A Conversation with Rick Redden, President South Carolina, Wachovia, a Wells Fargo Company

October 20, 2010 – by Alan Cooper

 

LowcountryBizSC:
Talk about the summer of 2008 and the events leading up to the end of September when Wachovia was bought out by Wells Fargo.

Rick Redden:
Wachovia had tough first and second quarter earnings reports in 2008.  We were experiencing some big losses related to Golden West, the California mortgage company that we had acquired in May 2006.  I believe Wachovia would have had the earnings and liquidity to weather a normal storm, but there was nothing normal about the summer of 2008. 

The entire banking industry was looking for a road map out of the swirling problems, but we were certainly one of the more visible large financial institutions to come under the microscope. By midsummer we were having serious conversations with concerned customers about the state of the bank and in many instances, helping them to shift their deposits under FDIC limits to risk-free treasuries. 

The atmosphere affected two very important parts of the Wachovia equation; our customers and the pride of our team.  Banking is about relationships and institutional credibility.  As a career Wachovia guy used to having a relatively low profile, being on the front page of every newspaper in the country, to be talked about the way we were… it was hard. 

LowcountryBizSC:
Did you see a backlash from customers?

Rick Redden:
I know customers were disappointed, but they remained incredibly loyal through the whole process.  When the Wells Fargo merger was announced, everyone was relieved.  Within one tumultuous week we went from the brink of collapse, to a clear path forward.  The irony was that being the focal point of the problems early on helped us get to the finish line quicker with Wells Fargo, and perhaps more importantly, allowed us to move forward prior to the Troubled Asset Relief Program (TARP). 

Wells Fargo is a strong, well-run bank that is great fit for Wachovia.  Wells Fargo did not have retail banking presence on the East Coast, but our customer base knew of them on the mortgage side of the business, so they were at least familiar with the brand, and the stagecoach.

LowcountryBizSC:
Talk about the details of the integration.

Rick Redden:
We are a year and a half into what will be a three-year merger, a process where we will phase out the Wachovia brand and convert to Wells Fargo.  We have completed the process on the West Coast, as well as our stores in Mississippi, Alabama and Tennessee.  Georgia will convert later this month, and North and South Carolina will follow in the third or fourth quarter of 2011.  The Carolinas is where Wachovia has its largest customer base and is of critical strategic importance to the integration of the two banks. 

LowcountryBizSC:
Where do you stand in South Carolina in terms of other banks?

Rick Redden:
In terms of volume, we are the number 2 Small Business Administration (SBA) lender in the state and we are shooting for number one.  We are number 1 in mortgage origination.  With over $11.6B in deposits, we are the number 1 in terms of market share in South Carolina.  On June 30, 2010, the FDIC survey of banks across the country identified that we had not only maintained our market share in South Carolina, but we had even increased market share from 16.4% to 16.7% of the market.  That is 40% more than our nearest competitor. 

LowcountryBizSC:
What changes will customers see at the retail bank level?

Rick Redden:
We are taking a three stage approach to our stores: increase the number of bankers, add a new service manager position (someone entirely dedicated to the customer experience), and give the stores a fresh new look. 

Post merger, we are hiring new team members, increasing employment during the worst recession in decades!  We are currently transitioning to the Wells Fargo model with its incredible focus on the customer and the team. The Wells Fargo philosophy is to have more people to meet with customers in the stores.  In South Carolina, we have added 450 people, an overall increase of 15% to our team members.  We now employ 5,500 people here in the state of South Carolina. 

We have already installed over 250 new, state of the art ATM machines that offer a broader range of cool new services, such as envelope free deposits, even ones that sell stamps.  Customers are telling us they love the new ATMs, and we have only started to scratch the surface in terms of what they can deliver.  Wells Fargo is at the forefront of electronic technology.

As part of the conversion, our stores will be painted and the lobbies will get new furniture and new signage.  In South Carolina, we have 145 stores statewide.  In my entire career, I have never seen this level of investment in our stores in this short a period of time.  We are really excited. 

LowcountryBizSC:
What strategic changes have you made to your business model, to the products and services that you offer? 

Rick Redden:
All banks are asking the question of where their revenue will come from in this new economic environment.  The traditional banking model is to offer depository services, hold cash, and lend.  We hope to do that as well, if not better than any bank in the country, but we are also looking at new revenue opportunities.  The silver lining is that this recession has forced us to be more innovative in how we think about banks and the role of a bank in a community.  We now have 80 lines of business under the new bank, cool new products and services to help our customers resolve problems that they might be facing.  Two-thirds of these 80 business lines are new for us. 

We will offer property and casualty insurance, auto insurance, and payroll services for our customers.  We will be better at equipment financing (where we tie the amortization of the loan to the depreciable life of a new piece of equipment).  We can assist new doctors who are coming out of medical school with financing and projected cash flow analysis.  We can offer government contract financing.

We will be able to offer print services to our customers on a per unit fee.  We have innovative solutions for people in the military who are moving around the country.  We are offering financing on medical receivables.  We have even come up with elder care where if we provide lawn and grocery services. 

Our strategy will be to out-local the national banks, and out-national the local banks.  I think people will see a bank that is very proactively thinking about ways that it can help provide solutions to problems.

There are three things that give the bank tremendous momentum; our investment in our stores, the fact that we are hiring, and our philanthropy. 

LowcountryBizSC:
How does Wachovia give back to the local community?

Rick Redden:
We take our responsibility to give back to the local community very seriously.   Last year, our team members volunteered over 23,000 hours in South Carolina.  We spend more in philanthropy than many smaller banks make in annual profit.  In Columbia we recently announced a donation of $135,000 to EdVenture to help them with their distance learning program.  We are huge supporters of education around the state, and are particularly proud of our financial literacy program that we take out to the local schools. 

Diversity is another issue that is of great importance to the bank, a journey that this bank has been on in one form or another for decades.  We have partnered with Furman University to develop their Diversity Leadership Institute.  We support diversity in our own organization to reflect the communities that we serve.

LowcountryBizSC:
Wachovia was a big bank.  The new Wells Fargo will be an even bigger bank. What is better in this new economic environment – big or small?

Rick Redden:
In the beginning, the level of interdependence between large institutions such as ours meant they were particularly susceptible to the problems in the financial and real estate markets.  If one bank encountered problems, it spilled over to other institutions.  But in the end, the amount of trouble that a bank got into had less to do with size than the amount of risk it was taking, and more importantly, its ability to reduce that risk when the economy started heading south.  Wells Fargo is one of the best in the industry in terms of credit and risk management.  Their discipline has made it possible for the company to grow and prosper through many economic cycles and it helped them avoid many of the credit issues that others fell into. 

As I mentioned, our strategy is to out-local the nationals and out-national the locals.  This means that we bring the advantage of our size – the products, resources and expertise that the bank has to offer – and the power and nimbleness of a decentralized leadership structure – with local leadership and local authority – to serve our customers.

LowcountryBizSC:
What is your view of the bank regulators? 

Rick Redden:
The regulators were heavily criticized for not providing enough oversight of the banks and allowing too much risk, and now they are criticized for being too strict.  I would not want to have their job.

LowcountryBizSC:
Skip ahead to today and what challenges are you still facing in this market?

Rick Redden:
Lot loans continue to be a big challenge for us, and for the industry as a whole.  Capital investment projects to build on lots have been postponed or cancelled as investors either can’t find additional funding or have determined that they can’t build anything that will give them a satisfactory return on their initial investment. 

From a capital standpoint, we are in a good position; in fact, our team has aggressive loan goals and we are trying to grow our balance sheet.

My biggest concern is still the state of the general economy.  We are all participants in that economy, as are our customers.  So goes the economy, so goes our customer, so goes our bank.  There is still a lot of pain out there. 

The issue in the market is the economy, the lack of demand for capital.  Consumers and businesses are still looking to pay down loans and are not investing in new homes or new plant and equipment.  Structuring loans for our customers in the tough economic environment is a challenge.  After discussing loan options, we are finding that many people are choosing to walk away from deals, especially ones where they have to put a lot of equity in. 

Finding the customer who is ready to borrow, with a project that is financeable, and getting a proposal that they are satisfied with – is a challenge, but contrary to what’s often in the press, still very doable.  We are lending money.  That said, consumer volumes are down significantly compared to two and three years ago.  Until confidence returns in the economy, people will choose to forgo borrowing. 

LowcountryBizSC:
Wachovia as people came to know it was created out of a merger between Charlotte-based First Union and Winston-Salem-based Wachovia in 2001.  Compare that merger with the merger with Wells Fargo.

Rick Redden:
In the First Union and Wachovia merger, you had two banks that for years had been competing across the street from each other, so there were bound to be some tensions as the two banks integrated.  With Wells Fargo not having a retail banking presence on the East Coast, it’s completely different. 

LowcountryBizSC:
Where were you born and raised?  Name a favorite book.

Rick Redden:
I was born in Mississippi but spent most of my childhood moving around continuously.  I settled in Charleston for high school and married a Charleston girl.  I worked for Wachovia in Winston-Salem before being transferred to Charleston in 1996.  When I am not working, I am a family man and spend a lot of time with my wife and kids.

I have learned as much from leaders who I did not want to emulate as from those that I admired.  When you find your leadership style, and you see those that don’t practice it, it’s a great reminder of what is important to you.

I loved two books: A World Lit Only by Fire by William Manchester, and An Enemy called Average, by John Mason.  The latter is a great book on keeping your standards high.

Other than that, I love to read thrillers.  When I am not working at the bank, I need to escape to the world of fiction! Harlan Coben is one of my favorites.

LowcountryBizSC:
Where do you see the bank in five years?

Rick Redden:
One thing that we have learned coming out of this recession is that it is hard to make any kind of long-term predictions.  The impact that financial reform will have on the industry is still a big question mark.  Competitively, I would put our people and our business model up against anybody.  Wells Fargo will be well positioned coming out of this economy.  Nobody is exactly sure anymore where the economy is going, but we are very excited about the next five years.