The Reasons Americans are Saving So Much: Consumers want to save and wish to stay out of debt. Most banks failing the US Consumer

CEO John Stumpf discusses how his bank has seen record savings deposit growth, as more Americans look for safe places to put their cash.

By Geoff Colvin, senior editor-at-large

John Stumpf, CEO of Wells Fargo

FORTUNE — Can you name America’s largest bank?

No, it’s not J.P. Morgan Chase (JPM) or Bank of America (BAC).

It is, surprisingly, Wells Fargo (WFC), which has the highest market cap — recently $170 billion.

(That has to make its largest shareholder,Warren Buffett, pretty happy.)

Its secret? Focusing on loans to consumers and small to midsize businesses. It also provides one-third of all U.S. mortgages.

CEO John Stumpf, 59, took the helm at the economy’s peak in 2007, then managed through the financial crisis. He talked recently with Geoff Colvin about the reasons Americans are saving so much, Wells Fargo’s hunger for making more loans, and why it’s fighting Justice Department charges. Edited excerpts:

Q: Wells Fargo is America’s largest mortgage lender and has a larger share of the mortgage market than any bank has ever had. What’s the future of the U.S. housing market?

A: There are about 70 million homes in America. Fifty million have a mortgage on them. The average mortgage is $200,000, so you’ve got about a $10 trillion market. Today about 20% of those mortgages are underwater [ lenders knew what they were doing and created this problem!] they owe more than what the home is worth.

But we’re starting to see values come back. I don’t know that we’ll ever be where we were or should be where we were in the last six, seven, eight years when it was just trading up. But housing is still, for two-thirds of Americans, the American dream.

It’s not for everyone to own a home. But I’m bullish on housing. I’m bullish on Americans’ desire to own homes.

It will be slow, but it’s healing almost everywhere.

With over 6,000 branches around the country, you have an unsurpassed window on the U.S. economy. What’s the outlook?

We’re starting a fourth year of the recovery, but it’s a very cautious recovery.

People and businesses are spending money on things they need, but they’re not investing for the future in many cases.

They’re putting off decisions. In fact — this is a surprise to most people — in half the mortgages that will be made this year, people will either bring money to the closing — a cash-in refi — or use the reduced rate to shorten the term and keep the payment the same.

They’re paying off debt.[Can you blame people? Being in debt is bad for the ordinary person, but really good for banks…. This dynamic needs to change entirely if we are to advance as a society that is based on the increased suffering of others so we can make a profit…. That thought process is despicable!!! ]

They’re deleveraging — there’s too much uncertainty right now.


How are loan applications?

We do more small-business loans than anybody else. We have more middle-market customers, so we see a ton of customers. The approval rate is back where it was pre-recession, but the application rate is a fraction. [ Why?]

Now it’s coming back, but we would love to have more borrowers. [ I bet they would, but consumers have been scammed.]

We typically run our company with about $1 of loans for every $1 of deposits. Today we’re in the 80% range — we’re about $200 billion short of loans. We are hungry for loans, but there’s a cautiousness because people are unsure about tax policy, about what’s going on with the fiscal cliff, regulation, and a bunch of other things. It creates this sense of uncertainty, which is a really important ingredient. [Uncertainty that was created by banking practices themselves!!! Why should we as consumers believe bankers at this time? We have lost confidence in banks after our experience with METABANK… As consumers we were lied to and had the bank push all the blame off onto us for their scam. The way that METABANK operates is to first get full control of consumers money and then to lie to them about why the consumer can’t access their own money.   And that dynamic, once experienced by consumers is very difficult to get over…. apparently impossible for us to believe any bank ever again.]

Isn’t deleveraging a good thing? There’s an argument that the financial crisis was caused in part by people having too much debt, and they need to scale it back. Is that what’s happening?

Here’s the thing that a lot of policymakers fail to understand.

Consumers carry a lot more debt than they used to [ This is by design to make money for the banks and this is the part of the system that really needs to change: GET CONSUMERS OUT OF KEEPING IN DEBT MODE] — in 20 years it’s gone from $4 trillion or $5 trillion to $14 trillion. But the cost of carrying that debt is back to what it was in the early ’90s because interest rates are so low. [Really? Interest rates are so low on saving accounts… Can we believe this??? And yet consumers do need to be able to save if we are to survive.] And people are saving now like they’ve never saved before.[ I must question the accuracy of what this article is saying…. it is very difficult to save at this time.]

Even at the incredibly low interest rates?

Even at incredibly low rates. In fact we think there’s something between $1.5 trillion and $2 trillion on businesses’ and consumers’ balance sheets that is sitting in our vaults. I’ve never seen it like this before. I’ve never seen the deposit growth the way we have it, and it’s not because the yields are so high. It’s security. [ Yes, but how does this kind of savings pertain to ordinary people????]

Does Dodd-Frank eliminate the problem of “too big to fail”?

Yes. It’s in the language. It’s in black and white. You cannot be bailed out — it’s against the law. If we screw this up, we have to fail, and management ought to get fired, and compensation ought to be clawed back. Yes! [I sincerely hope that this problem has been corrected. Sad story that banks couldn’t self-regulate in the first place so that they could actually serve their customer base… Banks took the thought that if other banks are doing it, then it must be okay for them to do it too.]

But the worry was that if we let the really big banks fail, it would endanger the health of the whole economy. Has that changed?

No, that has not changed, but there’s a mechanism to handle that. We have $150 billion of capital. In addition to that, we have reserves set up for losses for loans. We have $12 billion of gains in our bond portfolio, plus we have about $150 billion or $160 billion of short-term and long-term debt. If you go through those steps — first hit the common-equity holders, then the preferreds, then whatever reserves — you’ll never get to the taxpayer. [The ordinary citizens have been taken advantage of…. How can banks get our confidence back???? I no longer trust them. Online sources indicate that so many have been mislead and scammed by how the bank treats them that we have no one to trust in the banking industry.]

Think of Wachovia [which Wells Fargo bought in 2008]. It was having challenges in the worst economic times in our generation. All bondholders got their money. All preferreds got their money. We even gave the common some money. There’s always been a mechanism for how to unwind a commercial bank that has FDIC insurance. The challenge was that when this thing hit, everybody was a bank. Fannie was a bank, Freddie was a bank, AIG (AIG) was a bank. But they weren’t truly banks. And there weren’t mechanisms for how to handle a Lehman or a Bear. Now there are.

[ Are there? Really? Banks will need to prove this……..    How do these mechanisms actually protect the consumer? We have been taken advantage of by publicity that looks a lot like factual information that we, as consumers, simply don’t know where to turn…. I shared this experience over coffee recently… I discovered that others shared with me the erroneous concept that banks are there to help their customer base save and to protect their assets, but somewhere along the line, banks like METABANK, and other banks like it, or so it would appear, discovered that they could take advantage of this assumption before most customers even got wind of the scam they intended to execute by the way they put their operation into action.]

Wells Fargo has said, “The core of our vision and strategy is cross-selling.” Every business likes cross-selling, but why is it your strategy?

Because the way we think about the business is helping customers succeed financially and satisfying all their needs. How can you do that if you only want to pick out one piece? We think that when customers have a deep, long-term relationship with us, we get to know them, they get to know us, and we can see their entire financial situation.

It’s so much easier to sell somebody the sixth product when they already have five with you and you can give them a better deal. Today we have over six products per retail household on average. A third or a fourth of our customers already have eight products or more. And we’re still scratching the surface.

It seems clear that the financial services industry has a particularly large opportunity to do this. Why are most firms so bad at it?

We always say we could leave our strategic plan on an airplane, somebody could pick it up, and it wouldn’t matter. It’s all about execution.

It’s how you hire, how you inspire, your culture, how you reward, how you celebrate victories, how you deal with disappointments. This is easy to talk about, but it is all in the execution. [ This would describe the problems that consumers have found within METABANK; it is how METABANK took what may have been an okay concept and abused it for their own gain…. Consumers, once scammed, don’t want to have that happen to us again…. We are demanding better bank regulations and bank reforms that actually protect us so we can live responsibly …. We don’t want to be in a state of debt or indebtedness, and the mere thought that our current banking system is by design created to take advantage of the most financially vulnerable among us is despicable….. Furthermore, once scammed, what incentive would there be for those who live from paycheck to paycheck to keep working… Personal dignity, the need to work to be proud of oneself, will become so impossible that those who are the most vulnerable will seek out the “public dole”…. Can you blame them? If no real plan that genuinely allows American consumers to save for that rainy day exists no matter if they live from paycheck to paycheck, there is no future…. In this way American Banking Practices are actually “shooting themselves in the foot”… Trust me, we are all in this together…. We must protect the most vulnerable and also demand the same protections for ourselves as consumers.]

I remember one time a CEO of a large competitive bank, no longer there, said, “I’m going to come back from Asia. I want to stop by and buy you lunch, and tell me about this cross-sell thing.” I said, “I can’t eat that much, and I can’t eat that long.”

The Justice Department recently accused Wells of what it calls “reckless origination in the underwriting of government-backed loans.” What’s behind that?

[ Where there is smoke, there is fire…. true here too… Consumers have lost confidence in our banking system. Banks have been basically regulating themselves for their own gain… we, as consumers, have been scammed far too often to be comfortable with the existing banking system.]

Wells Fargo CEO says: “I think they’re just wrong on that.”

In fact, we have filed a motion in a court in Washington for a judgment to remove that. We take these things seriously. We have been the largest originator of FHA loans for a long time. The performance speaks for itself; 93% of our customers are current. Less than 2% of our customers who own a home as primary owner go to a foreclosure. These are much better numbers than the average for the industry. We believe we’ve acted in good faith. So in some cases you just say, “No, we’re going to defend ourselves. We have lots of good defenses, and we’re going to dig our heels in.”   [But what are consumers saying and is this bank like many other banks in the USA actually paying attention to their consumers’ complaints about the service they are receiving?]

Over the past few years all the big banks, including Wells, have settled accusations from government about various mortgage abuses. [ Those mortgage abuses were real and the banks thought it was okay to do this just because other banks and lenders were doing this kind of scam to their customer base.]

Should consumers think, “Where there’s that much smoke, there’s fire”? [ There is “fire” we have discovered from our own experience]

Or should they think the prosecutors are hyperactive?

There’s no question our industry did not behave well in all cases, and there’s plenty of blame to go around.

This could not have happened without an aggressive Fannie and Freddie.[ Is this pushing the blame off of the banks and onto someone else??? Who is paying for the lobbyists in DC? It is the banking industry who created all of the rules and the loopholes in their own favor.]

This could not have happened without people who put profits before customers, and while we didn’t do everything perfect in our company, if you look back at the numbers, we walked away from billions of dollars of originations and hundreds of millions in profits because we saw things that were not in the interest of our customers. [ Is this true? It has been my major concern that the design of our current banking program makes it impossible for consumers to succeed. We are being lied to at every turn…. Given this kind of experience, I would like to believe the CEO of Wells Fargo, but I find it impossible to trust him…. Why didn’t Wells Fargo work to put an end to this scam in general?]

Did we make every right move in every case? No.

But the industry I think has responded. The bad players are gone. [ The bad players are gone? Not so quick!!!! META BANK’s CEO are still raking in huge annual incomes and customers are still complaining…. The bad players are still most active in our economy… METABANK has a pattern of operating using different names… This is an intentional plan to confuse the general public and regulators.] 

We bought them up in many cases, and now we’re dealing with the issues of what they did. [ How???]

So far in our company we have helped over 3 million customers with refinancings, and we have helped 900,000 customers with modifications. We’ve forgiven over $4 billion of principal. So we are really active.

This story is from the December 3, 2012 issue of Fortune

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