wells fargo
Just how hated is Warren Buffett's "favorite" bank Wells Fargo?

Not only are millions of clients dumping the bank following countless scandals involving the bank's cross-selling of accounts, not only did the Fed slam the bank with an unprecedented penalty (as Janet Yellen's last act before she retired), not only did the bank's former CEO, Tim Sloan, unexpectedly resigned under dramatic pressure from Congress, but now the WSJ reports that the bank is having trouble getting top bankers interested in its open chief executive officer job.

According to the WSJ, the bank's board approached a small group of top candidates, including JPMorgan consumer banking chief Gordon Smith, PNC CEO William Demchak and former U.S. Bancorp chief Richard Davis.

The results were ungood: both Demchak and Davis took a hard pass on potentially replacing Sloan, while Smith, who is JPMorgan's co-chief operating officer, reportedly told confidants that he is reluctant to take the job and is likely to stay at JPMorgan.

There are reasons why nobody wants to be the CEO of what is emerging as America's most hated bank: while running the fourth-largest US bank is one of the biggest jobs in the business, it is hardly a "universally appealing" one:
Wells Fargo's new CEO will have to juggle fixing problems in Washington, reviving key businesses and rehabilitating a corporate reputation damaged by many problems that came to light following the bank's 2016 fake-account scandal.
Meanwhile, any "glory" to be earned turning around the troubled bank is likely years away, if ever. Wells Fargo has a long to-do list from regulators and is operating under an unprecedented growth cap imposed by the Federal Reserve in early 2018.

Furthermore, some of the candidates have a far brighter future where they are: Smith, 60, oversees JPMorgan's consumer operations and its commercial bank, and according to the WSJ, is considered a top candidate to run the bank if James Dimon departs suddenly, although his age makes him less likely to get the job if Mr. Dimon retires in around four years, as planned. Additionally, Smith would be an expensive hire: he is owed more than $50 million in deferred compensation, some of which Wells Fargo likely would have to cover. He was paid $22 million in 2018.

Of course, the longer Wells goes without a permanent CEO, the more difficult it will be to attract to talent: to be sure, it is unusual for big, publicly traded companies to go months without a permanent CEO, let alone a bank the size of Wells Fargo. Boards typically line up successors years ahead of time. The most recent big bank in a similar situation was Bank of America which took nearly three months to name a replacement after Ken Lewis announced plans to retire.

And while Wells Fargo's general counsel, former Cravath, Swaine partner C. Allen Parker, has been serving as interim CEO since Mr. Sloan's departure, there are no slam-dunk internal replacements ready to take over the top spot. CFO John Shrewsberry had been considered a potential successor, according to WSJ sources, but the board decided to look for an outsider after the Office of the Comptroller of the Currency and the Federal Reserve, the bank's main overseers in Washington, expressed dissatisfaction with its response to its troubles.

The bank's protracted search has also become a bit of a joke within the banking industry, with prominent figures in the banking business puzzling over the board's approach to the search. In late May, Jamie Dimon took Wells Fargo directors to task for their succession planning: "It's not responsible for a company-just my own view-to have a CEO leave with no plan in place," he said at an investor conference in late May. "I don't personally understand that."

Meanwhile, Warren Buffett, whose Berkshire is the bank's largest shareholder, spoke out against hiring anyone with Wall Street roots. The CEO search has set off a guessing game around the banking business. Yet some people considered worthy candidates by their peers recently hadn't heard from recruiters, according to people familiar with the matter. That could reflect the influence of Berkshire Hathaway, which owns 9% of the bank's shares.

In an April interview with the Financial Times, Buffett said Wells Fargo's new CEO "shouldn't come from Wall Street" and "probably shouldn't come from JPMorgan or Goldman Sachs." Berkshire Vice Chairman Charlie Munger told The Wall Street Journal "we don't like the Wall Street crowd that is making the damn decisions."

And with no natural replacements for the top spot, Wells finds itself in a bind.

Still, as the WSJ notes, Wells' challenges haven't stopped employees at rival banks from speculating about their executives landing the job: On April 1, Citigroup Inc. employees emailed each other a fake Wall Street Journal article that said the bank's Latin America head Jane Fraser would replace Sloan.

Meanwhile, Wells core business, mortgage origination continues to slide into the ground. As we reported in April, the former mortgage giant reported the worst mortgage number since the financial crisis, when the bank reported that the amount of all-important Wells Fargo Mortgage originations shrank again, dropping to just $33 billion, down $5 billion sequentially, and the lowest level since the financial crisis. Putting this number in context, just six years ago, when the US housing market was actually solid, Wells was originating 4 times as many mortgages, or about $120 billion.