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Crutchfield ‘relieved’ by how Wells Fargo’s entry to Charlotte has gone

Had Ed Crutchfield stayed CEO a few more years, he says he might have bought Wells Fargo himself.

As it turned out, of course, the longtime First Union chief retired just before the Charlotte bank merged with Wachovia and took the latter’s name. A few years later, as the financial crisis zapped Wachovia’s liquidity, that acquisition went the other way: Wells Fargo bought Wachovia in a $15 billion deal.

Five years later, Crutchfield says the bank’s sale to San Francisco-based Wells Fargo has turned out better than he could have hoped.

“I’m relieved, frankly, and pleased with how it’s gone,” he told the Observer this week. “To Wells’ credit, they’re letting that East Coast half pretty well run it like they want to run it. That is more than I dreamed of and hoped for.

“I’ve been much more impressed and more grateful than I expected to be before it happened.”

He hasn’t publicly reflected like this often since leaving the spotlight of the executive suite. Crutchfield now spends about half his time in Charlotte, and half in Vero Beach, Fla., at his home in the John’s Island golf community.

When he’s working, he’s advising Charlotte private equity firm Frontier Capital and coaching companies in the firm’s portfolio. When he’s not, he’s fishing or hunting quail.

But he was in the Queen City late this week to accept the Charlotte Center City Partners’ Vision Award for his substantial civic work to build up Charlotte’s uptown.

Beforehand, Crutchfield sat down with the Observer in his south Charlotte home. Questions and answers have been edited for length and clarity.

Q: Have you seen a culture shift since Wells took over Wachovia?

Not a large one. Wells is more structured, in a sense that boy, they’ve got a rule and regulation for everything right down to how sharp the pencils are going to be. But it’s worked for them. As long as the customers are OK with that, then good.

The two banks were somewhat similar already. They both had a big branch system, big retail system. Frankly, we had a huge brokerage operation that they didn’t have, and an investment banking capability that they didn’t have. So it was a good mix, a good fit.

Q: As lawmakers continue to talk about breaking up the big banks, is there still a place for them?

When I was first in the business, all we could do is take the savings deposit and lend it to a business. Once that company grew to a certain size, an investment banking guy would come along and say, “You don’t need that bank, we can get you $10 million in public debt.” We were like the feeder ground, then the vultures and the investment banks came along when it got ripe and plucked it right out of our hands. That hurt the hell out of our profitability. Likewise with retail brokerage firms.

We were like a big fat cow, sitting out there in the middle of the field and everyone was milking us. The only way to compete with that was to have that capability ourselves. That’s what you call the universal bank.

If you don’t have the universal bank, you’re going to go right back down to very unprofitable banks, which they were before we got this stuff. Vanilla, unimaginative, boring and more importantly, just not financially feasible.

Q: What about the “too big to fail” concern?

I don’t think that we ought to have institutions that if they go down, one of them can cause billions, hundreds of billions maybe, of losses to the taxpayer.

So there’s two courses of action. One says shrink the size of them. The other is for the government to come up with a good way to deal with a failure.

Q: So the Dodd-Frank financial reform law doesn’t solve it?

No. In fact, I think Dodd-Frank is net-net harmful. But let me finish up with one thing.

The other side of it is, we don’t have a bank near the size of the biggest bank in China. If we shrink these banks in the U.S. too much, the locus of finance will shift to China. That makes me want to go slow on shrinking these banks.

Q: Can the government legislate that sweet spot between big enough to compete and “too big to fail”?

Well, that’s a damn good question. I don’t know whether they can do it or not, but they should do it.

If I were king, I would probably set up something like the FDIC, except it would be for bank bailouts. Think of it as a trust that is a government-owned thing, and the banks would have to pay into it.

The bigger they are, the more they’d be required to pay. You say, “Boy, that would be expensive,” but it wouldn’t be as expensive as somebody coming in and lopping off a third of your size.

If you charge a bank 5 percent of profits, say, all of them, every year, you’d pretty soon have one hell of a big fund. If you came and put a gun on me and said give me 5 percent of your profits or I’m going to shrink your bank by a third, I’d say, “OK, where do I send the check?”

The alternative would be to lower my profits a lot more than that. Not just the absolute profits, but the profitability.

Q: I can’t see you being too pleased about that if you were asked that as CEO.

I wouldn’t. Only in the context of, “OK, Crutchfield, which way do you want it? Are you going to come peaceably and pay me 5 percent or do I have to take this knife and cut you up?”

Q: But you think something like that is necessary?

That’s a public policy question. I think it has some real possibility as a compromise solution.

Q: We’ve seen fees inch up across the banking sector. Is that the right way to go about making a consumer bank more profitable?

A lot of it is what the traffic will bear. What can you charge and a customer still perceives it as enough value that they’ll pay for it? With the debit card fee, they just flat-out didn’t.

The big banks really are able to give the customer more for your money. I’ve got a fishing buddy down in Florida. He said, “You know what, I went to a Wells Fargo branch the other day, and I wanted to use my debit card in their machine, and they charged me $2 to use my debit card.” He said, “That’s ridiculous.”

I said, “Now hold on just a minute. You don’t bank there. Do you think those damn guys ought to just go out and pay $150,000 a copy for these cash dispensing machines just so you can go by and use it free? You’re not going to take people fishing for free, are you? Or give them free minnows?”

Q: Do you think we’ll ever see banks like Wells Fargo or Bank of America offer completely free checking again?

I doubt it. I think we’ve seen most of the efficiencies through computerization and electronics we’re going to get. Once you can bank online, there ain’t a much cheaper way to deliver it to you than that.

They’re packages. I’ll give you free checking if you have your home loan here or your credit card here or your car loan here. It’s just another way of bundling it up and making money on it.

Dunn: 704-358-5235 Twitter: @andrew_dunn
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