Wells Fargo CEO says credit is strong, sees no cracks in banking system

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By Lananh Nguyen and Nupur Anand

NEW YORK (Reuters) -Credit among consumers and businesses remains strong, despite recent concerns about loan losses that have weighed on bank stocks, Wells Fargo CEO Charlie Scharf said on Tuesday.

“We don’t see cracks … in the banking system,” Scharf told the Economic Club of New York, calling credit “exceptionally good” and saying he did not expect things to get worse.

Some regional U.S. banks flagged bad loan and fraud issues in recent weeks, worrying investors and prompting them to scrutinize lenders’ earnings reports for signs of wider strains across the sector.

JPMorgan Chase <JPM.N> CEO Jamie Dimon’s recent comment about the potential for more fraud has amplified investor worries.

“When you see one cockroach, there are probably more, and so everyone should be forewarned of this one,” Dimon said last week.

By contrast, Scharf expressed confidence in private credit markets, which have also been the subject of investor concerns. “I don’t think it’s a major systemic issue,” he said when asked about the lending surge in private credit markets outside of traditional banks.

The Wells Fargo CEO, who has steered a major turnaround since he took over six years ago, said he would favor replacing quarterly earnings reports with semiannual results, echoing a view expressed by Dimon, Scharf’s one-time mentor.

“I would probably be in favor of it,” Scharf said. “Even if the requirements were to go to semiannual, it doesn’t mean that companies will stop reporting some information on a quarterly basis.”

Separately, Scharf predicted the Federal Reserve would continue to reduce interest rates to get ahead of risks to the U.S. economy, including lower growth and higher inflation.

“The idea of some more rate cuts is risk management,” the CEO said.

The nation’s fourth largest lender beat Wall Street estimates for third-quarter profit last week and raised its closely watched profitability target.

Regulators removed an asset cap on the bank earlier this year, paving the way for it to pursue growth.

U.S. regulators are pulling back on some bank exams and the use of confidential disciplinary notices, Reuters reported last month. Meanwhile, big lenders expect their capital requirements to fall, in a stunning industry victory as the Trump administration revamps bank rules.

“I’ve never been in a meeting (with this administration) where I hear the word deregulation,” Scharf said. “The conversations that we have are, ‘What things need to change to put you in a position to help the economy grow faster?'”

The bank supports regulators’ efforts to sharpen their focus on financial measures of safety and soundness, while reducing overlap among supervisory agencies.

(Reporting by Lananh Nguyen and Nupur Anand; Editing by Leslie Adler and Richard Chang)