A former Minnesota farm boy who began his working life as a baker has become America’s highest-paid banking boss by taking a sceptical view of Wall Street’s trading floors and scorning the financial industry’s penchant for exotic derivatives.
John Stumpf, a low-key conservative figure who is chairman of San Francisco-based Wells Fargo, is shown to have earned $18.7m (£11.8m) after executive pay disclosures by the top US banks. He edged out JP Morgan’s Jamie Dimon, who earned $17.6m last year, and was paid twice as much as Goldman Sachs boss Lloyd Blankfein, who exercised “restraint” by taking a bonus of just $9m.
“Wells Fargo has benefited because its management, historically, was not enamoured with the capital markets business – its strength was more in commercial and retail banking,” said Fred Cannon, a banking analyst at broker Keefe Bruyette and Woods, who names Wells Fargo and JP Morgan as the strongest players of the credit crunch. “They were very big in the mortgage business but they avoided some of the more aggressive mortgage products,” Cannon added.
With 10,000 branches and 279,000 employees, Wells Fargo ranks as America’s fourth largest bank in terms of its assets which are worth $1.2 trillion. Founded in 1852, it originally served San Francisco’s gold miners and until the 1980s, its network was limited to California. It became a significant player through a merger with Minneapolis-based Norwest in 1998 and the purchase of Wachovia has expanded its presence in the eastern states of the US.
Stumpf’s personal pay package is asharp increase on his $9m earnings a year ago and his remuneration of $11.5m before the credit crunch began in 2007. In common with most US banks, Wells Fargo is paying its executives largely in shares – Stumpf gets a $900,000 salary plus about $17.5m in shares vesting over the course of three years.
One of 11 siblings from a dairy farm in the tiny Minnesota town of Pierz, the 56-year-old can claim a rags-to-riches story. In a 2007 address to students at his alma mater, St Cloud University, he revealed that he shared a bed with two siblings as a child because the family had only three beds between seven brothers.
Stumpf’s first job was at a local bakery and after graduating with a finance degree, he worked as a repossession agent for a local bank, First Bank Systems. He became chief executive in 2007, replacing veteran Richard Kovacevich. He been with Wells Fargo for 27 years. And he has a colourful side – at company dos, he has dressed as Elton John, John Lennon and the long-haired teenage hero of the movie Wayne’s World to entertain staff.
Until its purchase of Wachovia gave it a significantly sized brokerage, Wells Fargo had only a limited presence on Wall Street.
In a newspaper interview last year, Stumpf said: “We like serving customers, and that’s distinguished from doing some structured product that doesn’t involve customers and some exotic proprietary investing where you invest for your own book. I’m not wild about that.”
Wells Fargo also argues that it avoided the worst temptations of predatory mortgage lending at the height of the housing boom, while its competitors were over-egging the housing market by pumping out unrealistic home loans. Its record, however, is hardly snow white.
In December, the city of Memphis sued Wells Fargo for targeting ethnic minorities in deprived areas with predatory lending, accusing Wells in a lawsuit of “unlawful, irresponsible, unfair, deceptive and discriminatory mortgage lending practices”. The bank denied the charge as “baseless and inaccurate” and a similar lawsuit in Baltimore was thrown out by a federal judge last month.
Matthew Lee, founder of watchdog Fair Finance Watch, says that although Wells Fargo was not involved in packaging toxic mortgage-backed securities on the capital markets, it did its fair share of risky lending on the high street, shrewdly passing the loans on to third parties.
“They were as big in sub-prime as some of the others were but they weren’t left holding the baby when the music stopped,” said Lee.
Others at the top of this year’s banking pay list were in similarly retail-orientated firms. Third best paid was the boss of Visa, Joseph Saunders, with $15.5m while Mastercard’s president, Ajay Banga, got $13.5m. Large as these numbers may seem, they pale in comparison to the runaway banking paydays prior to the credit crunch, when Goldman Sachs’ chief earned a record $69m.
Stumpf has offered no comment on his position at the top of the industry’s pay tree, although Wells Fargo justified his share awards when they were granted by saying talented staff were being “increasingly and aggressively recruited by competitors”. In a somewhat off-beat reference to his own wealth back in 2007, Stumpf joked to students at his old university: “Money does not matter. I know a lot of people who are worth $20m and they are no happier than those who make $19m.”
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