Current market circumstances are “close to perfection” though volatility can be expected, Wells Fargo chief executive officer Charles Scharf said Tuesday.
Following the removal of a seven-year-long government-imposed cap on assets, Wells Fargo & Company is seeing broad strength across its businesses including those that depend on consumers.
“It’s an almost perfect environment for consumers,” Chief Executive Charles Scharf said Tuesday at an event hosted by the Economic Club of New York. And despite reports that many average consumers are under financial stress, credit quality at the bank is “exceptionally good” for both individuals and businesses, he added.
Consumer spending is up on debit and credit cards “without drawing from savings,” the chief executive said, as deposit balances are also slightly increasing and “not at the expense of credit performance.” Payment rates on lending products are also higher, and delinquencies are “at favorable levels,” he said.
The bank’s business clients are also showing strength “with very few exceptions,” said Scharf. “Any losses we see are very specific to the company and their circumstances than the broader credit program.”
This operating environment for Wells Fargo — the fourth largest U.S. bank by market capitalization — comes four months after the Federal Reserve lifted its $1.95-trillion asset cap, which was imposed in 2018 after the bank was found to have created millions of fake accounts to meet quotas.
In its third-quarter earnings — the first full quarter the cap was removed — Wells Fargo reported profits increased 9% to $5.6 billion or $1.66 a share, surpassing analyst estimates. Revenue also rose 5% to $21.44 billion.
“The removal of the asset cap unlocks organic growth opportunities, while a strong capital buffer and regulatory easing provide a foundation for the continuation of an active share repurchase program,” Mikhail Paramonov, senior analyst at Freedom Broker, said in a research note.
While credit remains solid, Scharf said he expects it to “get worse at some point.” He cited tariffs and geopolitics as market risks that could have more significant economic impacts than previously thought. Already, key economic indicators show inflation rising and jobs stalling.
“We go through credit cycles,” he said. “We have not been through one in a long, long time.”
Still, a downward trajectory for interest rates can incentivize consumer spending, providing tailwinds for the sector.
In terms of private credit, Scharf said “‘worry’ is a strong word.” While he would not call it a major systemic issue, he pointed out the need for oversight in the lending market. “When you have an environment with many players, not everyone will get it right,” he said.
“The questions we should be asking are what we want to be inside or outside the banking system. What’s the right mix?” he said.
Asked whether there should be fewer regulators for the banking system, the chief executive called for “more coordination” among agencies including the Fed, the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Consumer Financial Protection Bureau.
Recalling Wells Fargo’s remediation for its asset cap, Scharf said the bank would get similar orders from different regulators, each tracking slightly different point of views. “What standards do we operate on?”
“That does not require Congress to do the work,” he said.
Banner image from The Economic Club of New York