Q1 2021 Wells Fargo & Co Earnings Call
Good morning, My name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Wells Fargo first quarter 'twenty 'twenty One earnings conference call. All lines have been placed on mute to prevent any background noise. After.
The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Please note that today's call is being recorded I would now like to turn the call over to John Campbell Director of Investor Relations Sir you.
You may begin the conference.
Thank you Regina good morning, everyone. Thank you for joining our call today, where our CEO, Charlie Scharf and our CFO like Santa must Simo will discuss first quarter results and answer your questions. This call is being recorded.
Before we get started I would like to remind you that our first quarter earnings materials, including the release financial supplement and presentation deck are available on our website at Wells Fargo Dotcom.
I'd like to caution you that we may make forward looking statements during today's call that are subject to risk and uncertainties.
Actors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the form 8-K filed today containing our earnings materials.
Information about any non-GAAP financial measures referenced including a reconciliation of those measures to GAAP measures can also be found in our SEC filings in the earnings materials available on our website.
I'll now turn the call over to Charlie.
Thanks, John and good morning, everyone I'll make some brief comments about our first quarter results the operating environment and update you on a few important topics I'll then turn the call over to Mike to review the first quarter results in more detail, we earned $4 $7 billion or $1 five per common share in the <unk>.
First quarter as you can see these results included a 1.6 billion dollar decrease in the allowance for credit losses.
Higher net interest income more than offset a decline in net interest income and expenses are just beginning to reflect progress on our efficiency work. The impact of this work should increase in the latter half of the year.
Credit quality continued to outperform our expectations with charge offs at historical lows with low interest rates and tepid loan Japan demand remained headwinds for us during the quarter and we continue to manage within the constraints of our asset cap, which require us to anticipate the inflows from government stimulus effects of QE.
And additional physical actions, which could impact our balance sheet.
Overall economic trends improved during the quarter and while there are risks, but likelihood of improvement continues to increase and you certainly see this in the markets equity markets are rising spreads have tightened and liquidity is strong additional fiscal stimulus continued monetary support and the acceleration of vaccine availability.
Provide a path to a more complete reopening and further economic expansion U S. GDP growth is on track to surpass its pre pandemic peak by the end of the summer and is expected to increase in 2021 by more than any.
Since 1984 overall the consumer is strong.
There are inconsistent fees, which I will address later consumer net worth was up 10% in 2020, hitting a new all time high of 130 trillion personal.
Personal savings is approximately 1.3 trillion dollars greater today than it was a year ago, it's expected that more than one trillion dollars will be spent over the next five months and this does not include the impact of president buttons proposed initiatives.
Wells Fargo customers excuse me specifically.
As of last week over $46 billion has flowed into our customers' deposit accounts related to round two and round three of federal stimulus payments and we estimate that half has been spent and half remains on their accounts for our customers who received federal stimulus payments their median deposit balance was up 80% from.
A year ago and from all of our customers, including customers, who did not receive stimulus payments median balances were up 62% from a year ago.
Weekly debit card spend was up every week compared to a year ago. During the first quarter the year over year increase accelerated in March in mid March due to the impact of last year's Covid related restrictions and the impact of stimulus payments and was up approximately 70%. During this week last year of the quarter compared to a year.
But was up 35% compared to the same week in 2019.
We are seeing increased consumer spending activity in both travel and restaurants to categories that are particularly suppressed since the onset of COVID-19, specifically for travel for the week ended April 2nd debit card spend was up 422% compared to 2020, but was still down 4% compared to 2019.
Consumer credit card weekly spend continues to strengthen over the course of the first quarter as well and ended up and ended the quarter up approximately 70% during the last week of the quarter compared to a year ago, but importantly up 8% compared to the same week in 2019.
Businesses remained strong as well most clients still have strong cash positions and line utilization remained low day.
And for consumer products is high and dealer inventory levels are meaningfully lower versus historical levels. After declining during the second half of the year commercial loan balances seem to have stabilized and if the economy continues to pick up we would expect to see increased loan demand from our commercial customers in the second half of the year with.
Vaccine distribution accelerating I'm hopeful that we will be shifting to a more normal way of life soon but there are still many that will continue to need help as not all have benefited equally during the recovery throughout the pandemic. Our focus has been providing support for our customers and the communities. We serve and we continued those efforts.
During the first quarter since the pandemic began we've helped $3 7 million consumer and small business customers by deferring payments on waiving fees. In addition to our $10 5 billion of PPP funding in 2020 in the first quarter. We funded approximately 70000 loans totaling $2 8 billion under the law.
This round of the Paycheck protection program.
This year, we focused even more on small and diverse businesses and our average loan size was $40000 down from $54000 last year, we had the lowest average loan size amongst our large bank peers, 96% had been for businesses with fewer than 20 employees, 43% have gone to businesses.
And either low to moderate income areas, where majority minority.
Infrastructure totaling more than $6 billion between this year and last year.
We committed last year to donate approximately $420 million of our fees from the PPP program and established are open for business fund. We're in the process of distributing these funds through a combination of C. D F EIS and not for profits that serve diverse small businesses to date, we have distributed over $125 million and are working to accelerate.
Rate distribution of the remaining funds, we estimate that these actions have protected more than 66000 jobs and hope to make an even more substantial impact with the funds remain.
As we announced yesterday, we have invested in 11 black minority owned deposit institutions as part of our $50 million commitment to support M. D is we expect to compete we expect to complete our investments in another two by the end of the second quarter.
And as I mentioned before we processed over $46 billion of customer deposits related to the federal stimulus payments through last week, and a cash stimulus payments for non customers without charging fees. While we're proud of these actions. We know there is still more to do lower income families and individuals as well as minority owned small businesses will continue.
To need support and we will continue to look for ways to help.
Climate change is one of the most urgent environmental and social issues of our time and last month Wells Fargo announced a major step in our efforts to support the transition to a low carbon economy by setting a goal of net zero greenhouse gas emissions, including financed emissions.
By 2050, we committed to publish data on our financing emissions and set interim goals as we work closely with our clients and this transition. We also released our first task force for climate related disclosure.
Sorry Task force on climate related financial disclosures report in the first quarter, which provides an update on our progress managing climate related risks and opportunities.
Return to make some comments about our strategic priorities last quarter in my shareholder letter I discussed the <unk> and in the shareholder letter I discussed the actions, we're taking to improve our performance and we're making good progress we continue to prioritize the work necessary to build the appropriate risk and control infrastructure and it remains our top priority.
As a reminder, this is a multiyear journey progress may not be a straight line and while we still have significant work to do your dish diligently doing what's necessary issue by issue, it's hard to share specifics given the nature of the work, but I believe we're making progress and we're confident in our ability to complete the work.
In terms of business exits I highlighted on the call last quarter that we were focusing our efforts on our core scaled businesses and after rigorous reviews. We were in the process of exploring options for businesses that were not consistent with our strategic priorities, Mike will cover the financial details, but in the first quarter, we announced agreements to sell.
Wells Fargo asset management, and corporate Trust services businesses and both are expected to close in the second half of this year in.
In addition, we completed a portion of the sale of the student loan portfolio and we completed the sale of the majority of the remaining portfolio recently.
We're pleased that we have found buyers who we believe have a similar approach to service and are focused on providing clients with innovative products and solutions. These announcements are an important step to simplifying our business, allowing us to focus on our core strategic priorities our work to simplify how we operate and create a more efficient organization.
<unk> continues we made progress on our branch staffing and network optimization plans as we calibrate.
For changing customer behaviors and more traffic migrates to digital channels, we continued to execute on our commercial bank from transformation as we optimize our coverage and operations model consolidate lending platforms and automate and standardize many manual processes such as Onboarding a customer.
Pain point, which has been key for us.
And across the entire enterprise, we continue our ongoing efforts to reduce management layers to speed decision, making and reduce unnecessary bureaucracy.
We are also focused on moving our business forward a few examples on the consumer banking side, we're accelerating our investments in digital with a particular focus on delivering a simple easy to use best in class customer experience.
For the most used mobile App features we're also simplifying enhancing our product line, including launching clear access banking, our low cost no overdraft product and we've opened over 500000, new accounts since launch since it launched last fall and this summer we will be improving the benefits of our portfolio by Wells Fargo.
Checking customers.
As I've spoken about before we're underpenetrated in credit card, given our customer footprint and we're working on developing a significantly improved value proposition that we can introduce to the market and on the commercial side, we're going after the middle market investment banking opportunity in a different way than we have previously this includes <unk>.
Accountability investments in talent name by name client prioritization and joint account planning.
Mike will discuss capital more on his remarks, but our position remains extremely strong we repurchased almost $600 million of common stock on the quarter and based on the restriction restrictions still in place for the second quarter. We had the capacity to return approximately one 8 billion to shareholders. As a reminder, our asset cap limits our ability.
To deploy excess capital to our customers returning capital to shareholders remains a priority and we look forward to resuming capital returns under the stress capital buffer buffer methodology, starting in the third quarter.
Last quarter I discussed constraints to achieving return on tangible common equity greater than 10% and then around 15% I should note that those returns did not include credit loss reserve releases, the asset cap and capital return restrictions continue but the progress on vaccination distribution ongoing monetary.
The additional fiscal stimulus and higher interest rates are helpful.
The midst of a multi year transformation and I'm confident that our operational and financial performance will continue to benefit from the progress we're making.
And by acknowledging that we've asked so much of our entire wells Fargo team and I'm proud of all the work they've done support to support our customers and the communities. We serve we will continue to do all we can to support an equitable and equitable recovery and help those most in need of our support I will now turn the call over to Mike.
Thanks, Charlie and good morning, everyone.
Charlie highlighted many of the ways, we're actively helping our customers and communities, which we highlighted on slide two so I'm going to start with our first quarter financial results on slide three net.
Net income for the quarter was $4 7 billion or $1 <unk> per common share revenue grew from both a year ago in the fourth quarter as the decline in net interest income was more than offset by higher noninterest income.
Our first quarter results included a $1 6 billion dollar decrease in the allowance for credit losses, and as a reminder, in the first half of last year, we built reserves by a total of $11 5 billion and.
And we had $18 billion of allowance for credit losses at the end of the first quarter.
We completed the sale of approximately half of our student loan portfolio in the first quarter, which resulted in a $208 million gain and a $104 million goodwill write down that we closed the majority of the remaining portfolio just this past weekend.
Our effective income tax rate in the first quarter was six 4%, which included net discrete income tax benefits related to closing out prior year's tax matters.
Our capital and liquidity remains strong our CET one ratio increased to 11, 8% under the standardized approach and 12, 6% under the advanced approach, we repurchased $17 2 million shares of common stock for a total of $596 million and we had $33 billion of excess cash.
<unk> over our CET, one regulatory minimum at quarter end, our liquidity coverage ratio was 127%.
Turning to slide five which summarizes the financial impact of the business sales. Charlie highlighted we had included we have included the 2020 revenue and expense associated with the businesses on the slide while they represented a little over 3% of 2020 revenue. The pre tax earnings is much smaller note that the table does not include the credit cost is.
Associated with the student loan portfolio, which can have a meaningful impact on the business is P&L and the expected expense reductions related to this business are incorporated into our $53 billion outlook for the year.
Also the expenses we've included related to the corporate Trust and asset management businesses are the total expenses for those businesses.
Some of those expenses May continue after we close the deals as we have transition service agreements and roughly 10% to 20% of those expenses are items, such as corporate overhead that will take time to manage out of the expense run rate.
In terms of segment reporting the asset management business is now reported in corporate <unk>.
Given that we announced the sale of the corporate Trust business late in the quarter that business is still included in commercial banking and we will move to the corporate sector in the second quarter.
Turning to credit quality on slide six our net charge off ratio in the first quarter declined to 24 basis points. The lowest it's been in a number of years and down 14 basis points from a year ago.
Our losses have trended significantly better than our expectations due to the impact of forbearance programs and the unprecedented amounts of government stimulus.
While there's still a lot of uncertainty there are encouraging and improving trends related to commercial credit quality commercial net loan charge offs declined $159 million from the fourth quarter to 13 basis points, the lowest loss rates since the third quarter of 2019.
The improvement was broad based with declines in all asset types, including $116 million of lower commercial real estate losses as.
As we have done since the start of the pandemic. We continue to closely monitor our exposure to retail hotel and office property types. The reopening of the economy has had a positive impact on retail hotel as cash flow levels have begun to improve that said stress remains in retail and retail in particular was the driver of charge offs in the first quarter.
Clearly there are negative demand trends in many office markets. The office portfolio continued to perform well and we're not seeing any widespread stress on the portfolio as of now.
Consumer net charge offs declined $221 million from a year ago with improvements across all asset types, but increased $88 million from the fourth quarter with higher losses in other consumer loans and credit card, but still can.
But still continued to be low.
Nonperforming assets declined $692 million or 8% from the fourth quarter, driven by lower commercial non accruals, primarily due to declines in energy and commercial real estate non accruals.
$10 7 billion of our consumer loan portfolio, excluding government insured loans remaining COVID-19 related payment deferrals at the end of the first quarter, we stopped offering non real estate related COVID-19 deferrals in the fourth quarter and 98% of the balances that were still in deferral at quarter end were real estate related loans.
Loans that have already exited COVID-19 deferrals have continued to perform better than we anticipated with over 95% of the balance is current as of the end of the first quarter.
So we're not so we're still not all the way back to pre pandemic levels. We've continued to adjust our credit policies to reflect better economic conditions.
Due to the reserve release in the first quarter, our allowance coverage ratio declined from the fourth quarter, but was up 90 basis points from a year ago similar to the fourth quarter. While observed performance has been strong there was still a significant amount of uncertainty reflected in our allowance level at the end of the first quarter and will continue to assess the level of allowance if the economic trends continue.
We would expect to have additional reserve releases.
On slide eight we highlight loans and deposits.
Our average loans declined for the third consecutive quarter and were down 9% from a year ago. The decline from the fourth quarter was driven by lower residential real estate loans due to continued high prepayments and re securitization of loans, we purchased out of mortgage backed securities last year real estate loan balances have been impacted by actions. We took early last year to discontinue chorus.
Bond at Nonconforming originations in home equity lending, we have started to originate correspondent nonconforming loans again and should start to see more volume from this channel over time <unk>.
Commercial loans were relatively stable from the fourth quarter, but were down 8% from a year ago. When there was a strong borrower draw activity during the early stages on the pandemic.
Average deposits grew $55 5 billion or 4% from a year ago and 1% from the fourth quarter with growth in our consumer businesses in commercial banking, partially offset by declines in the corporate investment banking business corporate Treasury.
Reflecting targeted actions to manage under the asset cap.
With continued deposit growth, we have been actively managing down our long term debt outstanding we tendered for $6 8 billion of senior and subordinated debt in the first quarter and along with maturities total long term debt declined $29 6 billion or 14% from the fourth quarter and was down 23% from a year ago.
Turning to net interest income on slide nine.
Net interest income declined 5% from the fourth quarter driven by two fewer days unfavorable hedge ineffectiveness accounting results continued repricing of the balance sheet and lower loan balances. These impacts were partially offset by the benefit of lower long term debt.
On the call last quarter, we provided our 2021 net interest income outlook, we still expect net interest income to be flat to down 4% from the annualized fourth quarter level of $36 8 billion as the benefit of a steeper yield curve has been largely offset by softer than anticipated loan demand low utilization rates on commercial loans and <unk>.
Easter than expected prepayments on residential mortgages.
That said, it's important to recognize we're still early in the year and our ultimate results for the year will remain dependent on on how rate and lending environments evolve.
If rates follow the current forward curve in commercial loans grow as the economic recovery gains momentum, which is expected by the industry. We would expect NII to land near the high end of the range. However, if loan demand proved softer than expectations, our total loan balance or and our total loan balance remains flat compared with where we ended the first quarter.
We would expect to finish closer to the middle of the range.
We continue to closely monitor the evolving trends across each of the major drivers and will provide updates to our outlook as the year progresses.
Turning to expenses on slide 10.
Noninterest expense increased 7% from a year ago, driven by increased personnel expense deferred comp expense reduced personnel expenses in the first quarter of last year by $598 million.
As a reminder, late in the second quarter of last year, we changed how we hedged differed compensation, which reduced the volatility on our reporting for this item starting in the third quarter of last year.
Personnel expense also increased from a year ago from higher incentive and revenue related compensation, including the impact of higher market valuations on stock based compensation, which was partially offset by lower salaries.
All other expense was down 4% from a year ago, driven by lower professional services expense due to efficiency initiatives.
Our expenses declined 5% from the fourth quarter is seasonally higher personnel expense was more than offset by lower restructuring charges on operating losses.
Our 2021 expense outlook is unchanged at approximately 53 billion with lower annualized expenses towards the end of the year as we said on our last earnings call our outlook excludes restructuring charges and the cost of business exits such as the $104 million goodwill write down related to the sales student loans.
We assumed $1 billion of operating losses in the outlook.
In the first quarter included $213 million of operating losses, but as you know these expenses can be lumpy, especially as we continue to resolve legacy issues.
We also assumed approximately $500 million of incremental revenue related expenses as these have been higher than expected. So far this year due to strong equity markets, which is a good thing as.
As revenue more than offsets any increase if the current market level holds we would expect incremental revenue related compensation. This year to be approximately $800 million, but we are stoller on the year and we'll update you as the year progresses, we are continuing to execute on efficiency initiatives and additional initiatives continue to be identified embedded.
Turning to our business segments, starting with consumer banking and lending on slide 11, net income increase from a year ago, driven by revenue growth in home lending and lower provision for credit losses, consumer and small business banking revenue declined 6% from a year ago, primarily due to the impact of lower interest rates and lower deposit related fees. The decline in deposit related fees was due.
Given by higher average checking account balances and higher COVID-19 related fee waivers, we expect a high level of pay paycheck protection program loan forgiveness in the second quarter, which would result in higher net interest income, but as a reminder, the fees on those loans originated last year are being donated so youll see a corresponding increase in donation expense. So.
It won't impact the bottom line.
Home lending revenue increased 19% from a year ago on higher retail originations on GAAP on gain on sale margins. The 12% increase from the fourth quarter was primarily due to higher mortgage banking income related to the recent re securitization of loans, we purchased from mortgage backed securities last year and an increase in retail originations credit card.
Revenue declined 2% from both the fourth quarter and a year ago due to lower loan balances, reflecting elevated payment rates we continue.
To make progress on executing our efficiency initiatives in our branches transaction volume continues to shift away from our branches with 82% of consumer and small business deposits in the first quarter done digitally up from 76% a year ago. We have closed 395 branches since the first quarter of 2020, including 90 branches in the first quarter of 2020.
John we are on track to complete the remainder of the 250 branches. We expect to consolidate this year. We've also continued to adjust staffing levels, including the reductions related to branch closures importantly to date, we've been able to make these adjustments, while reducing customer attrition improving client satisfaction.
Turning to some key business drivers on slide 12, our first quarter retail mortgage durations origination volume was the highest since 2016 total mortgage originations increased 8% from a year ago as a $6 7 billion declining correspondent originations was more than offset by a $10 $5 billion of higher <unk>.
<unk> originations.
Total mortgage originations declined 4% from the fourth quarter due to the seasonal slowdown on the purchase market and as a growth and as growth in retail originations was more than offset by decline in correspondent originations, while the mortgage origination market is expected to decline in the second quarter as the anticipated increase in the seasonal purchase market is expected to be more than offset by.
The decline in recent refinancings, we currently expect our origination volume to be robust as we have strong demand on the retail channel and we continue to build up volume in the correspondent nonconforming market.
Auto originations increased 32% from the fourth quarter, and 8% from a year ago, and a strong market with supply shortages for both new and used cars with improving economics with the improving economic forecast. We are gradually returning to pre pandemic pre pandemic underwriting policies turning to debit card purchase volume increased 3% from seasonally strong fourth.
Quarter levels debit card volume increased 20% from a year ago, reflecting higher consumer spending due to stimulus payments and improving economic conditions and credit card purchase volume declined from seasonally high fourth quarter levels.
Volume was up 6% from a year ago as lower year over year volume early in the quarter due to continued reductions in travel and entertainment spend was more than offset by growth in March.
Commercial banking net income was up from both the fourth quarter and a year ago due to decline in the provision for credit losses.
Middle market banking revenue declined 20% from a year ago, driven by the impact of lower interest rates as well as lower loan balances from reduced client demand and line utilization assay.
Asset based lending and leasing revenue grew 7% from a year ago, driven by higher net gains on equity securities and our strategic capital business as first <unk> first quarter 2020 included impairments due a decline in market valuations.
This was partially offset by lower net interest income in first quarter 2021 from lower loan balances noninterest.
Noninterest expense increased 4% from a year ago, primarily driven by higher technology spend partially offset by lower head count and consulting expense related to efficiency initiatives.
Average loans declined for the third consecutive quarter on down 19% from a year ago as Covid related draws were repaid in loan demand and credit line Utilizations remain weak.
Average deposits were up 8% from a year ago as stimulus programs have injected significantly significant liquidity into the market.
Turning to the corporate investment banking business on slide 14, and banking revenue declined 6% from a year ago, driven by the impact of lower interest rates and lower deposit balances and grew 7% from the fourth quarter.
The linked quarter growth was driven by a 20% increase in investment banking revenue with strong debt and equity originations, partially offset by decline in advisory fees from strong fourth quarter levels.
Commercial real estate revenue grew 5% from a year ago, primarily due to improved <unk> gain on sale margins driven by spread tightening as well as an increase in low income housing tax credit income.
Market revenue increased 19% from a year ago and strong client demand for asset backed finance products other credit products in municipal bonds, which was partially offset by lower demand for rates products and lower equities and commodities revenue.
Average deposits declined 27% and average trading related assets were down 14% from a year ago, primarily driven by continued actions we've taken to manage under the asset cap.
As I mentioned earlier wealth and investment management results exclude Wells Fargo asset management, which is now reported in corporate and prior periods have been revised net.
Net income declined 18% in the business from the fourth quarter revenue grew reflecting higher asset based fees and higher retail brokerage transactional activity expenses were up due to seasonally higher personnel expense.
Net income net income declined 8% from a year ago, reflecting the impact of low interest rates on net interest income, partially offset by the higher asset based fees.
We ended the first quarter with record client assets of two trillion up 28% from a year ago, reflecting strong market performance net flows into advisory count accounts improved in the first quarter from a year ago in the fourth quarter.
Average deposits were up 19% from a year ago and average loans increased 4% from a year ago, largely due to customer demand for securities based lending offerings.
Slide 16 highlights our corporate results, which included $1 2 billion of lower net interest income from a year ago, primarily due to the impact of lower interest rates offset by a $1 4 billion increase in noninterest income.
First quarter 2020 included equity impairments on our affiliated venture capital and private equity partnerships.
And results in the first quarter of 2021 included a $208 million gain on the sale of the student loans portfolio non.
Noninterest expense declined from the fourth quarter on lower restructuring charges and we will now take your questions.
At this time, if you'd like to ask a question simply press star one on your telephone keypad. Our first question comes from the line of Scott <unk> with Piper Sandler.
Good morning, guys. Thanks for taking the question.
I guess first one I wanted to ask about is on on NII guidance. So specifically in terms of premium amortization. There is about a $250 million delta between today's level of premium am and where it was a year ago.
Does that last year's level of about $360 million or so does that represent in your mind, a pretty typical level and then kind of how quickly does it move back down to there.
Hey, Scott, It's Mike I think you really got to remember what happened last year that would've impacted premium am or items a bit of a abnormal quarter as you've sort of got to the end of the quarter I think from here I think you know based on what we're seeing premium am or probably has peaked in the <unk>.
First quarter and starts to trend down from here, how long it takes to sort of get to a kind of normalized view I think we will see over the next we'll have we'll have a better clarity on that I think over the next couple of quarters.
We would expect it to start trending down from here.
Okay perfect. Thank you and then just separate question. So the lending recovery kind of a big question for you guys and others I guess, just regardless of what happens with industry trends, maybe if you could speak to where you feel you guys are getting your fair share of of loan growth and where where do you think you might still need to do better I know you had.
For example, credit card is being very underpenetrated, but just curious to hear broader thoughts there as well.
Yeah look at it.
Yeah.
You'll probably hear from a lot of folks you know the demand across really most most commercial client segments has been pretty weak now and probably has stabilized here or it seems to have stabilized over the last couple.
A couple of months, but.
But I think we'll sort of see how that progresses into into later this quarter I think as we sort of look at where the opportunity is as the economy and the momentum in the economy really starts to take off more it's really across the board in our core client segments, you know in our middle market, our commercial banking more broadly.
I think there'll be opportunity in kind of the core large corporate segment, maybe to a lesser degree, but we do really expect to see that commercial banking demand start to pick up as the economy picks up and so I would sort of highlight that I think Charlie has talked a lot about the credit card space I think there'll be growth there.
There, but given sort of the relative size of our portfolio to the balance sheet I think that the impact there will be will be modest.
To the overall size of sort of our loan portfolio.
Alright, Thats perfect. Thank you very much for taking the questions.
Your next question comes from the line of Ken Houston with Jefferies.
Thanks, Good morning, guys I, just wondering Mike if you can kind of just a re codified that.
Expense.
Commentary for the year, you said the 53 billion number and then you also talked about the revenue related lift of about 800. So is that just the reset to 50 853, eight all things equal I just wanted to make sure. We know what that includes and doesn't include and how you expect it to traject from here. Thanks, Yeah sure Ken Thanks for the question so.
If you recall, what we how we sort of set the $53 billion target I'll, just give you a little bit of the background. There. So we covered last quarter. So embedded in that 53 billion target was an increase of about a half a billion dollars of revenue related expenses.
And about $1 billion of operating losses sort of embedded in there and what we excluded from there.
Is the cost to exit the businesses, which you saw a little bit this quarter, the $100 million or so this quarter for <unk>.
The student loans business and any restructuring charges that come.
Come through come throughout the year.
So as you sort of think about the go forward piece of it the $53 billion, we still feel really good about I think that whats, putting a little bit of pressure on that as the incremental 300 million of revenue related expense.
So I don't think it's a foregone conclusion that we're going to be $300 million higher but I do think that's putting pressure on the $53 billion. So it's possible, we're a little over that if the revenue related expenses hold.
Would you out of the way it should be a good thing right because that means there's plenty of revenue on the other side of that to offset it.
And that was going to be my follow up Mike, which is what the revenue uplift.
<unk> already seen in the first quarter or is it things that you feel better about going forward that we haven't necessarily seen yet, but you're now anticipating a better revenue environment.
We did see a little bit of it in the in the first quarter as equity markets outperformed I think everyone's expectations.
If those market levels hold throughout the rest of the year, that's when you'll see the rest of that.
Revenue related comp come in and so you'll see the revenue associated with it with throughout the rest of the year.
Okay, and then Im sorry, just last one on it do you still expecting the end of year on expenses to be lower than the beginning as you had said also in the fourth quarter that trajectory still holds directionally.
Yeah, Directionally, that's right, we will get more benefit from the efficiency initiatives that we're executing later in the year so that'll.
That will sort of impact the run rate and I would just point out and remind people that we do have a lot of seasonal expenses that hit the first quarter and so you sort of need to normalize for those as you go out for the rest of the year as well.
Great. Okay. Thanks, Mike.
Your next question captured the line of Erika Najarian with Bank of America.
Hi, Good morning. My first question is a clarification question from Mike.
Clearly the market responded to this comment I think you noted that is.
Loan growth was going to be a continuing tough this year that you would be NII would be down 2% from annualized fourth quarter.
I think the market is taking that youre, bringing on your NII guide.
For the year and I just wanted to make sure we had interpreted that correctly that it seems like a more realistic outlook for NII now with the curve Steepening and perhaps green shoots on loan growth is flat to down 2%.
Yes, no. Thanks, Thanks for the question Yeah, our guidance still holds that down.
Somewhere between flat to the fourth quarter run rate to down down, 4% and consistent to what we said in the first quarter to get to the top of the range, we needed to see we need to see some some loan growth that's still the case.
Although rates have offset some weakness that we've seen so far.
And I think to get to kind of the middle of the range.
We really need rate that kind of hold where they are.
And we won't need a lot of loan growth from here to hit that but I think there's plenty of scenarios that you can sort of think through that put you somewhere else in the range, but what we tried to give you a couple kind of realistic data point relative to where you where we think what's possible in terms of where we'll land within the range.
Got it very helpful.
My second question is for Charlie Charlie clearly the market is reacting to.
It seems to be a brighter revenue picture for wells and continued progress on your transition on turnaround and it feels like it's shrugging off typically your stock would be up 3%.
You're saying that expenses could slip higher and clearly the market doesn't care given the revenue outlook I guess I'm wondering as we look for Q2 2021.
Hearing you loud and clear on some of the investments that you've already planning from making the consumer side.
What are the puts and takes in terms of greater.
Greater bottom line benefit from the second half of that 8 billion on cost savings that you've identified.
Versus you know on economic picture that is clearly brighten even over the past three months in other words should we think of your expenses, having a higher floor lets say 50 to 51 billion as we look out to 2022 and you know obviously that would come with greater.
TS as revenue continues to improve.
Hey, Thanks, Eric listen.
I don't think Theres anything more but we're going to say in terms of what we would expect expenses to be going forward beyond what Mike covered in his remarks, and what we've said on last quarter. When we look at the.
The opportunities to continue to drive efficiency in the company, which is really all about just running a better company.
<unk>.
Those continue to be extremely significant we laid out just on a gross basis, what we thought those opportunities were in.
Our degree of confidence in being able to achieve that given the level of specificity.
We are that we had on the line of flight and I think that still holds true and over time, we would.
We expect to continue to find more kind of peeling the onion back and at the same time we are.
Investing in the business and it's on the consumer side, it's on data.
It's.
Across the home lending platform the card platform our products on the consumer bank, what we're doing in our middle market business with technology account on when I can go on and on of all the things that we're doing and so I think that's all embedded in our statement that we would expect the fourth quarter.
In order to get to 53 billion, just would clearly be a lower run rate than the 53 billion itself and that as we look forward. We hope to see net expense reductions as we continue to drive efficiency, while continuing to add investments into the business. So.
Hopefully that's responsive to what you were asking.
Thank you Charlie strong message this quarter appreciate it.
Your next question comes from the line of Betsy <unk> with Morgan Stanley.
Hi, good morning.
Hi, Betsy.
I had a question around how you're thinking about the dividend and the buybacks we know that.
Post CCAR stress test, assuming you pass that but theres, a little bit more room for you to do both of those things. So maybe you could give us a sense as to how you would approach.
On the buyback on the dividend decision post stress test and in particular are you know what kind of timeframe, you're thinking about that you would.
Need to optimize the capital structure down to your management targets.
We're sitting with a lot of excess capital today is in New York.
Sure, Mike what am I, starting on you can pick up.
I guess, let's start with the dividend.
It's not lost on us that our dividend.
Is quite low.
Relative to where we're earning today and.
As we look forward and we all know that.
Consequently <unk>.
Two things, it's a consequence of the restrictions that were put in place.
By the fed in terms of what those limitations were but it was also.
Point of view that we had which was we.
We didn't want to have to.
If the environment, even would get worse from that point in time be in a position to.
I have to reduce the dividend again, so we would like to in.
Increase the dividend to a more reasonable level.
Think about it as targeting a payout ratio, excluding reserve releases and things like that.
And then beyond that it is investment in the business, it's deploying our capital for our clients on the difference being buybacks ultimately just given the amount of excess capital that we have today and Mike you can talk a little bit about the timing.
Yes.
As you sort of think about timing, obviously, we've got a lot of.
Components to sort of think about there, but you sort of think about it over the next year or so.
Our year I think that sort of gets you probably a reasonable reasonable timeframe sort of work our way down.
Assuming.
As we've been told that the restrictions come off and we're back to sort of a more normal stress capital buffer regime.
And so I would sort of think about it over the over that timeframe. That's in terms of what the timing looks like.
And I'll take some of that dependent upon CCAR in the results and how that all plays out.
Got it and on the payout ratio I mean, the dividend had been on the higher end of the peer group at your peer groups running somewhere between.
30%, 40% and that you know.
I think what you mean by reasonable I'm not asking you to tell me what ratio, but I guess I'm asking you.
Is that the right peer group or would you say you know you should widen your aperture a little bit and go more like 25 to 40, bringing some of the.
You know G SIB in there.
Yeah, No look I think I think you know as you sort of think about the payout ratio over time I.
I think I think we'll sort of come up.
And obviously, it's going to be a board decision Betsy in terms of what what the what the dividend trajectory sort of looks like but but it's not lost on us that we need to sort of being a reasonable sort of payout range over.
Over time, and obviously, that's going to be dependent upon what we think the earnings capacity is going to look like.
And so I think youll see that sort of come through over over overtime as we sort of.
More ability to distribute capital.
And I guess, what I would just add debt Betsy just real quick is I think the way I think the numbers and whatnot. The way you talked about it is generally the right way to think about it in terms of how I mean number one we were.
Clearly high.
Relative to what others were in in terms of what probably makes sense for us that's not the way we're thinking about it more long term range in terms of I think what you talked about is right.
We would like to do something sooner rather than later and that might not get us to where we ultimately want to be but it would be I think an important step.
That's the direction that we're going.
Got it okay. Thanks, so much for the color on trying Mike appreciate it sure.
Your next question comes from the line of John <unk> with Evercore ISI.
Good morning.
Just on the margin front just wanted to see if you could quantify the impact of the hedge and effectiveness on the on the net interest.
Margin this quarter and then separately could you just talk about margin expectations from here just given the rate backdrop.
We're looking on the bottom here and we could see some upside as we move through the rest of the year.
Yes, sure John It's Mike.
Hedge and effectiveness had about a three basis point impact on net interest margin and as you probably know we will get that back negative three basis point impact and we'll get that back over time. These are.
Hedge and effectiveness is sort of a temporary difference that comes back.
Sort of think about the outlook from here.
If the case that we sort of laid out there.
Gets us to the top of our NII range plays out in the way we the way that underpins that then we should we should see some growth in both NII and NIM from here.
And so this hopefully will be either either bottom or pretty close to the bottom as you sort of look forward. If that if that case plays out now as you know NIM can move around a little bit quarter to quarter. So you might have that bounce around but but but the general trajectory should be should be positive.
Okay got it on my Thanks, and then separately on the cost side I know you expect about a one 5 billion that follow the bottom line of the $3 $7 billion. This year can you maybe.
Help us think about the magnitude that could fall to the bottom line of the remaining savings of the remaining $4 3 billion as it received any any additional color you can provide this quarter now that you are beginning to peel the onion as you loaded earlier thanks.
Yeah, John I would just go back to what we just talked about a few minutes ago. As you sort of think about the trajectory of the expenses will get more of that impact.
We go throughout the year and as Charlie just mentioned the run rate as we go into the fourth quarter will be lower.
A lower at a lower rate and as we sort of think about the investments we need to make and and also the additional efficiency initiatives that we that and sort of are working on on on top of what we talked about last quarter play out we will provide more guidance on that as we think about 2022, when we get later in the year.
And this is Charlie is going to add a couple of things if I can.
First of all.
Remind everyone that we have a tremendous amount of work to do.
On our control environment and when you look at the consent orders and all those things and so no. One has asked about that and again, it's there's really very little debt. We can say as I said in my prepared remarks, but we have a lot of work to do we're going on but we're committed to spend whatever is necessary.
And it.
It is a significant amount of money and as we get into next year.
We're not going to lock ourselves into a certain number because we have to spend what's appropriate and so as we get closer we'll be in a better position to give you more color but.
Given its two or three quarters away. It just doesn't make any sense on I also just wanted to just remark. We are very focused on improving efficiency of the company.
But the world is moving really quickly.
We have a lot of work to do in terms of building the businesses and putting ourselves in a position. So that we do create the kind of revenue growth debt, we would expect to be able to get out of this franchise and so.
That's just a reminder, part of reason why we're not being too specific about what we expect beyond this year because as we continue to do our work and plan for the future we need to have the ability to do whats necessary to build the company for the long term, while we still said, we still would expect expenses to be.
Be down on a net basis as we look into the out years.
But more to come as time goes on cash.
Got it alright, thanks Charlie.
Okay.
Your next question comes from the line of David Long with Raymond James.
Yeah.
Good morning, everyone.
Charlie we've talked a lot about the businesses and becoming more efficient if you will and focusing on those debt impact or your strategic priorities are there any businesses that you would like to increase your critical mass in or new business is to get into.
That you think would be.
Helpful to your strategic priorities.
You know I think so when you put them on.
The first point I think when we look at these.
For businesses that we report publicly.
We generally believe that there are more.
Material growth prospects in all of them all from very very different reasons and so.
<unk>.
It's hard to sit here today, and say, whether one should be a little bit higher than the others, but I think we feel great about the positions. We have we feel great about the opportunities in each.
And so.
That should be a right now that's.
An honest assessment of the way we view.
Our businesses.
The second part of the question again I'm sorry.
Just are there any holes or any opportunities that you see to increase critical mass in any specifics on any of those business lines and you know just thinking about any areas, where we had some excess capital could you could you invested there to gain some some some market share enhancer co.
To improve your strategic priority outlook.
Yeah I think.
So I think all the things that we have to do at this point.
Our continuing to build out the products and services that we have at the core of the franchise. I mean, we are we're spending a significant amount of money and I think we've got a significant opportunity.
Given the size of our consumer footprint in terms of what we should be doing from a digital perspective.
The way, we kind of look at it internally is we're in the game, but we're not at all a market leader in terms of what our digital capabilities are we have a very very clear roadmap about what we intend to build out.
And we would start to be bringing those things to market. This year.
But as you know as I said, when we talk about what were spending this year and that 53 billion.
Included in there.
Opportunities like that across all the business and so I think.
You know what.
We're not in a position to buy anything at this point our focus is on.
Spending our money.
Strength in what we have but still believe that there are material opportunities to do that.
Some shorter term on some longer term.
Got it thank you John I appreciate the color.
Right.
Your next question comes from the line of Matt O'connor with Deutsche Bank.
Good morning.
On a long term strategic question.
I'm trying to look past the asset cap on everything.
Think about the investment bank.
The vision for that longer term.
You've got a competitive advantage on the SLR, which is becoming more and more evident.
With the fed exemption going away I think youre about a 100 150 basis points above peers.
Is there a way to better leverage that and then maybe you could just also comment on the equity trading and it's.
It's not huge numbers, but was that impacted by.
Hedge fund out there.
So let me let.
Let me start I think our aspirations.
For our corporate investment bank.
It's actually interesting because actually other than the fact that we're not afraid to talk about it I actually don't think about it being really all that different from what we've been doing over the past bunch of years. When you look at our results. The corporate investment Bank is an extremely important part of the company, that's not because I declare anything different.
All we did is we broke out the results. So you actually saw the importance of it.
On a significant part of it is the corporate bank, but the investment bank as a meaningful portion of it as well and so as we think about what it should look like going forward, we want to continue.
To build out the corporate investment bank as we have been doing in a very linear way not in an exponential way.
Not no moving beyond our risk appetite.
That kind of defines what wells Fargo is.
But just by serving the existing customers that we have.
In most parts of the company on much more holistic way and ultimately over a period of time that does allow you to expand your reach in terms of what your point basis.
And so we're focused on the products and services that.
Our predominantly U S customers want from US we've talked about the opportunities to penetrate.
The corporate investment banking products into the middle market, but.
But it's true of the other significant opportunities on the large corporate market in the U S, where we've got significant treasury management relationships material lending relationships and we're completely underpenetrated.
In terms of what fees are.
For those customers relative to at other institutions. So.
That's the way, we're thinking about it and again I would just stress. It's a it's a continuation of building it out in a methodical way not focusing on using risk in order to grow.
To grow share, but focusing on our customer relationships that we have because we have a shot.
And just to be clear on.
On the equity.
The piece that you're talking about.
Just remember we do have an equity platform, which you can see on our results.
We've just described in terms of our prime brokerage business from sure we'll get a question on it so the answer it now our our exposure in total and our individual exposures I would describe business very consistent with the size of our platform.
We manage it the way we in terms of risk the way, we manage all the risks in the corporate investment banking.
<unk> seen the results over a period of time there in terms of what that means because it's not just what you do with how you do it and so we did have a relationship with our CAGR.
We said publicly that we were always well collateralized, we exited we exited it with.
All of our exposure with no loss and I'll, just add that we had substantial excess collateral after liquidation.
No.
It just says you know again in terms of the way, we think about how we want to manage businesses that have risk in it you know not that will be perfect. All the time.
And as is the case on all events you know there are lessons to be learned both in terms of what we've done and what others have done and we'll factor that into how we manage the business as we always would.
Yeah.
And I would just add just one thing as you sort of think about our growth from here, we are a bit constrained in growing our investment bank with the asset cap restrictions that we have in place given the significant growth that we've seen in consumer deposits in particular, so so as you sort of think about that time line in that approach Charlie said that'll take some time to sort of play out.
Yes, just to reiterate.
As we look at the actions that we've had to take to accommodate all the liquidity that we've seen.
Corporate investment Bank has been the biggest brunt in terms of where we've actually gone to create a bunch of that capacity. So as we think about the future. The first step is actually just getting back to where we were.
So.
And then just to clarify the decline in equity trading year over year is that if it wasn't from archrock doses that distortion from.
On the retirement from <unk>.
I think related to that on a year ago comp was that what's driving that.
It's just it's just activity levels in our business and our business is a little bit different than others, a little bit smaller cash business that sort of I think drove a lot of activity. This quarter. So so I think theres a number of factors sort of driving and no individual item that's significant.
Okay. Thank you.
Your next question comes from the line of Steven <unk> with Wolfe Research.
Yes.
Hi, good morning.
So wanted to start off with a question for Mike just on the fee income outlook, you know lots of moving pieces in the quarter.
But how should we be thinking about the appropriate jumping off point for core fee income.
As we think about the completion of the business sales it may be some normalization and I be in mortgage activity and I know that theres more explicit guidance that's been given on the NII side I was hoping you could maybe unpack how we should be thinking about that core fee income run rate from here pro forma the completion of those sales.
Yes, so obviously, we've given you.
A lot of detail on those sales. So you can model and the impact that that's going to have on on fee income fee income pretty pretty easily as you sort of think about some of the other big line items underneath that.
We got about $2 $8 billion in the quarter for advisory and other asset based fees, primarily in our wealth business and as you sort of think about the key driver there is going to be equity market levels and so you can model.
You think it's going to happen there.
Plus.
Plus flows that may come in as you said another $1 billion three in the mortgage business.
Is a bit cyclical as as you sort of pointed out.
Given what we're what we see at this point for the second quarter, we expect to have robust origination volumes.
In our business.
And so that should be a good.
A good quarter at least and as rates continue to rise you will see some impact there in terms of volume impact there as you look at some of the other pieces you got deposit and lending fees just under a couple of billion dollars. There too I think those are pressured in the short run, but should see some normalization and growth over time, you've got card fees.
Which should grow with economic activity.
And then you've got another couple of billion, that's kind of I'd kind of characterize as more transactional in nature, whether it's commissions or investment banking fees and so I think if you sort of think about it that way you can you can probably come up with a fewer a few drivers that sort of help you model that in a way.
That gives you some it gives you a view on where it's where it's headed.
Thanks for thanks for that color and just from my follow up.
On NII and maybe focusing on liquidity deployment you guys are in a very strong excess liquidity position.
I know that a couple of quarters ago, and I think Mike It was actually your predecessor, who alluded to the fact that your appetite was tepid to redeploy some of that excess into securities just given at that point in time, the curve was flat as a pancake now that we've seen some incremental steepening I was hoping you could speak to what's <unk>.
Contemplated in the NII guidance in terms of excess liquidity deployment and your appetite to actually grow the securities book from here.
Just given your liquidity capacity to do so.
Now as you pointed out we've got plenty of capacity and I think as you look at what happened in the quarter.
Kind of on a marginal way.
Little under $10 billion, we've increased the portfolio. So we've started to.
We'd redeploy a bit of it but as you sort of pointed out although the curve has steepened.
Rates are still relatively low and so we're working to balance sort of the short term carrier, we're going to get by redeploying faster with OCI impacts over time and how to do this in the most effective way in and when we get good entry points, where we're taking advantage of it. So I would I would I would think that were going on.
We're going to continue to redeploy at a.
At a prudent pace as we see opportunities that sort of makes sense from a not just.
On the short term carry view, but also all the other.
All the other items that we need to take into account as we sort of look forward.
That's great. Thanks, so much for taking my questions.
Your next question comes from the line of Saul Martinez with UBS.
You may be on mute.
Sorry about that I was on mute.
Mike I believe you mentioned that the expenses are some of the expenses associated with the asset management business and the corporate trust business will be sticky and will.
Remain for a bit and we're talking about about annual 2020 about $1 7 billion in aggregate.
It's still a little bit unclear to me is in the $53 billion expense number.
What proportion of that 53 billion or $1 7 billion is embedded in the in the $53 billion guide and I guess as an adjunct.
To that.
I guess can you just talk about how sticky those expenses.
What proportion of those expenses will stick around.
How do they roll off over what time period, because I guess, what I'm a little bit sensitive to is with the sale of the three businesses.
You are creating about a $2 $3 billion.
Revenue hole and.
Just want to make sure that they are now we understand that there's no notable impact on the expense base. So if you can just help us unpack some of the stuff that would be helpful.
Yeah, No it's Jim.
Good question, so as you sort of thinking about corporate trust and asset management, we assume that those expenses would be here for the full year in the 53 billion.
So theres no no savings assumed relative to the outlook. We gave you. So that's sort of point number one on the other parts of the question.
What we were trying to point out is with both of these businesses, probably certainly for the corporate trust business to maybe a greater degree we'll have some trends transition services agreements as they as they take on and migrate these businesses. So some of the expenses day some of that will get offset in other.
Other items, but some of the expenses will stay as part of those agreements so not everything transition sort of day, one that's sort of point number one point number two on it is that as you would expect there's a a portion of these expenses that are more shared across the organization I use sort of corporate overhead just as an example, so it'll take us a little longer to work.
The majority of that out and so I characterize that as somewhere between 10% to 20% of it will take a little bit longer.
And then I guess lastly, as we sort of get to closing on these deals, we'll we'll be transparent and provide an update to our guidance on on how these will impact it.
Got it but if we're thinking about 2022 in relation to the sort of the ongoing expense run rate, which was reflected in the 53 billion really the.
The $1 7 billion I'm, just looking at asset management and corporate trust that the bulk of that should by that point, assuming the deal is closed.
Call. It I don't know 80, 90% of that should be should be out on a run rate by next year.
Yeah, so subject to any trends any impact from transition services agreements got it right.
We get closer, we'll give you more which really get payment or in revenue yep.
Yep Yep.
Yeah sure I'll as Charlie said in most in most cases for these transition service agreements will have will have some expense still there, but we will get reimbursed in the way the accounting works on that is just geography, we will get some revenue and offset by these expenses.
Is there a reason why these are not placed in discontinued operations.
Until the deal closed.
Well I think we moved asset management to corporate.
And so we moved it out of the segment that it's in and as I noted on the call will will move corporate trust out of the commercial banking segment in the second quarter.
So you'll see you'll be able to clearly see the impact of it in the operating segments.
Got it alright, thank you very much.
Your next question comes from the line of John Mcdonald with Autonomous research.
Hey, Mike two quick cleanup items.
On the tax rate can you remind us what's making the tax rate low this year and whether the reserve releases put some upward pressure on that and then more importantly.
What is it sustainably low as you look on to further years because of tax advantage investments or as part of the profitability related just give us the factors there.
Yes, the biggest the biggest impact John on the tax rate realm.
Relative to the kind of the marginal rate that we've got is the impact we get from the tax credits, we get on our low income housing and renewable energy investments.
And as you can see from the K disclosures those are those have been growing year after year and they grew they will we expect them to grow in 2021 as well and those are those those are what they are right. There is no.
Those are pretty easy for us to identify and forecast and that's the biggest piece of what's bringing down the <unk>.
The effective tax rate and that those will those credits will continue.
Obviously, the more pre tax income that we have.
Above and beyond what we expect will sort of be at the marginal tax rate and so.
Presumably if we.
Theoretically if we earn more money than youll see that effective tax rate sort of inch up over over time.
Okay, and then just on the mortgage outlook you mentioned.
Hey, John This is Charlie Illinois rate on that is just and Mike you can correct me.
<unk>.
The reserve releases.
Affect the rate but.
For the size of our total tax number or.
Not that big again, the substantial impact on the lower rate is the dollar benefit that we get from these tax advantaged investments that we have and as Mike said.
On income going forward think about in terms of the marginal rate.
Yes.
Got it so you're still expecting a single digit tax rate this year Mike.
Correct.
Yeah, Yeah, no at this point.
That's the case.
Okay, and then just to clarify on the mortgage outlook, Mike I think you said like the industry on.
It might be down in volume, but you guys do you expect the bulk of that a little bit because of some of the retail strength do you have or will you kind of just saying that you'll be down a little bit but still robust. If you could just clarify your outlook on mortgage that'd be great. Yeah look the industry data typically their forecast lagged a little bit relative to what the industry is actually seeing and so.
I think the industry is projecting that second quarter is going to be down a little bit, but we'll see how that plays out over the coming weeks in terms of what their forecasts are but I think based on what we're seeing in our pipeline.
We feel like it'll be a pretty.
Pretty robust quarter on the origination side youre likely to see that gain on sale margins come down.
But we were likely to see an increase in volume as well so.
Okay. Thank you.
Your next question comes from the line of Vivek <unk> with JP Morgan.
Hi, Charlie Thanks for taking my questions just a couple of clean up ones.
Just a little bit further on mortgage banking.
Mike since you just answer that.
It properly.
The question I have is Ginnie Mae buyouts, you talked about that boosting your mortgage banking gains how much was that in.
Because then that could give us a sense of what did your gain on sale margin due in Q1 versus Q4 and how much are you expecting that gain on sale margin I'm, sorry, the Ginnie Mae buyouts to to continue in the next couple of quarters, how much more to do.
Yes, I think if in fact I don't have the I don't have the number in front of me on the impact from from the buyouts, but I would also point out. So we can follow up with you after but I would also point out that the early the early buy assets re security re securitize them that impacts sort of our balance.
As well sort of our loan balances in home lending.
And so I think that's another big driver and we give you some data in the Qs in terms of what those what those balances look like quarter to quarter. So we would expect that over the coming quarters that we're going to continue to re securitize more of more of those loans.
Okay.
And then the second one for both of you saw the numbers on the expected gain on sale on the businesses.
Well the asset management on corporate Trust.
Is that a net.
Net of goodwill or is that in the.
We need to adjust a goodwill write down on that.
That'll obviously.
Play into share buybacks on Charlie given that we're all anticipating.
The asset capital be lifted at some point, how you're thinking about the pace of share buybacks since.
That will give you an opportunity to put.
Some of that capital to work in terms of growing the balance sheet too don't worry I'm not I'm not trying to pin you down on on.
On that timing of Isa kept getting lifted.
Yes, so vivek I'll start there so I don't want to get wonky on accounting, but the the way we accounted for the student loan business was a sale of the portfolio and so there was a goodwill write down that showed discretely in the P&L on how that flows through as you sort of look at the corporate trust business sale and.
The asset management sale, you won't have a corresponding write down on the goodwill.
Gains net of all everything that goes into exiting exiting.
Exiting there so you don't need to adjust for.
For that.
I think as it as it.
It comes to sort of the asset cap question, we'll go back to our stock answer around not sort of not commenting on on that at all other than the fact that.
As Charlie has said a couple of times on the call that we're it's our top priority and we're continuing to do whatever we need to do to sort of work our way through that and we continue to believe we're making we're making good progress there.
And as you sort of look at our capital and liquidity levels. We've got a significant it continue to have a significant amount of excess capital. So.
Okay Alright.
Alright. Thanks.
Our final question will come from the line of Charles Peabody with mortality.
Two questions one on cards and one on NII.
On the card front, you mentioned that you are punching below your weight and I'm. Just curious you are hearing from a lot of the card companies and J P. Morgan. This morning that they're going to really accelerate their marketing spend on cards in the second half of the year. So are you expecting to grow how are you expecting to gain market share or is it pricing.
Awards.
How are you can Jim.
Improve your relative position in that business.
Sure. This is this is Charlie thanks for the question I would say first of all I would say.
Again kind of like my comments on the corporate investment bank, when we think about the opportunity we're not talking about.
Doing anything.
That is materially different from a risk perspective for the company the way we look at it is.
We have a business today.
Which has $35 $1 billion of receivables when you look at the size of the consumer base that we touch across the franchise, it's hugely substantial and Refugia underpenetrated.
Even though we do have a.
A reasonable sized business to start out with ultimately when you look at what we do as a card company. The fact is our card propositions are not competitive.
Available today in the marketplace or where people are going when we look at are things that we do on fraud. When we look at our customer service every step of the way, we think we have opportunities to make material improvements.
And what our offerings look like which will make.
Our products far more attractive.
For those that currently have the products so that it becomes their primary product, but also more attractive for the customers that we currently touch and so.
It's a very very.
We're very very clear.
About what we think we've got to do to increase that penetration.
And a lot of ways, it's very very basic.
Because we're building on something which is.
Particularly uncompetitive, which I just look at like it creates great opportunity for us.
Alright.
Follow up question on NII.
I believe you guys have modeled scenarios for negative rates at the short end can you share some of your findings on that.
Yeah like negative negative rates on the short end, we won't have a significant impact on us at all I.
I think we have the outlet at the fed.
At 10 basis points.
And so I don't I don't see that being an impact.
For us.
Thank you.
I'll now turn the conference back over to management for any concluding remarks.
Charlie again, I just want to thank everyone for the time and we look forward to talking to you during the quarter and then on the call.
On the call next quarter take care.
Ladies and gentlemen that will conclude today's call. Thank you all for joining you may now disconnect.
Okay.
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Yes.
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