76 FORTUNE FEBRUARY/MARCH 2021
until it can satisfy regulators that it has fully reformed.
The bank and its regulators refuse to comment on a
timeline for the removal of the asset cap, citing legal
constraints. “I understand people’s desire to hear exactly
what the company can look like when we get beyond these
things,” Scharf tells Fortune. But until his risk-control re-
gime impresses the authorities, “beyond” will have to wait.
Some 20 years ago, while living in Chicago as CFO at
Bank One, Scharf began taking guitar lessons. During the
pandemic lockdown, he reconnected with his old instruc-
tor, and Scharf now studies with him over Zoom once a
week, playing blues and rock. “It’s creative,” he enthuses.
“The idea that you can pick up [a guitar] and make some-
thing out of it, differently than someone else who you hand
the same device to, to me is just an extraordinary thing.”
Scharf is committed to coaxing something new and harmo-
nious out of Wells Fargo. But it’s going to take quite a while
longer to get the instrument back in tune.are they best housed within Wells Fargo?”
In Scharf ’s vision, that housing is reserved for bread-
and-butter businesses that Wells has dominated for de-
cades—including consumer banking and personal wealth
management—as well as for investment banking, where
the company believes it can rise in the ranks.
To sustain profits while it pivots, Wells Fargo will keep
cutting. The company has identified more than $8 billion in
long-term cost savings, of which job cuts are part and par-
cel: Wells reduced headcount by 6,400 in the fourth quar-
ter, and more cuts are expected this year. The bank plans to
dramatically reduce its real estate footprint, scaling down
its office space by up to 20%. A downsizing of its branch
network is well underway. Wells Fargo had about 5,000
branch locations at the end of 2020, down from 6,600 in
2009, and it plans to close 250 more this year.
Ambitious as it is, the plan will likely leave Wells Fargo
running in place insofar as overall growth is concerned—
WHAT COMES NEXT : CAN ANYONE FIX WELLS FARGO?A SLOW, UNEVEN
RECOVERYSome key indicators for
banks, including mort-
gage demand and deposit
growth, have remained
strong. A resurgent bull
market has driven trad-
ing revenues, and more
economic stimulus seems
likely. But high unemploy-
ment and lingering woes
for small businesses remain
burdensome headwinds,
with no clear end in sight
until COVID-19 abates. In
the short run, big banks will
emphasize their profit-
able—and thus far, rela-
tively pandemic-proof—
wealth management
and investment banking
businesses.ROCK-BOTTOM
INTEREST RATESThe Fed returned rates to
near zero to deal with eco-
nomic fallout from the pan-
demic, and it has signaled
that they could remain
there for years to come.
That puts a ceiling on the
rates banks can charge
customers and reduces
“net interest income,” a
key driver of revenues. (It’s
the difference between
what banks earn on loans
and what they pay out on
deposits.) In the near term,
expect banks to step up
loan volume to make up
for what they’re losing in
interest, especially in the
mortgage space.NEW MANAGEMENT
IN WASHINGTONBank leaders won’t miss
the volatility and unpre-
dictability of the Trump
administration, but they
may find themselves feel-
ing nostalgic for some of its
policies. President Biden
will likely seek a reversal
of Trump’s pro–Wall Street
deregulatory agenda, as
well as the undoing of
some tax cuts for corpora-
tions and high-net-worth
individuals. Look for banks
to team up with regulators
to lay ground rules for new
developments in fintech
(like cryptocurrencies and
digital payments) and capi-
tal markets (such as direct
listings and SPACs).WILL LIFE GET BETTER FOR BANKS?
OUTLOOK: UNCLEAR
BANKS HAVE BEEN SLOW TO RECOVER FROM THE COVID RECESSION —AND THE ROAD AHEAD LOOKS ROCKY.FINANCIAL FIRMS, banks
included, had a rough 2020
that wasn’t reflected by
the country’s soaring stock
markets. (The S&P 500’s
financials sector lost 4%
in 2020, compared with a
16% gain for the broader
market.) The coronavirus
pandemic forced America’s
largest financial institutions
to retool on the fly, leaving
them scrambling to sup-
port their commercial and
consumer borrowers, and
undermining the income
they made from interest
rate spreads. Though senti-
ment has improved, 2021
looks like it will be far from
a stroll.