Wells Fargo's Sloan Avoids Spiders, Octopuses to Emerge as CEO Candidate
Timothy J. Sloan’s rise to chief financial officer at Wells Fargo & Co. (WFC) may have been cemented by what he didn’t do, not just what he did.
“Our business is really pretty simple,” Sloan, 50, said in an interview last week at the bank’s San Francisco headquarters. “When you look at the deal and its structure looks like an octopus or a spider, just don’t do it. That kept us out of a lot of things.”
Sloan was appointed to the job Feb. 8 after the surprise resignation of CFO Howard Atkins, 60, for undisclosed personal reasons. A Wells Fargo employee since 1987, Sloan most recently had been chief administrative officer, and led commercial real estate and securitization at a time when rivals were chasing multibillion-dollar property deals that later soured.
His decision to stay out of those overheated markets helps explain his rise at the fourth-largest U.S. bank, customers and colleagues say. Now Sloan is among likely candidates to eventually succeed Chief Executive Officer John Stumpf, 57, two people within the bank said. They asked not to be named because discussions about succession are private.
“You want good intellect and you want an easygoing, consistent style, and Tim has all of that,” Peter Briger, 47, co-chairman of New York-based Fortress Investment Group LLC and a former partner at Goldman Sachs Group Inc. (GS), said in an interview. “What you’re really hoping for is judgment and the ability to put situations in the context over the long term.”
Sloan started working as a summer teller for Standard Federal Savings and Loan Association between semesters at the University of Michigan in Ann Arbor, where he earned undergraduate and business school degrees. His first formal job was at Continental Illinois National Bank and Trust Co. in 1984 -- just as bad loans to oil companies were driving the lender into what was then the largest bank collapse in U.S. history.
He landed a spot in the workout group where his boss “gave me a pile of credit files and said, ‘Here, go figure this stuff out,’ ” Sloan said. “Everybody should spend some time in workouts. You look at other people’s mistakes and then you learn from them.”
Almost 25 years later, he was one of two senior executives from Wells Fargo’s wholesale division charged with examining Wachovia Corp.’s commercial and investment bank as Wells Fargo considered purchasing the lender as it teetered near bankruptcy.
Concerns about loans in those businesses led Wells Fargo executives to delay their bid for Wachovia in the final week of September 2008, former Chairman Richard Kovacevich told the Financial Crisis Inquiry Commission in an interview. The additional due diligence allowed Wells Fargo later that week to formulate a $15 billion bid that beat out Citigroup Inc. (C)
The acquisition, in which Wells Fargo added an investment bank with a specialty in real estate, propelled the combined lender to 12th in 2010 among underwriters of U.S. bonds and 13th in global equity offerings, according to data compiled by Bloomberg. In 2008, before the purchase, Wells Fargo failed to crack the top 30 in either category.
Wells Fargo doesn’t disclose profits or losses for the units Sloan managed. The entire division, overseen by Dave Hoyt, earned $9.7 billion, or 36 percent of Wells Fargo’s $27.2 billion in profit over the past two years, according to a yearend filing. The business brought in almost $43 billion in revenue, or 24 percent of the bank’s total.
Sloan has shown a sharp eye for strategic acquisitions, said Ronald Havner, 53, CEO of Public Storage, citing Wells Fargo’s 1999 purchase of Eastdil Realty LLC, which Sloan led.
Six years later, Wells Fargo bought Secured Capital Corp. and merged the two firms. The combined real estate investment bank, Eastdil Secured, was the most active brokerage for large deals last year, playing a part in $15.5 billion of transactions, according to Real Estate Alert.
“Eastdil Secured is seeing all the deal flow and then Wells Fargo has the lending platform behind it,” said Havner, who runs the No. 2 U.S. real estate investment trust by stock- market value and said he’s a golfing partner of Sloan’s. “That was a very strategic, very smart move.”
Wells Fargo doesn’t always get it right, Sloan said. The bank made commercial property loans in hard-hit states like California and Florida, where bad loans have piled up. The lender held about $119 billion in commercial real estate loans at the end of 2010, excluding some Wachovia loans, and of those $7.9 billion, or about 6.6 percent, were delinquent, according to the company’s yearend filing.
“I’d like to say that every lending decision or every investment decision has turned out well -- it hasn’t,” Sloan said. “The wholesale business started to reduce our exposures to some of the riskier areas sooner than everyone else. Did we do enough? No, you step back and say, ‘Gosh I wish we’d put our pencils down a little earlier.’ ”
Even with Sloan putting on the brakes, commercial loan losses reached $1.7 billion in the fourth quarter of 2009, according to the bank’s presentation. Problem commercial loans cost the bank $2.6 billion through the end of last year. Business loans in the U.S. not paying interest reached an apex of $12.5 billion, or 4.36 percent of total loans, in the third- quarter of 2010.
Sloan went from wholesale, where he oversaw 25 business lines with more than $200 billion in assets, toward Stumpf’s inner circle. He became chief administrative officer in September and then CFO when Atkins quit. The departure was “unrelated to the company’s financial condition or financial reporting,” Wells Fargo said in a statement. Sloan wouldn’t elaborate.
The announcement led billionaire Warren Buffett, chairman of Berkshire Hathaway Inc., Wells Fargo’s largest shareholder, to spend four hours poring over the bank’s annual filing in search of red flags before concluding there was nothing amiss financially, according to a transcript of a March 2 CNBC interview.
Last month, Wells Fargo awarded Sloan more than $716,000 in restricted stock rights. His career trajectory shows top executives see him as a CEO candidate, said Gary Mozer, a principal at George Smith Partners, a Los Angeles real estate investment firm.
Sloan has “had some of the best jobs in the bank,” Mozer said in an interview. “They’re grooming him for the top spot.”
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