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MarketScreener Homepage  >  Equities  >  Nyse  >  Bank of New York Mellon Corporation (The)    BK

BANK OF NEW YORK MELLON CORPORATION (THE

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Bank of New York Mellon : New Wells Fargo Chief Has a Full Plate

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10/22/2019 | 02:48am EST

Scharf faces lingering effects of accounts scandal, falling revenue, other issues

By Rachel Louise Ensign 

Charles Scharf starts Monday as CEO of Wells Fargo & Co. Big changes could follow.

Mr. Scharf, who previously ran Bank of New York Mellon Corp. and Visa Inc., is the first outsider to run Wells Fargo in decades and the fourth person to lead the bank since a 2016 fake-account scandal left its folksy image in tatters. The firm is still in hot water with overseers, who have curbed its growth and slapped it with fines. Top regulators believe Mr. Scharf is likely to reshuffle the bank's executive ranks, people familiar with the matter said.

The protégé of JPMorgan Chase & Co. CEO James Dimon brings a career spent shaking up the status quo to a firm that has been criticized for insularity and unwillingness to change. Wells Fargo in late 2016 appointed company veteran Timothy Sloan to the CEO job, but he failed to get the bank's regulatory issues under control. He resigned in March and was temporarily replaced by the bank's general counsel.

Mr. Scharf must also grapple with the more humdrum tasks of reversing revenue declines and cutting costs. He is expected to review the firm's business strategy, though he has said he needs to get to know the bank better before making any big decisions. Wells Fargo's stock is flat compared with before the scandal, while the KBW Nasdaq bank index is up more than 40% in the same period. The firm reported sharply lower profits last week after booking a $1.6 billion charge for legal costs related to the scandal.

"Charlie is the right executive at the right time who will get the wheels back on the stagecoach," said Ed Herlihy, a partner at law firm Wachtell, Lipton, Rosen & Katz who has known Mr. Scharf for years, referring to the bank's equine logo.

Mr. Scharf for years worked as a deputy to Mr. Dimon at JPMorgan. He ran that firm's retail bank and helped negotiate its crisis-era purchase of Washington Mutual.

"He will get to the issues very quickly," said Todd Maclin, who worked with Mr. Scharf at JPMorgan. "And he will make changes quickly."

Where Mr. Dimon is gregarious, Mr. Scharf is more reserved but still direct like his old boss, people who have worked with the men said. "He speaks like an annual report," one former colleague said. "There's not a wrong word" -- a quality that could play well in Washington.

After Mr. Scharf became Visa CEO in 2012, he pursued new relationships with financial-technology companies and cut aggressive deals with merchants over swipe fees. Those measures lifted Visa's bottom line but were sometimes controversial.

The firm, for instance, entered into a 2016 pact in which PayPal Holdings Inc. agreed to make it easier for customers to use Visa cards. "It took a lot of courage on his part," PayPal CEO Dan Schulman said. "The prevailing opinion at the time was that PayPal was going to be a disrupter of what banks were trying to go do as opposed to an ally."

Mr. Scharf abruptly resigned from San Francisco-based Visa after four years, saying he needed to be closer to family in New York.

He took the top job at BNY Mellon in 2017. Armed with a board mandate to reinvigorate the company's growth prospects, he slashed expenses, consolidated real estate and invested heavily in technology. He removed private offices and pushed to restrict staff from working at home.

The pace of change didn't endear him to many of the staid bank's employees. Investors are still waiting for the plan to produce meaningful revenue growth.

At Wells Fargo, the board was thrilled to land a banker with CEO experience after a number of top candidates were uninterested in the job. Mr. Scharf initially took a pass on the San Francisco-based bank but changed his mind when he was told he could continue to live in New York, The Wall Street Journal has reported.

Lawmakers, regulators and others have blasted Wells Fargo not just for the fake-account scandal but for executives' response to it in the three years since.

Wells Fargo has fired thousands of low-level branch employees, though even the bank's own board has questioned whether the junior staffers were really the ones to blame. The bank says it has held staffers at all levels accountable.

Across the firm, employees have been subject to constant reorganizations. Some have had new bosses or reporting lines every few months.

Mr. Scharf isn't shunning the old guard at Wells Fargo. He already sought advice from former executives including Mr. Sloan, people familiar with the matter said.

"We didn't always live up to our own standards and have not moved quickly enough to address our shortcomings," Mr. Scharf wrote in a Monday memo to employees. "We have the foundation to again be the most respected bank in the U.S. and the world."

The bank's board would be open to a shake-up of executive management, a person familiar with the matter said. Some top executives are company veterans, including Chief Financial Officer John Shrewsberry, payments executive Avid Modjtabai and wholesale bank head Perry Pelos.

On a call with analysts announcing his appointment, Mr. Scharf said his priority is resolving regulatory issues. The lender has no shortage of them: It recently had hundreds of private regulatory warnings known as "Matters Requiring Attention," people familiar with the matter said. Hiring staffers to help fix these issues has been costly and forced the bank to dial back expense-cutting targets. The bank recently put new restrictions on employee travel to try to save money.

The bank has also said it started discussions to settle a joint Justice Department and Securities and Exchange Commission probe into the fake-account scandal. Investigators have interviewed former executives including Mr. Sloan, people familiar with the matter said.

The bank's main business lines have also struggled, in part because the regulatory issues have distracted managers and rattled some customers.

Even in cities where Wells Fargo's branches have long dominated, like Denver, the bank is starting to lose deposit market share to rivals like Bank of America Corp. and JPMorgan.

The bank reported last week that third-quarter revenue fell in its consumer and commercial units. It rose in the wealth-management segment but only because of a one-time gain from the sale of a business.

--AnnaMaria Andriotis, David Benoit and Justin Baer contributed to this article.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BANK OF NEW YORK MELLON CORPORATION (THE) 0.75% 49.64 Delayed Quote.5.46%
WELLS FARGO & COMPANY 2.14% 54.37 Delayed Quote.17.99%
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Financials (USD)
Sales 2019 15 732 M
EBIT 2019 5 012 M
Net income 2019 4 133 M
Debt 2019 32 794 M
Yield 2019 2,38%
P/E ratio 2019 11,4x
P/E ratio 2020 11,8x
EV / Sales2019 4,99x
EV / Sales2020 4,97x
Capitalization 45 778 M
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Mean consensus HOLD
Number of Analysts 23
Average target price 49,48  $
Last Close Price 49,64  $
Spread / Highest target 14,8%
Spread / Average Target -0,33%
Spread / Lowest Target -11,4%
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NameTitle
Thomas P. Gibbons Chief Executive Officer & Director
Joseph J. Echevarria Non-Executive Chairman
Lester J. Owens Head-Operations & Senior Executive VP
Michael Santomassimo Chief Financial Officer
Bridget E. Engle Chief Information Officer & Senior Executive VP
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