ABA Banking Journal - November 2008 - (Page 68)

100YEARS FIRST PERSON “Boring” banking to dynamic financial services Outspoken Wells Fargo chairman notes the key points of banking’s recent era. The winning factor? Read on A t the end of this year I conclude a career of more than four decades in business, three of them in financial services and more than two of them with Wells Fargo & Company (and its predecessor Norwest Corporation). The confluence of dramatic change in our industry during those four decades has been truly remarkable. It would have been impossible for a 24-year-old in 1967 to envision all this as he was about to launch his career just out of Stanford University. Here’s what I saw in the late ’60s. Banking was boring. It was the last place I could have seen myself building a career. (That’s why I joined General Mills after graduation in 1967 and didn’t enter banking until 1974 with Citibank). The government told banks what products they could sell, what prices they could charge, and where they could do business. No room for creativity, innovation, or nationwide competition. Banks made loans, facilitated payments, and stored cash, period. Unable to branch beyond their home state during the ’50s and ’60s, larger banks expanded internationally. Led by my eventual mentor at Citibank, Walt Wriston, and David Rockefeller at Chase, New York money-center banks followed their commercial customers overseas. They opened branches all over the world. To compete with money market funds and get around the government interest rate cap on deposits to fund these loans, Citi invented the Eurodollar and the negotiable certificate of deposit. Walt’s vision was simple: use consumer deposits to fund the capital needs of corporate America. Banking was about to become one of the most exciting, fastest growing, most profitable industries in America. During the ’70s more big changes occurred— non-bank competitors, money market funds, the innovative cash management account (pioneered at Merrill Lynch) and thanks to technology: automated back offices and the explosive growth of ATMs and phone banking. The economic debacle of the early ’80s forced regulators and politicians to admit that banks couldn’t compete with a 5% maximum interest deposit product in a 20% interest rate environment. In 1994, Congress allowed full interstate banking, leading, spurring the mega-mergers of 1998 including Norwest and Wells Fargo. I introduced President Clinton at the signing ceremony. The top ten banks in 1980 had 38% market share, today it’s 64% (and moving higher). Then in 1999, with the passage of GrammLeach-Bliley, the government repealed the GlassSteagall Act, essentially merging commercial banking, investment banking, and insurance to create the financial services industry—a change I personally worked on for almost two decades. So, by year 2000, after a quarter century of deregulation, financial services companies could sell any financial product, in any part of the U.S., at competitive, market-driven prices. In 2006, financial services generated 40% of U.S. business profits up from just 10% in 1980s. Because of deregulation and technology, banks and non-banks now compete for the same savings, investment dollars, and loans. So-called banks today generate less than one-third of loans and deposits. Total securitized credit such as mortgage and asset-backed securities are twice the size of total bank loans. Corporations go directly to the commercial paper market for credit. We have electronic efficiency today I could never have dreamed of in the late ’60s. Today, we have almost 11 million consumers and over one million small businesses who are active online users with us. Corporate clients do wire transfers and review check images from their mobile devices. Richard Kovacevich The Wells Fargo chairman turned over the CEO helm to John Stumpf last year and was set to retire at yearend. With last month’s successful bid for Wachovia Corp., however, Stumpf asked Kovacevich to stay on. The chairman was mullling that over when we last contacted him in mid October. This article was written in early September, except for the the box “Some thoughts on the impact of the crisis,” which was based on a follow-up interview in mid October. The most important factor Given all this dramatic change, what do I believe is now the single most important ingredient for success today in financial services? Well, we’ve come full circle. It’s not technology. It’s not products. It’s not advertising. All those are commodi- By Dick Kovacevich, chairman, Wells Fargo & Company 68 NOVEMBER 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com https://www.wellsfargo.com https://www.wellsfargo.com http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - November 2008

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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