion of assets. “Regulators needed a way to understand risk at the top of the house and opine on that risk. They did it in a way that makes a lot of sense.”
Some of the new consumer protections don’t go far enough because they contain too many exemptions, Stumpf said. Auto dealers and banks with less than $10 billion in assets may be exempt from some curbs.
Consistent consumer protection rules are “good for Americans and it’s good for us as providers because we know the playing field is level,” Stumpf said. “Does it become less level because the consumer-protection agency has direct involvement with certain companies and not others, and will rely on other regulators to do it? I don’t know. That’s where the trickiness comes up.”
Wells Fargo, which ranks fourth by assets and third by deposits among U.S. banks, has dropped 20 percent since the middle of 2007 when credit markets began to falter, compared with 17 percent through yesterday for New York-based JPMorgan and 71 percent for Bank of America, based in Charlotte, North Carolina. New York’s Citigroup Inc. slid 92 percent.
Wells Fargo rose 18 cents to $28.25 at 9:35 a.m. in New York Stock Exchange composite trading. The biggest stakeholder is Berkshire Hathaway Inc., the insurance and holding company controlled by billionaire Warren Buffett.
Stumpf singled out new curbs on debit interchange fees for criticism. Under the so-called Durbin amendment, the Federal Reserve gets authority to limit interchange, or “swipe” fees, that merchants pay for each debit-card transaction. The measure pushed by Senator Richard Durbin lets retailers refuse credit cards for purchases of less than $10 and offer discounts based on the form of payment.
“That is a dispute between banks and merchants and it somehow found its way into regulatory reform,” Stumpf said. He told analysts on July 21, “I don’t see how debit card fees between banks and merchants had anything to do with what happened in the last couple of years.”
Stumpf isn’t the only financial leader voicing displeasure. Card industry executives say the legislation amounts to price controls, and American Express Co. Vice Chairman Ed Gilligan said June 15, before the language was finalized, that the Durbin amendment “provides no benefit to consumers.” The largest payment networks, Visa Inc. and MasterCard Inc., also opposed the amendment.
New rules on derivatives will mandate that swaps between banks and major users like hedge funds and asset managers be backed by clearinghouses. Stumpf said moving those trades to clearinghouses would help show the true size of the derivatives market, but doesn’t address what happens when a borrower doesn’t pay or a member of the clearinghouse collapses, he said.
“Somebody’s got to take the credit risk,” Stumpf said. His concern was echoed by Joel Telpner, a partner with the law firm Jones Day in New York, who spoke in a July 26 interview.
“Maybe we are creating new entities that are too big to fail and setting up a scenario in the future where we’re going to be arguing and anguishing about bailing out the clearinghouses,” Telpner said.