Charlie Scharf, the CEO of America’s third-largest bank, is a man enamored with the potential of the company he leads. He sounds almost awestruck as he enumerates the forces at his disposal. There’s the commercial bank that serves millions of small businesses. There’s a consumer-lending platform that accounts for more mortgages than any other major bank. There’s a wealth management division that has helped countless customers expand their affluence. “The core franchise, and what we do for consumers and businesses, is extraordinary,” Scharf says.

He pauses before adding, matter-of-factly: “But we made a bunch of mistakes.”

It is mid-October, the day before Scharf’s first anniversary at the helm of Wells Fargo. The CEO is sitting in an elegant, wood-paneled study at his home on New York’s Long Island, speaking via a Zoom video link. For much of a pandemic-afflicted year, this house has been the hub from which Scharf has tackled one of the toughest turnaround assignments in business. Scharf oversees an enormous, multifaceted bank with more than 260,000 employees and some 70 million customers. It’s a company emerging from the most tumultuous period in its nearly 170-year history, one in which it got caught—on multiple occasions—flagrantly abusing the trust of those customers.

Wells Fargo continues to pay for those sins with a tarnished reputation and through the lingering impact of severe fines and sanctions. The most damaging of those is a Federal Reserve–imposed, $1.95 trillion cap on the bank’s assets. As the economy reels from the impact of the coronavirus, all banks are feeling the effects of ultralow interest rates that clobber their profit margins. But unlike its rivals, Wells can’t offset the impact by rapidly stepping up lending volume or attracting capital reserves—the asset cap prevents it. Wells Fargo’s revenue has steadily declined since 2017 and dropped another 15% in fiscal 2020, to $72.3 billion. Profits have shriveled, too, and its shares, which fell 44% last year, have consistently underperformed those of other big banks since the scandal erupted. “This company is a damaged company, and all strategies have to be put on the table to bring it back to a level of profitability that investors will find acceptable,” says Gerard Cassidy, head of U.S. bank equity strategy at RBC Capital Markets.

When he took the gig, Scharf, now 55, stepped into one of the most closely scrutinized positions in finance. It’s his third CEO stint at a Fortune 500 financial services company, and an extremely well-compensated one. He can earn up to $23 million annually, depending on stock incentives. It also ranks among the toughest chief executive jobs in America. Given Wells’ status as one of the biggest “Main Street” lenders, its overall health has implications for the broader economy too. Scharf’s longtime mentor, JPMorgan Chase CEO Jamie Dimon, tells Fortune that the task Scharf signed up for is a challenge “too big to walk away from,” adding, “It’s better for the country and for the banking industry that they succeed.”

For now, Scharf is concentrating on creating a leaner, more focused institution—shrinking the bank in order to save it. If he succeeds in shepherding Wells Fargo out of regulatory purgatory, he may restore the luster of one of the grand old names of American banking. Should he fail, Wells could be permanently relegated to afterthought status among its blue-chip rivals.

Fortune spoke with Scharf and top Wells Fargo executives—as well as analysts, critics, industry rivals, and former colleagues of Scharf’s—to capture the state of the turnaround, some 15 months into the CEO’s tenure. It has been an eventful time that has featured sweeping organizational changes—along with high-profile missteps that fueled skepticism about whether Scharf can institute meaningful cultural change. “It takes a long time to turn around such a big ship,” says Jason Goldberg, a senior equity research analyst at Barclays. “He’s learning that.”

Scharf, for his part, sees a chance to restore the bank to its rightful place. “I came in with a clear understanding that the core franchise continued to be this great opportunity,” he says, “but that there was a tremendous amount of work to do.”

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Scharf grew up in Westfield, N.J., a New York suburb crowded with financial professionals like his father, a stockbroker. By age 13, Charlie was working back-office jobs at Manhattan brokerages. As an undergrad at Johns Hopkins, he initially had designs on becoming a research chemist—until he had a sophomore-year epiphany. “I was in physical chemistry, locked in a lab, when I said to myself, ‘I really don’t want to spend my life in a place without windows,’ ” he recalls. In business, he realized, “you could create something in a very different way.”

As fate would have it, a relative of Scharf’s knew the father of a banker named Jamie Dimon, the young chief financial officer of Baltimore-based lender Commercial Credit. Dimon brought the recent grad on board in 1987—the start of a working relationship that would span more than 20 years. Scharf played a variety of roles under Dimon and Sandy Weill as they grew Commercial Credit into what eventually became Citigroup. When Dimon landed the top job at Bank One in 2000, he tapped Scharf as CFO. After Bank One merged with JPMorgan Chase in 2004, Scharf took the helm of Chase’s sprawling retail banking business.

Dimon recalls Scharf as able to “handle just about anything” Dimon threw at him: “He got stuff done; he had a good nose for cracking through the bull.” Scharf acquired the seasoning that came with ever-larger roles; he also saw Dimon’s job evolve as he led ever-larger companies. Of what he learned from Dimon as a leader, Scharf says, “He stands in front. He doesn’t hide behind people. He doesn’t look at others when something goes wrong.”

Scharf would put those lessons into practice in 2012, when Visa tapped him as CEO. Visa was still grappling with its 2008 transition from a private entity, owned by an association of card-issuing banks, to a publicly traded company. At Visa’s San Francisco headquarters, Scharf found what he describes as an “insular” business that “didn’t really engage with the technology community.” He aimed to rectify that, establishing relationships with fintechs like PayPal and Stripe that expanded Visa’s footprint in digital payments—a focus that proved prescient. Says current Visa president Ryan McInerney, a JPMorgan alum who followed Scharf to Visa: “A lot of the foundation he laid, especially as it relates to digital commerce, you’re seeing the results now.”

Scharf left Visa in 2016, seeking to be closer to his family on the East Coast—and leaving behind a company whose share price more than doubled during his tenure. His experience there, as well as a subsequent stint as CEO of custodian bank BNY Mellon, taught him how all-encompassing the chief’s role was. “There’s no job that’s comparable,” Scharf says. “The whole organization looks to you for the wins and the losses, for setting the tone and the culture … Some love it, and some don’t love it.” Scharf falls into the first category.

Around the time he was leaving Visa, another San Francisco–based company was reckoning with a scandal of tectonic proportions.

The details of Wells Fargo’s fake-accounts fraud debacle are well documented: Driven by a hyperaggressive sales culture, employees opened accounts for and sold financial products to millions of customers—without their approval. The problems were endemic across the company, with similar sharklike misconduct surfacing in Wells’ mortgage, auto lending, and wealth management businesses.

The fallout proved devastating. From 2016 through 2018, federal regulators hit Wells with five consent orders laying bare the institution’s mismanagement—along with sanctions that included the constraining asset cap. Regulators also held Wells’ leadership accountable: Former CEO John Stumpf, who stepped down after the scandal emerged in 2016, was eventually handed a $17.5 million fine and a lifetime ban from the banking industry. His successor, Tim Sloan, resigned under political pressure in March 2019. In a report last year, the House Financial Services Committee slammed Wells Fargo’s board and management for continually failing to address the company’s shortcomings, even years after the misdeeds came to light.

Wells Fargo had been one of the few American banks to emerge from the 2008 financial crisis with its reputation intact. As rivals stumbled, Wells grew stronger, as evidenced by its $15 billion mid-crisis acquisition of Wachovia. Now, it finds itself the bête noire of the banking sector. “We were growing while everyone else was focused on running themselves better,” says Jon Weiss, a 15-year Wells veteran who now leads the corporate and investment banking division. “We were to some degree victims of our own success, and maybe we could have used a bit more introspection.”

By spring 2019, Wells’ board was searching for a CEO who could lead the company in a long, hard look in the mirror. Six months after Sloan stepped down, Scharf got the job. Solving the bank’s regulatory issues, Scharf said shortly after his appointment, would be “clearly the first priority.”

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For the first meeting of Wells Fargo’s operating committee under the new CEO, its leaders gathered in a windowless conference room in St. Louis to address the daunting business of turning the bank around. “Charlie brought in a legal pad—not a PowerPoint presentation, not 40 pages of colored pictures the way that an investment bank would present—with a page and a half of notes, line by line, that he wanted to go through to explain the way he does business,” Weiss recalls. “It was a disarming, casual, but very focused discussion with no baloney.”

Matter-of-factness and a “no frills” demeanor are common threads in descriptions of Scharf; his directness can be as striking as his trademark shock of white hair. But plainspokenness can also be an asset for a chief executive with bad news to deliver and tough problems to solve.

The biggest problem Scharf identified at Wells Fargo was an exceptionally decentralized organization—one lacking the clear lines of accountability that might have prevented the fake-account fraud. The bank also lacked risk-and-compliance safeguards that most banks of comparable size already had. “We did have a relatively siloed organization, where you had intact businesses that were running a bit independently,” says Mary Mack, who has been with Wells for 26 years and now leads its consumer and small-business banking division. “I don’t think we did a very good job of stepping back and saying, ‘Could that condition or set of weaknesses actually exist across the entire company?’”

Scharf began a major overhaul, starting with turnover at the top. Nine of the 17 people now serving with Scharf on the bank’s senior leadership committee are new hires. Prior to last year, the role of chief operating officer didn’t exist at Wells Fargo. Scharf created it and recruited Scott Powell, a former colleague at Citi and JPMorgan, to fill it. Powell most recently served as CEO of Santander’s U.S. business, where he helped that bank cope with regulatory sanctions of its own. Several other new executives are also past colleagues of Scharf’s: CFO Mike Santomassimo had the same role at BNY Mellon; Mike Weinbach and Barry Sommers, who now head Wells’ consumer lending and wealth management divisions, respectively, are JPMorgan alumni.

In February 2020, Scharf unveiled a reorganization plan that redrew the company’s business lines across five distinct divisions. Just as important was a reconfiguration of Wells’ risk-management system: Each of the five divisions now has its own dedicated risk officer—a structure designed to ensure no unit of the bank is cutting corners.

Analysts hailed Scharf for bringing Wells Fargo in line with other banks’ best practices. But subsequent events offered persistent reminders of the work that remains to be done. Last February, just days after the reorganization’s unveiling, the Justice Department announced that Wells would pay $3 billion to settle criminal charges related to the accounts scandal. The consensus was that this would be Wells’ last major penalty, but it offered another stark example of the scandal’s erosion of the bank’s profits. Another sign of the lingering cost: In 2020, Wells Fargo spent $6.7 billion on “professional/outside services”—more than 9% of total revenue—the lion’s share of which reflects legal and consulting fees related to the post-scandal cleanup.

Meanwhile, the pandemic forced Wells Fargo to put daily emergencies ahead of long-term reforms. Scharf, still in the early days of meeting Wells’ workforce, found himself confined to his Long Island home office. Keeping the bank’s thousands of branches open was essential—even amid lockdowns, Wells had “1 million customers a day coming into our branches,” says Mack—but keeping them safe, and transitioning nonbranch employees to remote work, was a logistical obstacle course.

COVID-19 also triggered a mini-scandal that echoed the bank’s past misdeeds. After the government enacted mortgage relief measures to help people who couldn’t keep up with payments, no fewer than 1,600 borrowers complained that Wells Fargo had placed their loans in forbearance without their consent—an act that could actually harm the borrowers’ credit ratings and prevent them from refinancing. “We were erring on the side of trying to help customers in a very difficult time,” Scharf says of the snafu, which the bank scrambled to correct. “Every institution makes mistakes.”

The bank also entangled itself in difficult questions around diversity. No incident from his first year at Wells Fargo proved more threatening to Scharf’s reputation than comments he made in a June memo announcing new diversity initiatives, in which he cast doubt on the depth of talent available for top jobs at the bank. “The unfortunate reality is that there is a very limited pool of Black talent to recruit from with this specific experience,” he wrote.

With nationwide awareness of structural racism honed to a sharp edge by the killing of George Floyd just a few weeks earlier, the comments were particularly tone-deaf. They upset many employees and drew widespread condemnation from critics outside the bank. They also highlighted the whiteness and maleness of the ranks of former colleagues from which Scharf had recruited many of his lieutenants. While his nine hires on the leaders’ committee include a woman and two Black men, the highest-ranking ones, including the COO and CFO, are white men. “What we’ve seen is that he’s replaced one insular group with another,” says Nick Weiner of the financial industry labor group Committee for Better Banks.

Scharf quickly apologized for the “limited pool” comments, saying they reflected “my own unconscious bias.” Wells has since created a diversity, representation, and inclusion group: Its chief, Kleber Santos, who joined the company in November from Capital One, sits on the senior leadership committee. Months later, Scharf is solemn and cautious as he discusses the gaffe. He points to the company’s goal of doubling Black representation in its senior ranks over the next five years, as well as its plan (announced in his June memo) to tie some of executives’ compensation to the diversity of their business lines. He also seems acutely aware that the hire-who-you-know approach that he has relied on for years has also perpetuated inequities. “When you look at the representation inside this company—and this is true of most financial institutions—there’s a tremendous need to do things differently,” he says.

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January 15 at first glance seemed like just another dreary day for Wells Fargo. Disclosing earnings for the fourth quarter of 2020, the bank reported revenues that missed analysts’ estimates, and shares fell nearly 8% on the day. The general gloom obscured the fact that Wells Fargo also revealed substantial details about its future—as a leaner institution doubling down on what it does well.

Recapping some moves and unveiling others, Scharf’s team listed a series of asset sales that would extract the bank from “noncore” businesses. On their way out are Wells Fargo’s $10 billion student loan portfolio and its Canadian equipment-financing business. The bank is also looking to off-load its asset management arm, which oversees more than $600 billion for institutional clients. “The businesses that we’re exiting are perfectly good businesses,” Scharf said on the earnings call. “The question is, are they best housed within Wells Fargo?”

In Scharf’s vision, that housing is reserved for bread-and-butter businesses that Wells has dominated for decades—including consumer banking and personal wealth management—as well as for investment banking, where the company believes it can rise in the ranks.

To sustain profits while it pivots, Wells Fargo will keep cutting. The company has identified more than $8 billion in long-term cost savings, of which job cuts are part and parcel: Wells reduced headcount by 6,400 in the fourth quarter, and more cuts are expected this year. The bank plans to dramatically reduce its real estate footprint, scaling down its office space by up to 20%. A downsizing of its branch network is well underway. Wells Fargo had about 5,000 branch locations at the end of 2020, down from 6,600 in 2009, and it plans to close 250 more this year.

Ambitious as it is, the plan will likely leave Wells Fargo running in place insofar as overall growth is concerned—until it can satisfy regulators that it has fully reformed. The bank and its regulators refuse to comment on a timeline for the removal of the asset cap, citing legal constraints. “I understand people’s desire to hear exactly what the company can look like when we get beyond these things,” Scharf tells Fortune. But until his risk-control regime impresses the authorities, “beyond” will have to wait.

Some 20 years ago, while living in Chicago as CFO at Bank One, Scharf began taking guitar lessons. During the pandemic lockdown, he reconnected with his old instructor, and Scharf now studies with him over Zoom once a week, playing blues and rock. “It’s creative,” he enthuses. “The idea that you can pick up [a guitar] and make something out of it, differently than someone else who you hand the same device to, to me is just an extraordinary thing.” Scharf is committed to coaxing something new and harmonious out of Wells Fargo. But it’s going to take quite a while longer to get the instrument back in tune.

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Digging smaller, deeper wells

To survive its current woes and keep shareholders happy, a big bank plans to downsize.

With regulatory sanctions limiting its ability to grow, Wells Fargo has been shedding “noncore” units to focus on its most promising businesses. Here are the units that CEO Charlie Scharf hopes will help the bank thrive again in better times.

Consumer and small-business banking and lending

2020 revenue: $34 billion

Heads: Mary Mack and Michael Weinbach

Wells Fargo has one of the largest home mortgage businesses in the U.S., and this division is Wells’ biggest business segment by far. Falling interest rates have hurt the division’s revenue as of late. But the bank’s $400-billion-plus consumer loan portfolio also includes strong auto-financing and credit card businesses that command higher interest rates and should perk up as the economy improves.

Wealth and investment management

2020 revenue: $14.5 billion

Head: Barry Sommers

Wells Fargo managed $2 trillion in total assets at the end of 2020—though it plans to sell its $600 billion institutional asset management business, the better to focus on individuals. Wells’ wealth management team has historically served “mass affluent” and middle-class customers as well as richer ones. Scharf sees the division synergizing with consumer lending: “Huge numbers of customers who come into our branches have money to invest,” he says.

Corporate and investment banking

2020 revenue: $13.8 billion

Head: Jon Weiss

This division includes a $110 billion commercial real estate portfolio and a big stake in “C&I” loans (financing for businesses buying equipment and machinery). Overall, the bank’s loans are split nearly 50/50 between commercial and consumer lending. While it’s not a household name in the field, Wells Fargo is still the ninth-biggest investment bank in the U.S., according to Dealogic, and Scharf’s team sees that as a business in which it could win market share.

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Will life get better for banks?

Banks have been slow to recover from the COVID recession—and the road ahead looks rocky.

Financial firms, banks included, had a rough 2020 that wasn’t reflected by the country’s soaring stock markets. (The S&P 500’s financials sector lost 4% in 2020, compared with a 16% gain for the broader market.) The coronavirus pandemic forced America’s largest financial institutions to retool on the fly, leaving them scrambling to support their commercial and consumer borrowers, and undermining the income they made from interest rate spreads. Though sentiment has improved, 2021 looks like it will be far from a stroll.

A slow, uneven recovery

Some key indicators for banks, including mortgage demand and deposit growth, have remained strong. A resurgent bull market has driven trading revenues, and more economic stimulus seems likely. But high unemployment and lingering woes for small businesses remain burdensome headwinds, with no clear end in sight until COVID-19 abates. In the short run, big banks will emphasize their profitable—and thus far, relatively pandemic-proof—wealth management and investment banking businesses.

Rock-bottom interest rates

The Fed returned rates to near zero to deal with economic fallout from the pandemic, and it has signaled that they could remain there for years to come. That puts a ceiling on the rates banks can charge customers and reduces “net interest income,” a key driver of revenues. (It’s the difference between what banks earn on loans and what they pay out on deposits.) In the near term, expect banks to step up loan volume to make up for what they’re losing in interest, especially in the mortgage space.

New management in Washington

Bank leaders won’t miss the volatility and unpredictability of the Trump administration, but they may find themselves feeling nostalgic for some of its policies. President Biden will likely seek a reversal of Trump’s pro–Wall Street deregulatory agenda, as well as the undoing of some tax cuts for corporations and high-net-worth individuals. Look for banks to team up with regulators to lay ground rules for new developments in fintech (like cryptocurrencies and digital payments) and capital markets (such as direct listings and SPACs).

This article appears in the February/March 2021 issue of Fortune with the headline “Busted stagecoach: Can Charlie Scharf—or anyone—fix Wells Fargo?”