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The solution to the housing crisis could be found in October at the Pennsylvania Convention Center, a three-block-long facility near Philadelphia�s baroque City Hall and otherwise known for hosting that city�s famous flower show and the annual celebration of costumed merrymakers known as Mummers. For two days, financial services giant Wells Fargo, America�s largest residential-mortgage originator, took over 104,000 square feet for one of the 51 �Home Preservation Workshops� it has held over the past three years.
The euphemistically named event is, in reality, a convention of indebted homeowners, mostly those with underwater mortgages and foreclosed homes. Rather than wear name badges, the 719 attendees toted around pay stubs, W-2s and mortgage statements and, after decompressing with popcorn and lemonade, met face-to-face with one of 100 or so Wells Fargo �home retention team members,� who, with their own individual booths splayed across the exhibit hall, were ready to provide �on the spot� restructurings, including term extensions and principal reductions.
The meetings are strictly confidential, and attendees are understandably sheepish about sharing their plights. But an idea of the private goings-on can be found from a working mother facing foreclosure, �brokeinnj,� who relayed her Philadelphia experience on Loansafe.org, an online clearinghouse for underwater homeowners. Her outcome: a new 40-year mortgage that rolled in the $12,000 that was past due. The drawn-out terms dropped her monthly bill $300, without dropping the 5.625% annual rate the bank charges. �It is a great feeling to not worry about seeing a car sitting in front of your house wondering if they are from the bank looking at your home,� she reported. �When our youngest says how much he loves this home and safe he feels, we don�t have to get a sick stomach from wondering if we will be forced to move.�
Washington has promoted low interest rates as a housing cure-all, while Wall Street cowers in a lawsuit-weary fetal position. For Wells, which has forgiven $4 billion in mortgages since then, rather than hiring PR firms to spin its way out of the mess, the overriding business mission is keeping customers in their homes and regaining the trust of their customers, one by one, face-to-face.
It�s a monumentally larger version of the critical scenes in It�s a Wonderful Life, and Wells Fargo even has its own version of George Bailey/Jimmy Stewart: CEO John Stumpf, who spins out the kind of corny, homespun sayings you might find embroidered and framed on the wall of Aunt Tilly�s lake cabin. �When we hire somebody around here, we want to know how much you care, before we care how much you know,� he says, without the slightest hint of irony as we sit with him at his San Francisco office. �We call our employees team members, not employees. Employees denote an expense to be managed. Team members are an asset to be invested in.�
It�s hard not to be a bit jaded by�and skeptical of�the saccharine homilies. All of Wells Fargo�s 264,200 �team members� receive a 37-page book, Vision & Values signed by Stumpf, full of warmed-over prescriptions for how to behave, treat customers and, above all, increase revenue. But in a field where sayings like �every man for himself� and �eat what you kill� have led to blunders of historic scale, it�s also a welcome departure. As are Wells� numbers: In the fourth quarter of 2011 Wells Fargo had a return on equity of 12% and an average return on its $1.3 trillion in assets of 1.25%, wildly better than JPMorgan Chase (8% and 0.65%), Bank of America (3% and 0.36%) and Citigroup (2.6% and 0.61%). �It�s nothing like those banks at all,� says Stifel Nicolaus analyst Christopher Mutascio. �It�s more risk-averse, and it doesn�t have the same international or investment banking presence.�
Another difference: It�s worth more. Wells Fargo has the largest market capitalization of any American bank ($161 billion), including JPMorgan Chase, which has twice the assets. The market values Wells above Bank of America, Goldman Sachs and Morgan Stanley�combined.
Let those banks trade wantonly and race to beat each other to marginally profitable investment banking business. Wells does what banks are supposed to do: take deposits and then lend the money back out. Interest margin drives half its revenues. Fees from mortgages, investment accounts and credit cards generate the other half. �I couldn�t care less about league tables,� says Stumpf, throwing out a line custom-made for the Wells aphorism book. �I�m more interested in kitchen tables and conference room tables.�
By operating a bank like a bank, Stumpf has at once made Wells exceedingly profitable�for 2011 the bank�s net income jumped 28% to $15.9 billion, on $81 billion in revenue�and extremely safe. Wells originates one in four U.S. mortgages and services one in six, yet its efficiency ratio�the cost required to generate a dollar of revenue�is unrivaled at 56% and compares with 66% for both JPMorgan and Citi, and 86% for Bank of America. And while its competitors follow European news with panicky obsession, there�s no chance of a PIIG contagion here: Foreign loans are a mere 5% of its portfolio. Says Stumpf, referring to the bank�s U.S. focus: �Boy, that�s a basket I love right now.�
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