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2001 BW 50



Q&A with Wells Fargo's Richard Kovacevich
The CEO doesn't see an economic boom coming in 2002, but he does expect Wells to continue being a "steady Eddie"

While some CEOs and economists are projecting healthy U.S. economic growth of up to 4% this year, Wells Fargo & Co. (WFC ) CEO Richard M. Kovacevich believes that any recovery isn't likely to be so robust. The San Francisco bank-holding company, the nation's fifth-largest and No. 99 on this year's list of best performers in the Standard & Poor's 500 index, posted strong earnings growth in 2001 but suffered credit losses as well as red ink in venture-capital investments. BusinessWeek Correspondent Louise Lee, based in San Mateo, Calif., recently spoke with Kovacevich to discuss his take on the economy and Wells Fargo's plans for the year. Edited excerpts from their conversation follow:

Q: What's your outlook for 2002?
A: I'm expecting growth of 2% to 3% for 2002. During the recession, many people were much more pessimistic than was Wells Fargo, and now, a lot of people are overly optimistic. We're right in the middle.

Q: How would you analyze the recession we're coming out of?
: This recession wasn't a particularly long or deep one. We never got to really high unemployment. So we won't get the "kicker" we often get, and it won't be a robust recovery. Throughout the recession, the consumer was still amazingly strong and maintained demand for things like mortgages and auto loans.

Q: How did you find that customers changed their banking and investing patterns during the recession?
A: Customers don't put their money into stocks and bonds but into [cash accounts.] Money doesn't go down, it just moves around.

Q: Given the economic outlook, how is Wells Fargo altering its business plans?
A: We weren't counting on a prolonged recession, so we didn't change much during the recession, and we're not changing much now. We'll continue to hire, but it'll be consistent with past years. Our capital-spending budget of more than $1 billion a year has increased by 4% to 5% a year in the past [not including acquisitions], and that'll continue.

Q: Why is Wells able to have such stable plans?
A: The diversity of our business is such that we don't get the highs and lows that other companies get. Less than 50% of our revenues come from banking. Our mortgage and investment businesses are growing. The diversity allows us to be steady Eddies. The value of this is that you don't have ups and downs. The market hates volatile earnings.

Q: What'll the capital budget be spent on?
A: Mostly on technology, split betweeen hardware and software. And for upgrades, too. Technology obsoletes itself. You've just got to get more stuff every year.

Q: Your online-banking service is considered one of the strongest in the business (see BW Online, 3/20/02, "Wells Fargo: Blazing a Trail Online"). What have you learned about how customers use the online channel?
A: There's no single-channel customer. About 98% of our customers use more than one channel to do business with us and use the phone or the branches too. The customers want the ability to have it all available to them.

MARCH 3, 2002

Edited by Beth Belton

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