Q3 2023 Wells Fargo & Co Earnings Call
Welcome and thank you for joining the Wells Fargo third quarter 2023 earnings Conference call.
Speaker 1: Welcome and thank you for joining the Wells Fargo third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.
All lines have been placed on mute to prevent any background noise.
Speaker 1: After the speaker's remarks, there will be a question and answer session.
After the Speakers' remarks, there will be a question and answer session.
Speaker 1: If you would like to ask a question during this time, simply press star 1. If you would like to withdraw your question, press star 2.
If you would like to ask a question during this time simply press star one.
I would like to withdraw your question Press Star two please.
Please note that today's call is being recorded.
Speaker 1: I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the call.
I would now like to turn the call over to John Campbell Director of Investor Relations. Sir you may begin the conference.
Speaker 2: Morning everyone. Thank you for joining our call today where our CEO Charlie Sharp and our CFO Mike Sanomosimo will discuss third quarter results and answer your questions.
Good morning, everyone. Thank you for joining our call today, where our CEO , Charlie Scharf, and our CFO , Mike Sena Masimo will discuss third quarter results and answer your questions. This call is being recorded.
Speaker 2: Before we get started, I would like to remind you that our third quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com.
Before we get started I would like to remind you that our third quarter earnings materials, including the release financial supplement and presentation deck are available on our website at Wells Fargo Dotcom.
Speaker 2: I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risk and uncertainty.
Also like to caution you that we may make forward looking statements during today's call that are subject to risks and uncertainties.
Speaker 2: Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8K file today containing our earnings materials. Information about any...
Factors 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 reference.
Speaker 2: including a reconciliation of those measures to GAAP measures , can also be found in our SEC filings and the earnings materials available on our website.
Including a reconciliation of those measures to GAAP measures can also be found in our SEC filings in the earnings materials are available on our website.
Speaker 3: I will now turn the call over to Charlie. Thanks very much, John . I'll make some brief comments about our third quarter results and update you on our priorities. I'll then turn the call over to Mike to review third quarter results in more detail before we take your questions. Let me start
I will now turn the call over to Charlie Thanks, very much Jon I'll make some brief comments about our third quarter results and update you on our priorities I'll then turn the call over to Mike to review third quarter results in more detail before we take your questions. Let me start with some third quarter highlights.
Speaker 3: Our results reflected the progress we're making to improve our financial performance. Revenue, pre-tax provision profit, net income, diluted earnings per common share, and ROTCE were all higher than a year ago. Our revenue reflected strong net interest income growth, as well as higher non-interest income as we benefited from higher rates and the investments we're making in our businesses. Our expenses declined from a year ago.
Our results reflected the progress, we're making to improve our financial performance revenue pretax provision profit net income diluted earnings per common share and <unk> were all higher than a year ago. Our revenue reflected strong net interest income growth as well as higher noninterest income as we benefit.
From higher rates and the investments, we're making in our businesses.
Our expenses declined from a year ago due to lower operating costs as.
Speaker 3: As expected, net charge offs have continued to increase from historical low levels. And we increased our allowance for credit losses, primarily driven by our office portfolio, as well as growth in our credit card portfolio.
As expected net charge offs have continued to increase from historical low levels and we increased our allowance for credit losses, primarily driven by our office portfolio as well as growth in our credit card portfolio average commercial.
Speaker 3: Average commercial and consumer loans were both down from the second quarter as higher rates and a slowing economy that we can loan demand. And we continue to take some credit tightening actions. Average deposits also declined from the second quarter any year ago driven by consumer spending as well as customers migrating to higher yielding alternatives.
Commercial and consumer loans were both down from the second quarter as higher rates and a slowing economy that weaken loan demand and weak.
Continuing to take some credit tightening actions average deposits also declined from the second quarter and a year ago, driven by consumer spending as well as customers migrating to higher yielding alternatives.
Speaker 3: Consumer spending remains strong with third quarter year over year growth rates for both credit and debit card spending increasing from the second.
<unk> spending remains strong with third quarter year over year growth rates for both credit and debit card spending increasing from the second quarter.
Speaker 3: Now, let me update you on the progress we're making on our strategic priorities. Starting with risk and control work, which remains our top priority.
Now let me update you on the progress, we're making on our strategic priorities, starting with risks and controller, which remains our top priority.
Speaker 3: As time goes on, we continue to make the progress necessary to complete our work. I've said that we have detailed project plans which track interim deliverables, not just the dates, the work is to be finalized and turned over to the regular leaders for validation. The work is not fine.
As time goes on we continue to make the progress necessary to complete our work.
<unk> said that we have detailed project plans, which track interim deliverables not just the data to work with to be finalized and turned over to the regulators for validation the.
The work is not finalized all at once it's not as if there's a big bank conversion at the conclusion of a big body of work. It's just the opposite building our risk and control framework as a continuous ongoing efforts. We are implementing changes throughout the life of the project and we track effectiveness along the way.
Speaker 3: not as if there's a big bang conversion at the conclusion of a big body of work. It's just the opposite.
Speaker 3: Building our risk and control framework is a continuous, ongoing effort. We are implementing changes throughout the life of the project and we track effectiveness along the way.
Speaker 3: The numerous internal metrics we track show that the work is clearly improving our control environment. But we will not be satisfied until all of our work is complete.
Numerous internal metrics, we track show that the work is clearly improving our control environment.
We will not be satisfied until all of our work is complete we remain focused on the work ahead, even as we are making progress, but I will repeat what I've said in the past regulatory pressure on banks longstanding issues such as ours continues to grow and until we complete our work and until it is validate.
Speaker 3: We remain focused on the work ahead, even as we are making progress.
Speaker 3: But I will repeat what I've said in the past. Regulatory pressure on banks with longstanding issues such as ours continues to grow. And until we complete our work and until it is validated by our regulators, we remain at risk of further regulatory actions. Additionally, until our work is complete, we could find new issues that need to be remediated and these may result in additional regulatory action.
And by our regulators, we remain at risk of further regulatory actions. Additionally, until our work is complete we could find new issues that needs to be Remediated and these may result in additional regulatory actions.
Speaker 3: We also continue to take steps to advance our business strategy, which includes focusing on our core business and custom.
We also continued to take steps to advance our business strategies, which includes focusing on our core business and customers. We sold approximately $2 billion of private equity investments and certain norwest equity partners in northwest mezzanine partners funds. We are also making a number of investments to better serve our customers.
Speaker 3: We sold approximately $2 billion of private equity investments in certain northwest equity partners and northwest mezzanine partners funds. We were also making a number of investments to better serve our customers.
As a leader in U S middle market and asset based lending we're focused on finding ways to support our clients with the recently announced strategic relationship with Centerbridge partners, our middle market clients, we will have greater access to alternative sources of capital that can be used to pursue a broader set of growth and value.
Speaker 3: As a leader in U.S. middle market and asset-based lending, we're focused on finding ways to support our clients if they recently announced strategic relationship with center bridge partners. Our middle market clients will have greater access to alternative sources of capital that can be used to pursue a broader set of growth and value creation initiatives across a variety of market conditions.
Creation initiatives across a variety of market conditions.
Speaker 3: Branches continue to play an important role in the way we serve our customers. And we continue to optimize our notes.
Branches continue to play an important role in the way we serve our customers and we continue to optimize our network.
Speaker 3: But we also look at targeted expansions in markets where we see opportunities for our branch eyes. Last week we announced we were expanding our branch network in Chicago where we only have seven branches today.
But we also looked at targeted expansions in markets, where we see opportunities for our franchise.
Last week, we announced we are expanding our branch network, Chicago, where we only have seven branches today.
Speaker 3: We also continue to make enhancements to our mobile app. And in the third quarter, we launched stock fractions, giving well-stray clients the ability to buy fractions of companies' stocks to help build a diversified portfolio regardless of stock.
We also continue to make enhancements to our mobile app and in the third quarter, we launched stock fractions, giving well straight clients the ability to buy fractions of company stocks to help build a diversified portfolio, regardless the stocks just yesterday, we announced the expanded availability of licensing to all consumer.
Speaker 3: Just yesterday, we announced the expanded availability of life-sync to all consumer customers.
Speaker 3: Available on the mobile app, Light Sync is our personalized digital approach to lining customers' goals with their money and was launched to all wealth and investment management clients earlier this year. Customers' goals entered in Light Sync will be visible to bankers to enhance needs-based conversation.
<unk> available on the mobile App licensing is our personalized digital approach to aligning customers' goals with their money and was launched to all wealth and investment management clients earlier this year.
Customers' goals entered in licensing will be visible to bankers to enhance needs based conversations.
Speaker 3: We also expanded the capabilities of Fargo, our AI-powered virtual assistance, and recently added the ability for customers to communicate with Fargo in Spanish. These enhanced capabilities are just the latest of our ongoing investments to deliver seamless and consistent experiences across all our channels.
We also expanded the capabilities of Fargo, our AI powered virtual assistant and recently added the ability for customers to communicate with Fargo in Spanish these.
These enhanced capabilities are just the latest of our ongoing investments to deliver seamless and consistent experiences across all our channels.
Speaker 3: We are seeing more mobile adoption momentum adding over 520,000 mobile active users in the third quarter, our best quarterly growth since first quarter of 2021.
We are seeing more mobile adoption momentum, adding over 520 <unk>.
Mobile active users in the third quarter, our best quarterly growth since first quarter of 2021.
Speaker 3: We've also continued to make important hires to bring expertise to Elzfargo and businesses where looking to grow. Before I highlight some of our new leaders, I'd like to take this opportunity to thank Bill Daley, Vice Chairman of Public Affairs who is retiring at the end of this year, for all who's accomplished since he joined the company in 2019. Bill has been an invaluable asset to the company and we've been embedded from his long experience in both the public and private sector.
We've also continued to make important hires who bring expertise to wells Fargo and businesses. We're looking to grow before I highlight some of them are new leaders I'd like to take this opportunity to thank Bill Daley Vice Chairman of public Affairs, who is retiring at the end of this year for all he has accomplished since he joined the company in 2019 Bill has been in <unk>.
<unk> assets, a company and we benefited from his long experience in both the public and private sectors. During his time at wells Fargo yields to strengthen our relationships with the communities. We serve established new programs and housing and small business and work to rebuild our reputation both net locally and nationally.
Speaker 3: During this time at Wells Fargo, he helped strengthen our relationships with communities we serve, established new programs in housing and small business, and worked to rebuild our reputation, both net locally and nationally.
Speaker 3: Please to have announced that Tom Junides joined Wells Fargo as Vice Chairman of the
Pleased to have announced that Tom Nice joined Wells Fargo as Vice Chairman earlier. This month, Tom will be close adviser to the senior management team on a range of issues and we will work alongside our business leaders as we continue to expand our relationships with clients.
Speaker 3: Tom will be a close advisor to the senior management team on a range of issues and we will work alongside our business leaders as we continue to expand our relationships with clients. The breadth of Tom's experience across the public and private sectors will be an important asset to us as we continue to move the company ahead.
Rest of Tom's experience across the public and private sectors will be an important asset to us as we continue to move the company ahead.
Speaker 3: We continue to invest in our corporate investing banking business with new co-heads of equity capital markets. These new hires complement the other important hires we've been making over the past year. We also hire a new head of trust services and cheap to do share officer in our wealth and investment management segment and a new head of affluent and premier banking in consumer, small and business banking. We also continue to focus on
We continue to invest in our corporate investment banking business with new co heads of equity capital markets. These new hires complement the other important hires.
Making over the past year, we also hired a new head of trust services and cheap fiduciary officer in our wealth and investment management segment, and a new head of affluent premier banking and consumer small business banking.
We also continue to focus on better serving our communities during the third quarter. We publicly published three reports that provide an overview of the work we're doing to build a sustainable inclusive future in the communities. We serve outline our strategic approach to managing the risks associated with climate change and deploying capital to support the transition to a low carb.
Speaker 3: During the third quarter, we published three reports that provided overview of the work we are doing to build a sustainable and inclusive future in the communities we serve. Outline our strategic approach to managing the risks associated with climate change and deploying capital to support the transition to a low-carbon economy and describe our methodology for aligning our financial portfolios with pathways to Netsie-Urogreen, greenhouse gas emissions by 2050 and presenting interim emissions-based targets to track battle lines.
<unk> economy and describe our methodologies for aligning our financial portfolios with pathways to nets year agreement greenhouse gas emissions by 2050 and for setting interim emissions based targets to truck that alignments, we continue to make progress on our special purpose credit program initiative, we announced last year to help drive.
Speaker 3: We continue to make progress on our special purpose credit program. In this year, we announced last year to help drive economic growth, sustainable home ownership and neighborhood stability in minority communities. We recently expanded our special purpose, refinance offers to re-qualified Hispanic customers with Wells Fargo mortgages to refinance at a lower than market rate.
<unk> growth sustainable homeownership and neighborhood stability and minority communities. We've recently expanded our special purpose refinance offers to requalify with Hispanic customers with Wells Fargo mortgages to refinance at a lower than market rates.
Speaker 3: The program launched last year for Black or African American customers has seen strong results. And the Hispanic and the Hispanic offer has shown similar levels of customer engagement. We also announced that we're offering a $10,000 foam buyer access grant that will be applied towards down payment for eligible home buyers currently within or purchasing homes in certain underserved communities in eight metropolitan areas.
The program launched last year for Black or African American customers has seen strong results and the Hispanic and the Hispanic offer has shown similar levels of customer engagement. We also announced that we're offering a $10000 homebuyer access brand that will be applied towards downpayment for eligible homebuyers, we currently live in or purchasing power.
<unk> in certain underserved communities and eight metropolitan areas and we now have 14 inside centers Wells Fargo branches, including the first focusing on serving the Navajo community centers help engage and empower communities to achieve their financial goals through financial education workshops and three one.
Speaker 3: And we now have 14 hope inside centers as well as barbed wire branches, including the first focusing on serving the Navajo community. The centers help engage and empower communities to achieve their financial goals through financial education workshops and free one-on-one.
One coach.
Speaker 3: Looking ahead, the U.S. economy has continued to be resilient with key support from the labor and strength from the labor market and strength and consumer spending. The link will cease to continue to deteriorate at a relatively slow consistent rate without signs of acceleration across our portfolios. Our base case remains a continued slowing of the economy.
Looking ahead the U S economy has continued to be resilient with key support from the labor and strength of the labor market and strength in consumer spending delinquencies have continued to deteriorate deteriorate at a relatively slow consistent rate without signs of acceleration across our portfolios. Our base case remains a.
<unk> slowing of the economy.
Speaker 3: But we remain prepared for a wide range of scenarios, given there is still significant uncertainty ahead. Regarding capital, the Basel III endgame proposal included higher capital requirements as we expected. It's a complicated set of rules, but at this point, if nothing changed and we didn't take action,
But we remain prepared for a wide range of scenarios given there is still significant uncertainty ahead regarding capital the Basel III and gained proposal included higher capital requirements as we expected.
It's a complicated set of rules, but at this point, if nothing changed and we didn't take actions, we estimate that our RW way with increase increased by approximately 20%.
Speaker 3: We estimate that our RWA would increase, increased by approximately 20%.
Speaker 3: There are some items that can be start half of requirements that we are hopeful will be adjusted and we will be participating and sharing our perspectives on the proposed rules during the 100 and day 120 day comment periods. Additionally, we are evaluating changes we may make based on the proposed rules.
There are some items that increased our capital requirements that we were hopeful will be adjusted and we will be participating in sharing our perspectives on the proposed rules. During the 100 day 120 days comment periods. Additionally, we are evaluating changes we may make based on the proposed rules.
Speaker 3: Fortunately, we come into this from a strong position as our current capital levels are above the estimated regulatory minimum plus buffer.
Finally, we come into this from a strong position as our current capital levels are above the estimated regulatory minimum plus buffers. However, we still need to decide how much of an additional buffer we want to maintain and what mitigating actions. We may want to take to reduce the impact of the new rules at this.
Speaker 3: However, we still need to decide how much of an additional buckle we want to maintain and what mitigating actions we may want to take to reduce the impact of the new rules. At this point, we still see a path to concurrently increasing our level of CET1 as appropriate, increasing our dividend and repurchasing common stock.
We still see a path to concurrently increasing our level of CET, one as appropriate increasing our dividend and repurchasing common stock.
Speaker 3: Levels of each will be influenced by C-CAR, the finalization of the proposed rules, and economic conditions. I'll now turn the call over to Mike.
Levels of each will be influenced by CCAR. The finalization of the proposed rules and economic conditions I'll now turn the call over to Mike. Thank.
Speaker 3: Thank you, Charlie. Good morning, everyone. Now, the income for the third quarter was $5.8 billion or $1.48 for diluted common share, both up from the second quarter in a year ago. Our third quarter results included 349 million or nine cents per share of the screen tax benefits related to the resolution of prior period tax matters. Turning to cash.
Thank you Charlie and good morning, everyone net income for the third quarter was $5 8 billion or $1 48 per diluted common share both up from the second quarter and a year ago.
Our third quarter results included $349 million or <unk> <unk> per share of discrete tax benefits related to the resolution of prior period tax matters.
Turning to capital and liquidity on slide three.
Speaker 3: Our CET-1 ratio increased to 11% in third quarter. 2.1% is points above our new regulatory minimum plus poppers effective on trooper first.
Our CET one ratio increased to 11% in the third quarter, two one percentage points above our new regulatory minimum plus buffers effective October one.
Speaker 3: This was up from 10.7% in the second quarter as higher earnings, the approximately 14 basis point benefit from the state of certain private equity investments and low-risk weighted assets were only partially offset by share reverses and dividends.
This was up from 10, 7% in the second quarter as higher earnings to be approximately 14 basis point benefit from the sale of certain private equity investments and lower risk weighted assets were only partially offset by share repurchases and dividends.
Speaker 2: During the third quarter, we were purchased 1.5 billion common stock. Our strong capital levels position us well for the anticipated increases related to the Bosnial Free End Game proposal released in the third quarter.
During the third quarter, we repurchased $1 5 billion in common stock our strong capital levels position us well for the anticipated increases related to the Basel III proposal released in the third quarter.
Speaker 3: Based on where we end of the quarter, we estimate that our CET2 on ratio would be 50 basis points above the fully phased and required minimum, if the proposed rules were implemented as written. After factoring the growth in our WS, and the resulting decline in our stress capital above.
Based on where we ended the quarter, we estimate that our CET one ratio would be 50 basis points above the fully phased in required minimum if the proposed rules implemented as written after backdate factoring the growth in <unk> and the resulting decline in our stress capital buffer.
Speaker 3: as well as the impact of the new G-SID buffer of calculation change.
As well as the impact of the new G SIB buffer calculation changes.
Speaker 3: Importantly, this is an early estimate subject to change and is before any actions we may take to mitigate the impact of the new roles.
Importantly, this is an early estimate subject to change and is before any actions we may take to mitigate the impact of the new rules.
Speaker 3: Looking forward, we expect to continue to have capacity to increase our CET one ratio while we plan to continue to purchase shares as we wait for the capital rules to finalize.
Looking forward, we expect to continue to have capacity to increase our CET one ratio, while we plan to continue.
Repurchase shares as we wait for the capital rules finalized.
Speaker 3: turning to credit quality on 5.5. As we expected, net loan charge offs continue to increase up four basis points from the second quarter to 36 basis points of average loan.
Turning to credit quality on slide five as.
As we expected net loan charge offs continued to increase up four basis points from the second quarter to 36 basis points of average loans.
Speaker 3: Commercial net loan charge costs find modestly from the second quarter to 13 base points of average loans as the lower losses in our commercial and industrial portfolio were partially off that by 14 million of higher losses in commercial real estate
Commercial net loan charge offs declined modestly from the second quarter to 13 basis points of average loans as lower losses in our commercial and industrial portfolio were partially offset by $14 million of fire losses in commercial real estate.
Speaker 3: We had 32.2 billion of office loans, down 3% from the second quarter, which represented 3% of our total loans outstanding.
We had $32 2 billion of office loans down 3% from the second quarter, which represented 3% of our total loans outstanding.
Speaker 3: vacancy rates continue to be high in the office market remains free.
Vacancy rates continue to be high in the office market remains weak.
Speaker 3: Our CRE teams continue to focus on monitoring and de-respelling the portfolio, which includes reducing exposure.
Our CRE teams continue to focus on monitoring and Derisking the portfolio, which includes reducing exposures as we highlighted in the past each property situation's different there are many variables like a determined performance, which is why we regularly review this portfolio.
Speaker 3: As we highlighted in the past, each property situation is different. There are many variables like a determined performance, which is why we regularly would be in this portfolio.
Speaker 3: As expected, consumer net loan charge from teeny to increase, we're up 98 million from the second quarter to 67 basis points of average loan.
As expected consumer net loan charge offs continued to increase and were up $98 million in the second quarter to 67 basis points of average loans.
Speaker 3: Residential mortgage loans continued to have net recoveries while our other consumer portfolios all had higher losses But the water just increased in our auto portfolio, which was up from the second quarter season all those
Residential mortgage loans continued to have net recoveries, while our other consumer portfolio all at higher losses with the largest increase in our auto portfolio, which was up from the second quarter seasonal lows.
Speaker 3: Non-performing assets increase 17% in second quarter as growth in commercial real estate, non-cool loans, more than offset the declining commercial industrial, as well as modest declines across all consumer portfolios.
Nonperforming assets increased 17% from the second quarter as growth in commercial real estate non accrual loans more than offset the decline in commercial and industrial as well as modest declines across all consumer portfolios.
Speaker 3: The decline in commercial industrial monocool loans was primarily due to pay off-stay downs, which is a good reminder that the resolution of non-proforming assets doesn't always result in charge of us. The increase in commercial real estate monocool loans was driven by a 1.3 billion increase in the office monocool loan. The increase in commercial real estate monocool loans was driven by a 1.3 billion increase in the office monocool loan.
The decline in commercial industrial nonaccrual loans was primarily due to payoffs and pay downs, which is a good reminder, that the resolution of nonperforming assets doesn't always result in charge offs. The increase in commercial real estate non accrual loans was driven by a $1 3 billion increase in the office not all of them.
Moving to slide six.
Speaker 3: Our allowance for credit losses increased 333 million in the third quarter, primarily for commercial real estate office loans, as well as for higher credit card loan balances, which was partially offset by a lower allowance raw to the...
Our allowance for credit losses increased $333 million in the third quarter, primarily for commercial real estate office loans as well as for higher credit card loan balances, which was partially offset by a lower allowance for auto loans.
Speaker 3: The composition of our office portfolio is relatively consistent with what we shared with you the past few quarters. We did not include a separate commercial real estate five and quarter. However, we did update the table showing the allowance for credit losses coverage ratio for commercial real estate, including the breakdown of the office portfolio.
Since the composition of our office portfolio is relatively consistent with what we shared with you. The past few quarters. We did not include a separate commercial real estate slide in this quarter.
However, we did update the table showing the allowance for credit losses coverage ratio for commercial real estate, including the breakdown of the office portfolio.
Speaker 3: We have not seen significant increases in charge of center commercial real estate office portfolio yet. However, we do expect higher losses over time and we continue to increase the coverage ratio in our commercial and our CID commercial real estate office portfolio from 8.8% at the end of the second quarter to 10.8% at the end of the third quarter.
We have not seen significant increases in charge offs in our commercial real estate office portfolio, yes.
However, we do expect higher losses over time, and we continue to increase the coverage ratio or commercial.
Commercial real estate office portfolio from eight 8% at the end of the second quarter to 10, 8% at the end of the third quarter.
On slide seven we highlight loans and deposits.
Speaker 3: average loans were done modestly from both the second quarter and a year ago. While we continue to have boot growth in credit card loans from the second quarter, most other portfolios decline.
Average loans were down modestly from both the second quarter and a year ago while.
While we continue to have good growth in credit card loans for the second quarter, most other portfolios declines.
Speaker 3: I'll highlight specific drivers when discussing our operating segments.
I will highlight specific drivers when discussing our operating segment results.
Speaker 3: Average loan yields increased to 195 basis points from a year ago and 24 basis points from the second quarter due to the higher of interest rate environment.
Average loan yields increased to 195 basis points from a year ago, and 24 basis points from the second quarter due to the higher interest rate environment.
Speaker 3: average deposits decline 5% from a year ago predominantly driven by deposit outflows and our consumer and wealth businesses reflecting continued consumer spending in customers' reallocating cash and higher yielding alternatives.
Average deposits declined 5% from a year ago, predominantly driven by deposit outflows and our consumer and wealth businesses, reflecting continued consumer spending and customers reallocating cash into higher yielding alternatives.
Speaker 3: average deposits also defined in commercial banking while they stabilized in corporate investment banks.
Average deposits also declined in commercial banking, while they stabilized in corporate and investment banking.
Speaker 3: As expected, our average deposit cost continued to increase up 23 basis points from the second quarter, 236 basis points, but higher deposit costs across all operating segments in response to rising interest rates.
As expected our average deposit cost continued to increase up 23 basis points from the second quarter to 136 basis points with higher deposit costs across all operating segments in response to rising interest rates. However.
Speaker 3: However, the pace of the increase has slowed. In our percentage of average, not interest, not interest bearing the positive decrease modestly from second quarter to 29%, but remained above the increase in dynamic levels.
However, the pace of the increase has slowed and our.
As a percentage of average noninterest bearing noninterest bearing deposits decreased modestly from the second quarter and 29%, but remained above pre pandemic levels.
Turning to net interest income on slide eight.
Speaker 3: Third quarter, and then interesting, that was 13.1 billion, up 8% from a year ago, as we continued to benefit from the impact of higher rates.
Third quarter net interest income was $13 1 billion up 8% from a year ago as we continued to benefit from the impact of higher rates.
Speaker 3: The $58 million fine from the second quarter was to the lower average of the balances, partially offset of one additional day and quarter in the impact of higher interest rates.
The $58 million decline from the second quarter was due to lower average deposit balances, partially offset by one additional day in the quarter and the impact of higher interest rates.
Speaker 3: Last quarter, we increased our expectations for full year 2023 and interesting come growth to approximately 14% compared with 2022, which was up from our expectation of 10% growth in the beginning of the year.
Last quarter, we increased our expectations for full year 2023, net interest income growth to approximately 14% compared with 2022, which was up from our expectation of 10% growth at the beginning of the year.
Speaker 3: We now expect full year 2023 and interesting income growth to grow by approximately 16% compared to 2022. With the fourth quarter 2023 net interesting income expected to be approximately 12.7 billion.
We now expect full year 2023, net interest income growth to grow by approximately 16% compared with 2022.
With the fourth quarter.
Slide 23, net interest income expected to be approximately $12 7 billion.
Speaker 3: The expected decline in interest in the income of the fourth quarter is primarily to admire assumption for additional deposit outflows and migration from non-interesting to interstering deposits as well as continued deposit repricing, including continued competitive pricing on commercial deposits.
The expected decline in interest income in the fourth quarter was primarily driven by our assumptions for additional deposit outflows and migration from noninterest bearing to interest bearing deposits as well as continued deposit repricing, including continued competitive pricing on commercial deposits.
Speaker 3: Turning to expenses on Friday 9. Non-interest expense declined from a year ago, driven by lower operating losses, and increased 1% to a second quarter, driven by higher operating losses, seven to expense of revenue-related costs.
Turning to expenses on slide nine non interest expense declined from a year ago, driven by lower operating losses and increased 1% from the second quarter, driven by higher operating losses severance expense and revenue related comp.
Speaker 3: Last quarter, we updated our expectation for Folier 2023 non-jewish expense, including operating losses, to approximately 51 billion.
Last quarter, we updated our expectations for full year 2023, non interest expense, excluding operating losses to approximately 51 billion.
Speaker 3: We now expect it to be approximately 51.5 billion or approximately 12.6 billion in the fourth quarter. The increase reflects additional severance and other one-time costs for revenue-related compensation and some lags in realizing that the efficiency saves.
We now expect it to be approximately 51 5 billion or approximately $12 6 billion in the fourth quarter. The increase reflects additional severance and other onetime costs revenue related compensation and some lags and realizing efficiency saves.
We've reduced head count every quarter since the third quarter of 2020, and it was down 3% in the second quarter and 5% from a year ago.
Speaker 3: We've reduced headcount every quarter since the third quarter of 2020, and it was down 3% from the second quarter and 5% from a year ago. We believe we still have additional opportunities to reduce headcount, and attrition has remained low, which will likely result in additional severance expense for actions in 2024. We are working through our efficiency plans now as part of the budget process.
We believe we still have additional opportunities to reduce head count and attrition has remained low which will likely result in additional severance expense for actions in 2024, we are working through our efficiency plans now as part of the budget process.
Speaker 3: Additionally, if the FBIC deposits special assessment related to the events from earlier in the year is finalizing the fourth quarter, it would increase our expected quarter expenses.
Additionally, if the FDIC deposit special assessment related to the events from earlier in the year was finalized in the fourth quarter. It would increase our expected fourth quarter expenses.
Speaker 3: And finally, as a reminder, we have outstanding litigation, regulatory and customer remediation matters that could impact operating results.
And finally as a reminder, we have outstanding litigation regulatory and customer remediation matters that could impact operating results.
Speaker 3: Turning to our operating segment starting with consumer banking and lending on slide 10.
Turning to our operating segments, starting with consumer banking and lending on slide 10.
Speaker 3: Consumer small and business banking revenue increased 7% from a year ago as higher than an interesting come driven by the impact of higher interest rates was partially offset by lower to positive related fees driven by the overdraft policy changes we rolled out last year.
Consumer small business banking revenue increased 7% from a year ago as higher net interest income driven by the impact of higher interest rates was partially offset by lower deposit related fees driven by the overdraft policy changes, we rolled out last year.
Speaker 3: Charlie highlighted the investments we were making in our Chicago branch network, and we're also making investments in refurbishing branches across the existing network.
Charlie highlighted the investments, we're making in our Chicago Branch network, we're also making investments in refurbishing branches across our existing network. Additionally.
Speaker 3: Additionally, we are bringing our digital onboarding experience to our branches, creating a fascinating experience for our customers.
Additionally, we are bringing our our digital onboarding experience to our branches, creating a fast and easy experience for our customers.
Speaker 3: At the same time, we've reduced our whole number of branches by 6% from a year ago.
At the same time, we have reduced our total number of branches by 6% from a year ago.
Speaker 3: from letting revenue decline 14% from a year ago due to a decline in mortgage banking income to the by lower originations and servicing income, which included the impact of sales of mortgage servicing rights.
<unk> revenue declined 14% from a year ago due to a decline in mortgage banking income driven by lower originations and servicing income which included the impact of sales of mortgage servicing rights.
Speaker 3: We continue to reduce headcount and home lending in the third quarter, down 37% from a year ago, and we expect staffing levels will continue to decline.
We continued to reduce head count in home lending in the third quarter down 37% from a year ago, and we expect staffing levels will continue to decline.
Speaker 3: Credit card revenue increased 2% from year ago to the higher loan balances, partially offset by introductory promotional rates and higher credit card rewards.
Credit card revenue increased 2% from a year ago due to higher loan balances, partially offset by introductory promotional rates and higher credit card rewards expense payment.
Operator: Welcome, and thank you for joining the Wells Fargo third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.
Speaker 3: Painting rates have been relatively stable over the past year and remain above pre-pandemic levels.
Payment rates have been relatively stable over the past year and remained above pre pandemic levels.
Operator: 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 start one. If you would like to withdraw your question, press start two. Please note that today's call is being recorded.
Speaker 3: New account growth continues to be strong up 22% from a year ago, reflecting the continued success of our new products in the increased markets.
New account growth continued to be strong up 22% from a year ago, reflecting the continued success of our new products and increased marketing and.
Speaker 3: Importantly, the quality of the new accounts continue to be better in what we were booking historically.
Importantly, the quality of the new accounts continues to be better than what we were booking historically.
Speaker 3: While majority of new cards were to existing Wells Fargo customers, we're increasingly attracting more customers that are new to Wells Fargo.
While the majority of new cards.
John Campbell: I would now like to turn the call over to John Campbell, Director of Invest Relations. Sir, you may begin the conference.
Two existing wells Fargo customers were increasingly attracting more customers that are new to wells Fargo.
Speaker 3: Auto-remined to client 15% from year ago driven by continued loan spread compression in lower loan value.
Auto revenue declined 15% from a year ago, driven by continued loan spread compression lower loan balances.
John Campbell: Morning everyone, thank you for joining our call today where our CEO, Charlie Scharf and our CFO, Mike Santomassimo will discuss third quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our third quarter earnings materials, including the release, financial supplement and presentation deck, are available on our website at Wells Fargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risk and uncertainties.
Speaker 3: Personal lending revenues up 14% from a year ago due to higher low balances.
Personal lending revenues up 14% from a year ago due to higher loan balances.
Turning to some key business drivers on slide 11.
Speaker 3: Mortgage originations declined 70% from a year ago in 18% in the second quarter. We continue to make progress on the strategic plans we announced earlier this year, including focusing on serving well-spargo bank customers as well as borrowers and minority communities. We did not originate or fund any corresponding boardies as a member quarter.
Mortgage originations declined 70% from a year ago and 18% in the second quarter, we continue to make progress on the strategic plans, we announced earlier this year, including focusing on serving Wells Fargo bank customers as well as the borrowers and minority communities. We did not originate refunded any correspondent mortgages in the third quarter.
John Campbell: Factors that may cause actual results to differ materially from expectations are detailed in our SEC violence, including the form APA file today containing our earnings materials. Information about a non-gap financial reference, including a reconciliation of those measures to gap measures, can also be found in our SEC findings and the earnings materials available on our website.
Speaker 3: Besides of our auto portfolio is to climb for 6th and second quarters and balances were down 9% at the end of the third quarter compared to a year ago. Origination volume to climb 24% 3 year ago reflecting credit tightening actions as well as continued price competition.
The size of our auto portfolio has declined for six consecutive quarters and balances were down 9% at the end of the third quarter compared to a year ago.
Origination volume declined 24% from a year ago, reflecting credit tightening actions as well as continued price competition.
Speaker 3: Our origination makes continuity shift towards higher flight those boards reflecting the credit tightening actions we've taken over the back here.
Our origination mix continued to shift towards higher FICO scores, reflecting the credit tightening actions, we've taken over the last year.
Charles Scharf: I will now turn the call over to Charlie. Thanks very much, John. I'll make some brief comments about our third quarter results and update you on our priorities.
Speaker 3: The debit card spending increased 2% from a year ago with growth in those categories, offsetting clients and children who will implement and travel.
Debit card spend increased 2% from a year ago with growth in most categories offsetting clients and funeral home improvement and travel.
Charles Scharf: I'll then turn the call over to Mike to review third quarter results in more detail before we take your questions. Let me start with some third quarter highlights. Our results reflected the progress we're making to improve our financial performance. Revenue, pre-tax provision profit, net income, diluted earnings for common share, and ROTCE were all higher than a year ago. Our revenue reflected a strong net interest income growth as well as higher non-interest income as we benefited from higher rates and the investments we're making in our businesses.
Speaker 3: Pretty hard to spend, and continue to be strong, was up 15% from a year ago, all categories grew from a year ago, including fuel, which reached out to the doctor to find an unexpected folder.
Credit card spending continued to be strong was up 15% from a year ago. All categories grew from a year, a year ago, including fuel, which rebounded after declining in the second quarter.
Speaker 3: Turning the commercial banking results into 512, middle market banking revenue increased 23% from a year ago due to the impact of higher interest rates and higher loan value.
Turning to commercial banking results on slide 12.
Market banking revenue increased 23% from a year ago due to the impact of higher interest rates and higher loan balances.
Speaker 3: Acid-based lending releasing revenue increased 3% year-to-year due to higher loan balances as well as higher revenue from your loan energy.
Asset based lending leasing revenue increased 3% year over year due to higher loan balances as well as higher revenue from renewable energy investments.
Charles Scharf: Our expenses declined from a year ago due to lower operating losses. As expected, net chargeoffs have continued to increase from historical low levels, and we increased our allowance for credit losses primarily driven by our office portfolio as well as growth in our credit card portfolio. Average commercial and consumer loans were both down from the second quarter as higher rates and a slowing economy that we can loan demand and we continue to take some credit tightening actions.
Speaker 3: average loan balances were about 7% in the third quarter compared to a year ago driven by growth in acid-based lane when he's saying average loans were down 1% in the second quarter to just climb to the middle market. Thank you.
Average loan balances were up 7% in the third quarter compared to a year ago driven by growth in asset based lending leasing.
Average loans were down 1% in the second quarter due to declines in middle market banking.
Speaker 3: After increasing the first half of the year, revolver utilization rates climb in the third quarter to level similar to a year ago. Thanks detailed folks.
After increasing the first half of the year revolver utilization rates declined in the third quarter at a level to level similar to a year ago.
Turning to corporate investment banking on slide 13.
Speaker 3: Thank you revenue increased 20% from a year ago driven by higher lending revenue. Stronger treasury management results reflecting the impact of higher interest rates and higher investment banking revenue, reflecting increased activity across all products.
Banking revenue increased 20% from a year ago, driven by higher lending revenue stronger Treasury management results, reflecting the impact of higher interest rates and higher investment banking revenue, reflecting increased activity across all products.
Charles Scharf: Average deposits also declined from the second quarter and a year ago driven by consumer spending as well as customers migrating to higher yielding alternatives. Consumer spending remained strong with third quarter year over year growth rates for both credit and debit card spending increasing from the second quarter.
Speaker 3: As Charlie highlighted, we continue to high experience bangers helping us deliver for our clients and positioning us well when markets improve.
As Charlie highlighted we continue to hire experienced bankers, helping us deliver for our clients and positioning us well when markets improve.
Speaker 3: Commercial real estate revenue grew 14% from a year ago, reflecting the impact of higher interest rates and higher revenue in our low income housing business. Partially offset by lower loan and positive value.
Commercial real estate revenue grew 14% from a year ago, reflecting the impact of higher interest rates higher revenue and our low income housing business, partially offset by lower loan to deposit balances.
Charles Scharf: Now, let me update you on the progress we're making on our strategic priorities. Starting with risk and control work, which remains our top priority. As time goes on, we continue to make the progress necessary to complete our work. I've said that we have detailed project plans which track interim deliverables, not just the dates, the work is to be finalized and turned over to the regulators for validation. The work is not finalized all at once.
Charles Scharf: It's not as if there's a big bang conversion at the conclusion of a big body of work. It's just the opposite. Building our risk and control framework is a continuous, ongoing effort. We are implementing changes throughout the life of the project and we track effectiveness along the way. The numerous internal metrics we track show that the work is clearly improving our control environment, but we will not be satisfied until all of our work is complete.
Speaker 3: Markets revenue increased 33% from year ago, which is my higher revenue and structural products, equities, credit products, foreign exchange. We've had strong trade results for three consecutive quarters as we've benefited from market volatility and the investments we've made in technology and talent growers to...
Markets revenue increased 33% from year ago, driven by higher revenue in structured products equities credit products Foreign exchange, we've had strong trading results for three consecutive quarters as we benefited from market volatility and the investments we've made in technology and talent to grow this business.
Speaker 3: Average loans were down 5% a year ago driven by banking, reflecting a combination of slower demand, payoffs, and modestly lower line utilization. Average loan balances were stable with the second quarter.
Average loans were down 5% from a year ago, driven by banking, reflecting a combination of slower demand payoffs modestly lower line utilization averaged.
Average loan balances were stable with the second quarter.
On slide 14, wealth and investment management revenue increased 1% compared to a year ago, driven by higher asset based fees due to the increased market valuations net interest income declined from a year ago, driven by lower deposit balances as customers continued to reallocate cash in higher yielding alternatives as well as lower loan balances.
Speaker 3: On slide 14, well-pinned investment management revenue increased 1% to a year ago, to provide higher asset base fees to the increased market valuation.
Speaker 3: And then interest in income declined from a year ago to my lower deposit balances as customers continue to reallocate cash in a higher yield than I'll turn to this as well as lower loan balances. While average deposits were down compared to both the second quarter and a year ago, the pace of the client slowed in the third quarter.
Charles Scharf: We remain focused on the work ahead, even as we are making progress. But I will repeat what I said in the past. Regulatory pressure on banks with long-standing issues such as ours continues to grow. And until we complete our work and until it is validated by our regulators, we remain at risk of further regulatory actions. Additionally, until our work is complete, we could find new issues that need to be remediated and these may result in additional regulatory actions.
While average deposits were down compared with both the second quarter and a year ago, the peso's declines slowed in the third quarter.
Speaker 3: As a reminder, the majority of well-investment management advisory assets were priced at the beginning of the quarter. So third quarter results reflected market valuations as of July 1st.
As a reminder, the majority have been well.
Wealth and investment management advisory assets were priced at the beginning of the quarter. So third quarter results reflected market valuations as of July one.
Speaker 3: which were higher from a year ago. As the base fees in the fourth quarter were with like market valuations as of October 1st, which were also higher from a year ago, but were lower from the third quarter pricing day.
Which were higher from a year ago asset based fees in the fourth quarter will reflect market valuations as of October one which were also higher from a year ago, but were lower from the third quarter pricing data.
Charles Scharf: We also continue to take steps to advance our business strategy, which includes focusing on our core business and customers. We sold approximately $2 billion of private equity investments in certain northwest equity partners and northwest mezzanine partners funds. We are also making a number of investments to better serve our customers. As a leader in U.S, middle market and asset-based lending, we are focused on finding ways to support our clients with the recently announced strategic relationship with center bridge partners.
Speaker 3: average loan for that 4% from the year ago primarily due to decline in the security base when
Average loans were down 4% from a year ago, primarily due to a decline in securities based lending.
Speaker 3: By 15 highlights our corporate results. This cycle includes venture capital and private equity investments, including the investments in funds that we sold in third quarter. The sale had a nominal impact on third quarter many income.
Slide 15 highlights our corporate results. This segment includes venture capital and private equity investments, including the investments in funds that we sold in the third quarter. The sale had a nominal impact on third quarter net income.
Speaker 3: Revenue declined 345 million three years ago, reflecting assumption changes related to the valuation of our B2B common stock exposure, as well as lower venture capital revenue.
Revenue declined $345 million from a year ago, reflecting assumption changes related to the valuation of our visa b common stock exposure as well as lower venture capital revenue.
Charles Scharf: Our middle market clients will have greater access to alternative sources of capital that can be used to pursue a broader set of growth and value creation initiatives across a variety of market conditions. Branches continue to play an important role in the way we serve our customers and we continue to optimize our network. But we also look at targeted expansions in markets where we see opportunities for our franchise. Last week, we announced we are expanding our branch network in Chicago where we only have seven branches today.
Speaker 3: In summary, our results in the third quarter reflect a continuing improvement in our financial performance.
In summary, our results in the third quarter reflected continued improvement in our financial performance. During the first nine months of this year, we had strong growth revenue and pretax provision profit and diluted earnings per share compared to a year ago.
Speaker 3: During the first nine months of this year, we had strong growth in revenue, pre-tax provision profit, and diluted earnings for share compared to a year ago. As expected, our net charge costs have continued to slowly increase from store-able lows, and we increased our allowance for credit losses by over 1.9 billion this year, primarily for Sierra off the slopes and higher credit for a loan balance.
As expected our net charge offs have continued to slowly increase from historical lows and we increased our allowance for credit losses by over $1 $9 billion. This year, primarily for CRE office loans and higher credit card loan balances we're closely.
Speaker 3: We are closely monitoring our portfolios and taking credit-tightening actions where we fully appropriate. Our capital level is having increased and we can expect to continue to return and access capital shareholders. We will now take your questions.
Monitoring our portfolios and taking credit tightening actions, where we believe appropriate our capital levels have increased and we expect to continue to return excess capital to shareholders. We will now take your questions.
Charles Scharf: We also continue to make enhancements to our mobile app and in the third quarter we launched stock fractions giving well straight clients the ability to buy fractions of companies stocks to help build a diversified portfolio regardless of stock price. Just yesterday, we announced the expanded availability of light sync to all consumer customers available on the mobile app. Light sync is our personalized digital approach to lining customers goals with their money and was launched to all wealth and investment management clients earlier this year.
Speaker 1: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then one on your phone's keypad. Please unmute your phone and record your name at the press. Please unmute your phone and record your name at the press.
Thank you we will now begin the question and answer session.
I'd like to ask a question. Please press Star then one on your phone's keypad. Please on mute your phone and record your name at the prompt.
Speaker 1: If at any time your question has been answered, you can remove your request by pressing start.
If at any time. Your question has been answered you can remove your request by pressing star two.
Speaker 1: again that is star one for questions at this time and we will take our first question from John McDonald of Autonomous Research. Your line is open.
Once again that is star one for questions at this time and we will take our FERC question from John Mcdonald of Autonomous Research. Your line is open Sir.
Charles Scharf: Customers goals entered in light sync will be visible to bankers to enhance needs-based conversations. We also expanded the capabilities of Fargo our AI powered virtual assistance and recently added the ability for customers to communicate with Fargo and Spanish. These enhanced capabilities are just the latest of our ongoing investments to deliver seamless and consistent experiences across all our channels. We are seeing more mobile adoption momentum adding over 520,000 mobile active users in the third quarter are best quarterly road since the first quarter of 2021. We've also continued to make important hires to bring expertise to Wells Fargo and businesses were looking to grow.
Hi, Good morning, I wanted to ask about the expenses Mike.
Mostly improving efficiency has been a big goal of yours, you've made progress even while investing in regulatory what are the additional opportunities to improve efficiency from here as you head into 2024, I know, you're probably not ready to give guidance for 'twenty four yet but are you going into the budget planning.
The mindset that they should be roughly flattish on any any comments you can give on that would be helpful. Thanks, Yeah sure. Thanks John .
First off let's just make sure we keep it all in context right, we set out a program.
Almost three years ago now.
Cut roughly $10 billion and I think that's all still on track we've brought head count down 40000 from.
Charles Scharf: Before I highlight some of our new leaders, I'd like to take this opportunity to thank Bill Daley, Vice Chairman of the Public Affairs who was retiring at the end of this year for all he was accomplished since he joined the company in 2019. Bill has been an invaluable asset to company and we've benefited from his long experience in both the public and private sectors. During this time at Wells Fargo, he helped strengthen our relationships with communities we serve, established new programs in housing and small business, and worked to rebuild our reputation, both net locally and nationally. Lee.
Or closer to 50000 from the peak back in 2005, so sort of very very good progress to date.
Speaker 4: And I think as Charlie and I both said, over the last couple quarters, we still have more to do.
And I think as Charlie and I have both said over the last couple of couple of quarters, we still have more to do.
Speaker 4: to make it more efficient. And I would say there are very few parts of the company that we would say are optimized at this point. Now, some have more opportunity than others. Some require investment in terms of automation and technology. Some don't. But I do think that we go into.
To make it more more efficient and I would say there are there are very few parts of the company that we would say are optimized at this point now some have more opportunity than others. Some require investment in terms of automation and technology.
Charles Scharf: I'm pleased to have announced that Tom Jnides joined Wells Fargo as vice chairman earlier this month. Tom will be a close advisor to the senior management team on a range of issues and we will work alongside our business leaders as we continue to extend our relationships with clients. The breadth of Tom's experience across the public and private sectors will be an important asset to us as we continue to move the company ahead.
Some don't but I do think that we go into the budget process and even just how we operate every quarter.
Speaker 4: the budget process and even just how we operate every quarter with a very disciplined approach to every single area of the company saying, what are we going to do to continue to drive more efficiency there? While we make investments as well, and we highlighted some of those that we've been making on in the prepared remarks, but.
With a very disciplined approach to every single area of the company say what are we going to do to continue to drive more efficiency there.
While we make investments as well and we highlighted some of those that we've been making on in the prepared remarks, but.
Charles Scharf: We continue to invest in our corporate investing banking, business with new co-heads of equity capital markets. These new hires complement the other important hires we've been making over the past year.
Speaker 4: But I think it's the same mindset we've been bringing to it now for the last few years and I think we're going to continue to do that. Where that ultimately ends up, we'll share.
But I think it is.
It's the same mindset, we've been bringing to it now for the last few years and I think we're going to continue to do that where that ultimately ends up will share.
Charles Scharf: We also hire a new head of trust services and chief fiduciary officer in our wealth and investment management segment and a new head of affluent and premier banking in consumer, small and business banking.
Speaker 4: You know, for next year we'll share with you in January like we always do.
Your next year, we'll share with you in January like we always do.
Okay Fair enough and then on the net interest income outlook for the fourth quarter are you building in assumptions, you mentioned deposit outflows and mix shift assumptions are they assuming that things accelerate from here or are similar to what you've seen this quarter. It seems like a pretty big sequential decline just kind of wondering what some of the assumptions are there. Thanks.
Speaker 1: Okay, fair enough. And then on the net interesting come out look for the fourth quarter, are you building in assumptions that you mentioned deposit outflows and makes shift assumptions? Are they assuming that things accelerate from here or similar to what you've seen this quarter? It seems like a pretty big sequential decline, just kind of wondering what some of the assumptions are there, thanks.
Charles Scharf: We also continue to focus on better serving our communities. During the third quarter, we published three reports that provided overview of the work we are doing to build a sustainable and inclusive future in the communities we serve. Outline our strategic approach to managing the risks associated with climate change and deploying capital to support the transition to a low-carbon economy. And describe our methodology for aligning our financial portfolios with pathways to nets of your green greenhouse gas emissions by 2050 and presenting interim emissions based targets to track that alignment.
Speaker 4: Yeah, no, look, I think, you know, as we talked about, you know, over the last, what feels like forever, but certainly the last four or five, six quarters now, you know, there's still a lot of uncertainty out there in terms of how...
Yeah, No look I think.
As you can as we've talked about over over the last.
<unk> like forever, but certainly the last 456 quarters now you know there's still a lot of uncertainty out there in terms of how the path of both deposits and pricing will shake shape up.
Speaker 4: you know the path of you know both deposits and pricing will shape up.
Charles Scharf: We continue to make progress on our special purpose credit program initiative. We announced last year to help drive economic growth, sustainable home ownership and neighborhood stability in minority communities. We recently expanded our special purpose refinance offers to re-qualified Hispanic customers with Wells Fargo mortgages to refinance at a lower than market rate. The program launched last year to Black for African American customers has seen strong results and the Hispanic and the Hispanic offer has shown similar levels of customer engagement.
Speaker 3: you know, whether it's, you know, all the quantitative tightening, all of the, you know, any competitive reactions we may see from others. And so, I think, you know, we continue to, you know, think that we're going to see these trends appear at some point. Now, we've been pleasantly surprised, you know, this, you know, to date this year that, you know, it hasn't progressed as fast as we thought it would, but at some point it will.
Whether it's all the quantitative tightening all of the.
Any competitive reactions, we may see from others and so.
So I think we continue to think that we're going to see these trends appear at some point now we've been we've been pleasantly surprised.
To date this year that it hasnt progressed as as fast as we thought it would but at some point it will.
Speaker 4: And so, hopefully we'll find ourselves in a position where it doesn't move as maybe fast as we've modeled in terms of pricing. But we still, all those trends are going to happen and are happening, as you look at shifts between non-interest bearing and interest bearing. You're seeing deposit cost continuity.
And so hopefully we will find yourself in a position where it doesn't it doesn't move as maybe fast as we've modeled in terms of pricing, but we still have all of those trends are going to happen are happening as you look at it shifts between noninterest bearing and interest bearing youre seeing deposit cost continue to increase.
Charles Scharf: We also announced that we're offering a $10,000 home buyer access grant that will be applied towards down payment for eligible home buyers currently within or purchasing homes in certain underserved communities in eight metropolitan areas. And we now have 14 hope inside centers and Wells Fargo branches, including the first focusing on serving the Navajo community. The centers help engage and empower communities to achieve their financial goals through financial education workshops and three one on one coaching.
Speaker 4: And on the consumer side you see people spending their money. And so exactly at what pace those things are all going to keep going is, we've certainly modeled.
And on the consumer side, you see people spending their money.
And so exactly at what pace those things are all going to keep going as we certainly modeled.
Speaker 4: model it but you know we try to give you a base case you know forecast that we can hit under a bunch of different scenarios and this is this is the same.
Our model it but we tried to give you a base case.
Forecast so we can hit under a bunch of different scenarios and this is this is the same.
Charles Scharf: Looking ahead, the US economy has continued to be resilient with key support from the labor and strength of the labor market and strength and consumer spending. The linkages continue to deteriorate at a relatively slow consistent rate without signs of acceleration across our portfolios. Our base case remains a continued slowing of the economy, but we remain prepared for a wide range of scenarios given there is still significant uncertainty ahead. Regarding capital, the Basel 3 end game proposal included higher capital requirements as we expected.
Okay got it thank you.
Speaker 1: The next question will come from Stephen Chewback of Wolf Research. Your line is open.
The next question will come from Steven Chu Bank of Wolfe Research. Your line is open.
Hi, good morning.
Speaker 5: So, one of the start, Charlie, because you had made some comments about capital targets and those potentially evolving. The inflation RWA from Basel 3N game that you guided to, does bring your CT1 minimum to 8.5.
So wanted to start.
Charlie because you had made some comments about capital targets and those potentially evolving the inflation RW way from Basel III end game that you've guided to does bring your CET one minimum to aid in the half you alluded subtly mine due to the possibility of managing to a lower target since 150 bps Mad.
Speaker 5: You alluded subtly mind you to the possibility of managing to a lower target. Since 150 Bips Management Cushion does feel excessive, what are some of the factors that would compel you to maintain a larger cushion than peers and maybe continue to run at or above?
Charles Scharf: It's a complicated set of rules, but at this point, if nothing changed and we didn't take actions, we estimate that our RWA would increase increased by approximately 20%. There are some items that I think we start capital requirements that we are hopeful will be adjusted. And we will be participating and sharing our perspectives on the proposed rules during the 100-day, 120-day comment period. Additionally, we are evaluating changes we may make based on the proposed rules.
Man cushion does feel excessive what are some of the factors that would compel you to maintain a larger cushion than peers and maybe continue to run at or above 10%.
Speaker 6: Well, let me just, I'll start and then I'll hand it over to Mike. We were not trying to, or I was not trying to give any direction about where we thought the appropriate buffer would be. We were just trying to be very factual about where we are and once everything is finalized.
Well, let me just I'll start and then I'll hand, it over to Mike we were not trying to where I was not trying to give any direction about where we thought the appropriate buffer would be.
We're just trying to be very factual about where we are and once everything is finalized we'll determine what the right buffers are and we'll communicate those so please don't try and read any more into what I said other than just that and I think Steve I know I know youre estimate might be 150 basis points.
Charles Scharf: Unfortunately, we come into this from a strong position as our current capital levels are above the estimated regulatory minimum plus buffers. However, we still need to decide how much of an additional buckle we want to maintain and what mitigating actions we may want to take to reduce the impact of the new rules. At this point, we still see a path to concurrently increasing our level of CET-1 as appropriate, increasing our dividend, and repurchasing common stuff. Levels of each will be influenced by CETAR, the finalization of the proposed rules, and economic conditions.
Speaker 4: will determine what the right buffers are and will communicate those. So please don't try and read any more into what I said other than just that. Yeah, and I think, you know, Steve, I know your estimate might be 150 basis points, but I think what we've talked about.
What we've talked about.
Speaker 4: You know, over time is that, you know, at least, in least at this point, we've been saying, you know, our buffer's probably close to 100%, you know, 100 basis points over.
Over time as that.
At least.
At least at this point, we've been saying our buffer is probably closer to 100% 100 basis points over over where the wherever the reg minimum might be and that may evolve.
Speaker 3: you know, over wherever the regimen might be and that may evolve as Charlie said. You know, I think as you look at as you look at Balgle 3, you know, the increase in RWAs is driven by the things that, you know, are probably pretty obvious.
As Charlie said I think as you look at as you look at Basel III.
The increase in <unk> is driven by the things that are probably pretty obvious.
Michael Santomassimo: I'll now turn the call over to Mike. Thank you, Charlie.
Michael Santomassimo: Good morning, everyone. An income for the third quarter was $5.8 billion or $1.48 for diluted common share, both up from the second quarter in a year ago. Our third quarter results included $349 million or $0.9 per share of discrete tax benefits related to the resolution of prior period tax matters. During the capital and liquidity in 5-3, our CET-1 ratio increased to 11% in the third quarter, 2.1% is above our new regulatory minimum plus buffers effective on October 1st.
Speaker 4: you know, whether it's operational risk plus, you know, the, you know, some of the other factors, but operational risk is certainly going to be the one of the bigger, you know, bigger pieces of it. And so I really do think that we have to see how the final rule shakes out next year.
It's operational risk plus the.
Some of the other factors, but operational risk is certainly going to be the one of the bigger.
Bigger pieces of it and so I really do think that we have to see how the final rule shakes out next year.
Speaker 4: You know, we're hopeful that there'll be some changes to, you know, areas that we think, you know, just make sense from, you know, aligning sort of the capital requirements to the risk, while also maybe moderating some of the operational risk increases as well. And so, you know, we're going to engage as we go there, you know, but one of the factors that we've talked about now for a while in terms of, you know, how big our buffership is, is the, you know, we needed the rules to be finalized.
We're hopeful that there'll be some changes to.
Areas that we think just makes sense from a aligning sort of the capital requirements to the risk. While also maybe moderating some of the operational risk increases as well and so we're going to engage as we go there.
But one of the factors that we've talked about now for a while in terms of how big our buffer should be as we needed that we needed the rules to be finalized.
Michael Santomassimo: This was up from 10.7% in the second quarter as higher earnings, the approximately 14 basis point benefits from the state of certain private equity investments, and lower risk weighted assets were only partially offset by share reverses and dividends. During the third quarter, we were purchased 1.5 billion in common stock. Our strong capital levels positioned us well for the anticipated increases related to the Baselfree in-game proposal released in the third quarter. Based on where we end of the quarter, we estimate that our CET-2 on ratio would be 50 basis points above the fully phased in-required minimum if the proposed rules were implemented as written after factoring the growth in RWAs in the resulting decline in our stress capital buffer, as well as the impact of the new G-Sid buffer calculation changes.
Speaker 4: And so, could that lead you to having a slightly smaller buffer than what we would have had in the past potentially? But I think we have to get there and get these finalized and then we'll also take actions. Once we have good clarity on what's going to change or not change as we go over the next year. So we're probably nine months to 12 months away from getting a final rule. So we still have a little bit of time for this to play out.
And so could that lead you to having a slightly smaller buffer than what we would've had in the past potentially but I think we have to get there in <unk>.
These finalized and then we will also take actions once we have good clarity on what's going to change or not change as we go over the next year. So I mean, we're probably nine months to 12 months away from getting a final rule and so we still have a little bit of time for this to play out.
Speaker 5: Thanks for the color and for follow up just on the trading business.
Hi, Thanks for the color and my follow up just on the trading business.
Speaker 5: It continues to surprise positively versus expectations. You cited some of the investments that you've made, the benefits of volatility, but with revenues running multiples above what we've seen in prior years, and that billion plus bogey being reached for three consecutive quarters, was hoping you could just speak to whether we should be underwriting a billion plus as a new normal or if there were any.
It continues to surprise positively versus expectations you cited some of the investments that you've made the benefits of volatility, but with revenues running multiples above what we've seen in prior years and that billion plus bogey being reached for three consecutive quarters. I was hoping you could just speak to whether we should be under.
Michael Santomassimo: Importantly, this is an early estimate subject to change and is before any actions we may take to mitigate the impact of the new rules. Looking forward, we expect to continue to have capacity to increase our CET-1 ratio while we plan to continue to purchase shares as we wait for the capital rules to be finalized.
Writing 1 billion plus as a new normal or if there were any.
Speaker 5: particular benefits or anomalous benefits that maybe we shouldn't be underwriting go forward. Just try to think about what the normalized level of trading revenue should be given some of the investment you've made scaling of that.
Cyclical benefits are anomalous benefits that maybe we shouldnt be underwriting go forward just trying to think about what the normalized level of trading revenue should be.
Michael Santomassimo: Turning to credit quality on 5.5, as we expected, net loan charge costs continue to increase up 4 basis points for the second quarter to 36 basis points of average loans. Commercial net loan charge costs decline modestly from the second quarter to 13 basis points of average loans, as the lower losses in our commercial and industrial portfolio were partially offset by 14 million of higher losses in commercial real estate. We had 32.2 billion of office loans, down 3% from the second quarter, which represented 3% of our total loans outstanding.
Given some of the investments you've made scaling of that business.
Speaker 4: Yeah, I'll take that. You know, look, I think we've, as you said, we've just been methodically investing in the capabilities with a focus on...
Yeah I'll take that.
I think as you said, we've just been methodically investing in the capabilities with a focus on.
Speaker 4: supporting our core clients more than with more capability is versus trying to expand.
Supporting our core clients more than Moore with more capabilities versus like trying to expand the.
Speaker 4: you know the scope of what we do in a way that just doesn't fit who we are and so I think that's what you've seen us try to do there in those businesses so you know businesses like FX and rates and you know just you know is sort of methodically sort of adding you know people in a couple of plots or improving technology and you know we've certainly been we've certainly been the benefit of you know some volatility in the market this year so as you know that could change you know pretty quickly one way or the other
The scope of what we do in a way that just doesn't fit who we are and so I think that's what you've seen us try to do there in those businesses.
As like FX and rates.
Just.
It's sort of methodically sort of adding people in a couple of slots award or improving technology.
Michael Santomassimo: Vacancy rates continue to be high in the office market-remained week. Our CRE teams continue to focus on monitoring and de-risking the portfolio, which includes reducing exposures. As we highlighted in the past, each property situation is different in our main variable, like a determined performance, which is why we regularly would be in this portfolio. As expected, a consumer net loan charge asked to continue to increase, and we're up 98 million from the second quarter, to 67 basis points of average loans.
And we certainly been we've certainly been the benefit of some volatility in the market. This year. So as you know that could change pretty quickly one way or the other.
Speaker 4: But I think as we look at some of these businesses, what we're focused on is just adding the more clients, more flows, more incrementally each month and each quarter. And so whether it ends up being a billion plus or minus a quarter, per quarter, I think we'll see as we go, but we're pretty pleased with what we've seen so far. And...
But I think as we look at some of these businesses. What we're focused on is just is just adding more clients more more flows more.
Incrementally each month and each quarter and so whether it ends up being a 1 billion plus or minus a quarter per quarter. I think we will see as we go but we're pretty pleased with what we've seen so far and and there isn't there isn't a big one time event that happened in the quarter that drove the results and so that's good to see as well in and Youre also not.
Michael Santomassimo: Residential mortgage loans continued to have net recoveries while other consumer portfolios all had higher losses, but the water just increased in our auto portfolio, which was up from the second quarter season, all was. Non-performing assets increased 17% in the second quarter has growth in commercial real estate non-cool loans, more than offset the declining commercial industrial, as well as some modest declines across all consumer portfolios. A decline in commercial industrial non-cool loans was primarily due to payoffs and paydowns, which is a good reminder that the resolution of non-performing assets doesn't always result in charge of us. The increase in commercial real estate non-cool loans was driven by a 1.3 billion increase in the office non-cool loan.
Speaker 4: And there isn't a big one-time event that happened in the quarter that drove the results. So that's good to see as well. And you're also not seeing big growth in market risk RWA as we do this as well. And so that's part of what we've been trying to do as well is kind of sweat the balance sheet more and make sure that we're getting paid for the exposure and the risk we've got there. And so we're happy to see that it's starting to come together.
Seeing big growth in market risk <unk> as we do this as well and so that's part of what we've been trying to do as well as kind of swept the balance sheet more and make sure that where we're getting paid for the exposure and the risk we've got there.
So we are happy to see that it's starting to come together and we're under no illusions, though that three quarters is like success rate. We've got to do this over a long period of time and continue to add capabilities and clients.
Speaker 4: You know, we're under no illusions, though, that three quarters is like success, right? We've got to do this over a long period of time and continue to add, you know, capabilities and clients.
That's great.
Speaker 1: The next question will come from Scott Seifers of Piper Sandler. Your line is open.
The next question will come from Scott <unk> with Piper Sandler Your line is open.
Michael Santomassimo: Moving to side 6. Our allowance for credit losses increased 333 million in the third quarter, primarily for commercial real estate office loans, as well as for higher credit card loan balances, which was partially offset by a lower allowance for auto loans. The composition of our office portfolio is relatively consistent with what we shared with you the past few quarters.
Okay. All right. Thanks for taking the question. So hoping maybe you could spend another moment sort of discussing <unk> mitigation in light of that fed capital proposals I guess, specifically I was hoping for maybe a little more color I know you touched on in some of the earlier remarks, but you know that.
Speaker 1: Well, you're on. Thanks for taking the question. So, being in Mike, you could spend another moment sort of discussing RWA mitigation in light of the Fed capital proposal. I guess specifically was hoping for maybe a little more color. I know you touched on in some of the earlier remarks, but you know the sale of the $2 billion in private equity. And then maybe you could also discuss the newer agreement with Center Bridge for direct lending, just sort of how all these factor and cheers.
The sale of the $2 billion in private equity and then maybe if you could also discuss that your agreement with Centerbridge for direct lending just sort of how all these factor into your thinking here.
Michael Santomassimo: We did not include a separate commercial real estate finance quarter. However, we did update the table showing the allowance for credit losses coverage ratio for commercial real estate, including the breakdown of the office portfolio. We have not seen significant increases in charge of our commercial real estate office portfolio yet. However, we do expect higher losses over time, and we continue to increase the coverage ratio in our commercial real estate office portfolio from 8.8% at the end of the second quarter to 10.8% at the end of the third quarter.
Speaker 4: Sure, you know, when you when you look at mitigation, you know, I'll just give you some examples of the types of things we're thinking about so
Sure.
When you look at mitigation, Yeah, I'll just give you. Some examples of the types of things we're thinking about so.
Speaker 4: You know, when you look at securities finance transactions, you have haircuts, collateral haircuts floors that get implemented and I don't want to get too technical on it because...
When you look at Securities Finance transactions, you have haircut collateral haircut floors that get implemented.
We want to get too technical on it.
Speaker 4: but there's some technical requirements there that just don't seem to make sense to us. But if they do get implemented as written, we'll adapt and we'll change the way what collateral we require from clients to do trades or we'll reprise them. And so there'll be a number of things that we can do like on transactions like that that gets very, very technical for each of the underlying deals.
But there is some technical.
Requirements, there that just don't seem to make sense to us and so.
Michael Santomassimo: On slide 7, we highlight loans and profits. Average loans were down modestly from both the second quarter and a year ago. While we continue to have growth in credit card loans from the second quarter, most other portfolios declined. I'll highlight specific drivers when discussing our operating segment results. Average loan yields increased 195 basis points from a year ago and 24 basis points from the second quarter due to the higher interest rate environment.
But if they do get implemented as written.
Adapt it will change the way, we what collateral we require from clients to do trades or will reprice settlement. So there will be a number of things that we can do like on transactions like that that it gets very very technical.
For each of the underlying deals.
Speaker 4: You know, there will be, I know others have talked about this too. You know, we'll have to decide, you know, how much tax equity investing we do in renewables. You know, if the risk weights hold there, it's just, you know, the math just doesn't make sense from a return perspective. And so we'll probably have to do less, we'll probably do less of those.
B I know others have talked about this too will have to decide how much tax equity investing we do in renewables the risk weights hold there. It's just the math just as it makes sense from a return perspective, and so we'll probably have to do less well probably do less of those.
Michael Santomassimo: Average deposits declined 5% from a year ago, predominantly driven by deposit outflows, and our consumer and wealth businesses reflecting continued consumer spending in customers reallocating cash into higher yielding alternatives. Average deposits also declined in commercial banking while they stabilized in corporate investment banking. As expected, our average deposit cost continued to increase up 23 basis points from the second quarter to 136 basis points, but higher deposit costs across all operating segments in response to rising interest rates. However, the pace of the increase has slowed, in our percentage of average non-interest bearing deposits decreased modestly from second quarter to 29%, but remained above increased endemic levels.
Speaker 4: And so there's a number of things like that as you go through each of the underlying portfolios just don't make sense.
And so theres a number of things like that as you go through each of the underlying portfolio is just don't make sense.
Speaker 4: and we're going to continue, you know, we'll, you know, we'll make the adjustments as we need to. Now, we're also in a position where we've got, you know, plenty of flexibility as we talked about in the prepared remarks, right? You know, our capital levels today are there with a buffer already. And so we have the flexibility to handle it, you know, however we think.
And we're going to we'll we'll make the adjustments as we need to know.
We're also in a position where we've got plenty of flexibility as we talked about in the prepared remarks right. Our capital levels. Today are are there with a buffer already.
And so we have the flexibility to handle it. However, however, we think makes sense to for each of the underlying businesses and what we want to make sure. We do is like we're building real businesses and client relationships over a long period of time, so it's not about necessarily walking away from clients. It's about finding ways to serve them in ways that both makes sense from.
Speaker 4: makes sense for each of the underlying businesses. And what we want to make sure we do is, like we're building real businesses and client relationships over a long period of time.
Speaker 4: So it's not about necessarily walking away from clients. It's about finding ways to serve them in ways that both make sense for them and from a return perspective for us.
Michael Santomassimo: Turning to net interest income on slide 8, third quarter net interest income was 13.1 billion up 8% from a year ago as we continued to benefit from the impact of higher rate. The $58 million fine from the second quarter was due to lower avalanche deposits, partially offset of one additional day in the quarter and the impact of higher interest rates. Last quarter, we increased our expectations for full year 2023 and interest income growth to approximately 14% compared with 2022, which was up from our expectation of 10% growth in the beginning of the year.
And from a return perspective.
Speaker 4: But it's going to be a very, very granular conversation. Some of it will be repricing. You know, you've got 364 day revolvers that will need to be repriced. You've got, there's a whole bunch of very technical things like that that will get done over time once the rules finalize.
For us.
But it will it's going to be a very very granular conversation. Some of it will be repricing you got 364 day revolvers that will need to be repriced, you've got there's a whole bunch of very technical things like that.
We will get done over over time once the rules finalized.
Speaker 3: switching to the partnership we have with Center Bridge.
Switching to the partnership we have with Centerbridge.
Speaker 4: You know, look, it's a, you know, we have been getting demand from clients for a while now, you know, in the middle market, kind of mid corporate space.
We have been getting demand from clients for a while now in the middle market kind of mid corporate space.
Michael Santomassimo: We now expect full year 2023 and interest income growth to grow by approximately 16% compared with 2022, with the fourth quarter 2023 net interest income expected to be approximately 12.7 billion. We expected to climb an interest income of the fourth quarter as primarily driven by our assumption for additional deposit outflows and migration from non-interest sharing to interest sharing deposits, as well as continued poverty pricing, including continued competitive pricing on commercial deposits.
Speaker 4: you know, for, you know, solutions to help them, you know, in, you know, in financing, you know, that they need, where it likely would make sense for us to put on our balance sheet anyway. And so instead of having, you know, telling clients we can't help them or having them go direct to, you know, somebody else, you know, we built the partnership with CenterBridge that allows us to, you know, remain, you know, an advisor to a client and help them solve a problem they may have.
For solutions to help them in in.
In financing that they need.
Where it likely wouldn't make sense for us to put on our balance sheet anyway.
And so instead of having telling clients, we can help them or having them go direct to somebody else. We built that we built the partnership with Centerbridge that allows us to.
<unk> remain an advisor to applied and help them solve a problem they may have.
Speaker 4: And so that's the way we're thinking about it. And we're excited to work with Center Bridge and that team. And they're a very high quality team. It's done a lot over time. And I think this gives us another arrow in the quiver to help us provide solutions for clients. And so it's early and it'll grow over time, hopefully. And hopefully clients will see it in the same way.
And so that's the way we're thinking about it and we're excited to work with Centerbridge and that team and they are very high quality team has done a lot over time and I think this gives us another another.
Michael Santomassimo: Turning to expenses on Friday 9, non-interest expense declined from a year ago driven by lower operating losses and increased 1% to the second quarter driven by higher operating losses, severance expense and revenue-related income. Last quarter, we updated our expectations for full year 2023 and interest expense, including operating losses, to approximately 51 billion. We now expect it to be approximately 51.5 billion, or approximately 12.6 billion in the fourth quarter. The increase reflects additional severance and other one-time costs, revenue-related compensation, and some lags, and we realize that inefficiency saves.
Arrow in the quiver to help us provide solutions for clients and so it's early.
It will grow over time, hopefully and then hopefully clients will see it the same way.
Speaker 4: Okay. Perfect. Thank you. And then maybe as a follow up, might want to revisit, or something to revisit the NII discussion for a bit. I certainly appreciate all the comments on continuing mixtape and deposit pricing pressure. But I guess as we get to this level at the end of the year, is the thought that there would still be, on balance downward pressure on NII beyond there, or is...
Okay perfect. Thank you and then maybe as a follow up might want to revisit I was hoping to revisit the.
NII discussion for a bit.
I certainly appreciate all the comments on continued mix shift in deposit pricing pressure, but I guess as we.
Michael Santomassimo: We reduced headcount every quarter since the third quarter of 2020, and it was down 3% in the second quarter and 5% from a year ago. We believe we still have additional opportunities to reduce headcount, and attrition has remained low, which will likely result in additional severance expense for actions in 2024. We are working through our efficiency plans now as part of the budget process. Additionally, if the FBIT deposit special assessment related to the events from earlier in the year is finalizing the fourth quarter, it would increase our expected fourth quarter expenses.
We get to this level at the end of the year is the thought that there would still be unbalanced downward pressure on NII beyond there or as you see it is there enough kind of asset repricing opportunity that would ultimately allow things to settle out maybe sooner as opposed to later.
Speaker 4: As you see, is there enough to kind of ask that repricing opportunity that would ultimately allow things to That allow, you know, maybe sooner as opposed to later
Speaker 4: Yeah, I mean, we'll see. You know, I think we do need to wait until we get towards the end of the year and into January for us to give you a real view on 2024. I mean, I think, look, the last number of quarters have just shown over and over and over that.
Yes, I mean, we will see I think we I think we do need to wait till we get towards the end of the year and into January for us to give you a real view on 2024, I mean, I think look the last number of quarters to show over and over and over that.
Speaker 4: You know, there's a lot still to play out here and to get too far ahead of ourselves on it for next year, I think would be a mistake at this point. So, but like the same drivers we've been talking about for a while, right? It's like what's gonna happen with the positives, the mix, the pricing, and then to a lesser degree right now, it's loan growth, but it still matters over a long period of time as well. Yeah. Okay. Okay.
Michael Santomassimo: And finally, as a reminder, we have outstanding litigation, regulatory, and customer remediation matters that could impact operating results.
There's a lot still to play out here.
And to get too far ahead of ourselves on it for next year I think would be a mistake at this point so.
But like the same it's the same drivers we've been talking about for a while right. It's like what's going to happen with deposits the mix the pricing and then to a lesser degree right now its loan growth, but it still matters over a long period of time as well okay. Okay.
Michael Santomassimo: Turning to our operating segment, starting with consumer banking and lending on slide 10, consumer small and business banking revenue increased 7% from a year ago, as higher net interest income, driven by the impact of higher interest rates was partially offset by lower to positive related fees, driven by the overdraft policy changes we rolled out last year.
Okay perfect. Thank you very much.
Speaker 1: The next question comes from Matt O'Connor of Deutsche Bank. Your line is open.
The next question comes from Matt O'connor of Deutsche Bank. Your line is open Sir.
Michael Santomassimo: Charlie highlighted the investments we were making in our Chicago branch network, and we're also making investments in refurbishing branches across the existing network. Additionally, we are bringing our digital onboarding experience to our branches, creating a fast and easy experience for our customers. At the same time, we've reduced our whole number of branches by 6% from a year ago.
Speaker 5: Good morning. Can you just elaborate in the comment of tightening the credit box a bit? And then I guess specifically in credit card thoughts there, I know you've been leading into it and it had real good growth.
Good morning can you just elaborate on the comment of tightening.
Credit box a bit and then I guess, specifically in credit card thoughts there I know you've been leaning into it and have had real good growth.
Speaker 5: I think it's still only about 5% of your loan book, but wondering your thoughts, you know, is this really the right time to be leaning into credit card? And maybe I was where kind of later cycle.
I think it's still only about 5% of your loan book, but wondering if your thoughts are.
Is this really the right time to be leaning into credit card or maybe elsewhere kind of later cycle.
Michael Santomassimo: Home lending revenue to client 14% from a year ago due to a decline in mortgage banking income, driven by lower originations and servicing income, which included the impact of sales of mortgage servicing rights. We continue to reduce headcount and home lending in the third quarter, down 37% from a year ago, and we expect staffing levels will continue to decline. Credit card revenue increased 2% from a year ago due to higher loan balances, partially offset by introductory promotional rates and higher credit card rewards expense.
Speaker 4: Yeah, I'll start with credit card and come back to the broader point. So, you know, we started on a journey to transform that card business back in the fourth quarter of 19. So right after, really, Charlie started. And what we've done since then is really refresh, you know, almost completely and refresh the product line. We still have a little bit more to do there.
Yes, I'll start with credit card and come back to the broader broader point. So we started on a journey to transform that the card business back in the fourth quarter of 19, so right after really Charlie started in.
And what we've done since then is really refresh.
Almost completely refreshed the product line, we still have a little bit more to do there.
Speaker 4: And so part of what you're seeing come through in the results is actually putting out good products that people want to buy.
And so part of what Youre seeing come through in the results is actually putting out good products that people want to buy.
Michael Santomassimo: Payment rates have been relatively stable over the past year and remain above pre-pandemic levels. New account growth continued to be strong, up 22% from a year ago, reflecting the continued success of our new products in increased marketing. Importantly, the quality of the new accounts continued to be better than what we were booking historically. While majority of new cards were too existing Wells Fargo customers, we're increasingly attracting more customers than are new to Wells Fargo.
Speaker 4: And you're seeing, you know, really, we have really good new account growth in the quarter, you know, probably our best quarter in quite some time.
And Youre seeing really we had really good new account growth in the quarter, probably our best quarter in quite some time.
Speaker 4: And so it starts with just having a good product and good service behind it. And that's the key driver I think of what you're seeing here.
And so it starts with just having a good product and good service behind it and that's the key driver I think of what Youre seeing here on.
Speaker 4: On the credit side on the new originations, the new accounts we're adding are really good relatives to the backbook. And when you look at both, and even when you dig a little bit deeper there, there's a majority of them are still Wells Fargo bank customers, but we're seeing more and more traction with non- Wells Fargo customers. So first time customers, and when you look at those first time to Wells customers, those the credit profiles really good.
On the credit side on the new originations the new accounts, we're adding are really good relative to the back book.
And when you look at both.
Michael Santomassimo: Auto revenue declined 15% from a year ago, driven by continued loan strike compression and lower loan balances. Personal lending revenue was up 14% from a year ago due to higher loan balances.
And even even when you dig a little bit deeper there. There's a the majority of them are still wells Fargo bank customers, but we're seeing more and more traction with non wells Fargo customers. So first time customers and when you look at those first time to wells customers. Those the credit profile is really good.
Michael Santomassimo: Turning this in key business drivers in 5.11, mortgage originations declined 70% from a year ago in 18% in the second quarter. We continue to make progress on the strategic plans we announced earlier this year, including focusing on serving Wells Fargo bank customers, as well as the borrowers and minority communities.
Speaker 4: And so we feel comfortable with the risks that's being added there. We're going to continue to look for pockets of risk. And if we see them, we'll tighten it down. But in terms of what we're seeing in originations, we feel good about what we're seeing so far. Just more broadly on
And so we feel we feel comfortable with like the risks that's being added there.
And we're going to continue.
Look for pockets of risk and if we see them will tighten it down.
But in terms of what we're seeing in originations we feel good about what we're seeing so far.
Michael Santomassimo: We did not originate or fund any corresponding boardies in the third quarter. Besides of our auto portfolio, we declined for six consecutive quarters and balances were down 9% at the end of the third quarter compared to a year ago. Origination volumes declined 24% from a year ago, reflecting credit tightening actions as well as continued price competition. Our origination mix continued to shift towards higher price scores, reflecting the credit tightening actions we've taken over the past year.
Just more broadly.
On credit.
Speaker 4: You know, we've said now for probably the last four or five quarters, you know, we've been kind of incrementally tightening the credit box on the consumer side.
We've said now for probably the last four or five quarters, we've been kind of incrementally tightening the credit box on the consumer side.
Speaker 4: you know, for a while, whether it's really across the board in home lending, auto card, personal loans, really every single one of them had some credit tightening and it's been a bit incremental over the last four or five quarters.
For a while whether it's really across the board in home lending auto card.
Personal loans really every single one of them has had some.
Credit credit tightening and it's a bit it's been a bit incremental over the last four or five quarters.
Michael Santomassimo: Debate card spending increased 2% from a year ago, with growth in most categories, offsetting clients in global home improvement and travel. Credit card spending continued to be strong, was up 15% from a year ago, all categories grew from a year ago, including fuel, which reached out to the average finding in the second quarter.
Speaker 4: And so I would sort of think of that as like taking that last one or two or three percent, you know, of origination out That doesn't make sense in what could be a more difficult economic environment It's not host-style shifts in sort of the approach or or the you know the underlying You know box that we're operating and it's really sort of modest and incremental
And so I would still sort of think of that as like taking that last one or two or 3% of origination out that doesn't make sense.
What could be a more difficult economic environment, it's not wholesale shifts in sort of the approach or or the underlying.
Box that we're operating in it's really sort of modest and incremental and then just and just to be clear I mean, it's the very basic stuff. It's just it's it's just upping the lower FICO boundaries.
Michael Santomassimo: Turning to commercial banking results in 5.12, middle market banking revenue increased 23% from a year ago due to the impact of higher interest rates and higher loan balances. Acid-based lending releasing revenue increased 3% year-to-year due to higher loan balances as well as higher revenue from your well-energy investments. Average loan balances were up 7% in the third quarter compared to a year ago driven by growth and asset-based lending releasing.
Speaker 6: And then there's just some and just to be clear, I mean, it's, and it's the very basic stuff. It's just
Speaker 6: It's just upping the lower glyco boundaries.
Speaker 6: layered risks. And so, you know, as you continue to, you know, make these changes, you just continue to do the same types of things without just wholesale exits or anything like that. It's just kind of a smart tightness.
Layered risks.
It's just as you continue to make these changes you're just we're just continuing to do the same types of things without just wholesale exits or anything like that it's just it's just kind of a smart tightening.
Michael Santomassimo: Average loans were down 1% in the second quarter due to decline to middle market banking. After increasing the first half of the year, revolver utilization rates declined in the third quarter to level similar to a year ago.
Speaker 4: Yeah, and then outside of consumer space, outside of consumer, really the only place that we've meaningfully tighten credit over the last couple years or few years is commercial real estate. And other than that, I think there's probably some minor tinkering, but we haven't really changed the appetite much outside of commercial real estate.
Yes, and then and then outside of the consumer space outside of consumer really the only place that we've meaningfully tightened credit over the last couple of years or few years as commercial real estate.
Other than that I think there is theres, probably some minor tinkering, but we haven't really changed the appetite much outside of commercial real estate.
Michael Santomassimo: Turning to corporate investment banking on slide 13, banking revenue increased 20% from a year ago driven by higher lending revenue, stronger treasury management results, reflecting the impact of higher interest rates and higher investment banking revenue, reflecting increased activity across all products.
Speaker 4: Okay, that's helpful. And then this clarification on the seventh cost, can you give us what the absolute amount was this quarter? I think you give us the change verse a year ago and linked quarter, but what was the absolute level this quarter? Yeah, there wasn't a lot of year ago, so it's not far off of the total. So, you know, small difference, but it's, there wasn't a lot.
Okay. That's helpful. And then just a clarification on the severance costs.
Can you give us what the absolute amount was this quarter could you give us the change versus a year ago and linked quarter.
Michael Santomassimo: As Charlie highlighted, we continue to experience bankers helping us deliver far clients and positioning us well when markets improve. Commercial real estate revenue grew 14% from a year ago, reflecting the impact of higher interest rates and higher revenue in our low income housing business, partially offset by lower loan and positive balances. Markets revenue increased 33% from a year ago driven by higher revenue and structural products, equities, credit products, and foreign exchange. We've had strong trading results for three consecutive quarters, as we've benefited from market volatility, and the investments we've made in technology and talent growth is good.
But what was the absolute level this quarter.
Yes, there wasn't a lot a year ago. So it's not far off of the total.
So small difference, but there wasn't a lot.
Speaker 4: Okay, so that's 200 million. Yeah, and again, that'll sort of evolve. As we go, I mentioned that in my script, as we look at next year and the attrition rates that we're seeing.
Okay. So it's about $200 million yes.
And again that will sort of evolve.
As we go I've mentioned that in my script as we look at next year and the attrition rates that we're seeing.
Alright, thank you.
Speaker 1: The next question will come from John Pancari of Evercore IS.
The next question will come from John <unk>.
Evercore ISI.
Speaker 7: Morning. Um, on the commercial real estate front, and the use side of the increase.
Good morning.
The commercial real estate front I know you cited the increase would be.
Michael Santomassimo: Advertisers. Average loans were down 5% from a year ago driven by banking, reflecting a combination of slower demand, payoffs, and modestly lower line legalization. Average loan balances were stable with the second quarter. On slide 14, wealth and investment management revenue increased 1% from a year ago, driven by higher asset-based fees through the increased market valuations. Then interest in income declined from a year ago driven by lower deposit balances as customers continue to reallocate cash and a higher yield and alternative to this as well as lower loan balances.
Speaker 6: Office loan loss reserve from the CIB from 888 to 10.8. It can just comment there in terms of, you know, what were some of the anecdotal drivers for the loan loss reserve increase. Do you think he could have incremental increases here? And maybe cite some of the office re-daluations you've seen as you have, you know, the underlined collateral change hands or reappraisals if you can go to some color there as well. Thanks. Yeah. Sure.
Office loan loss reserve.
From the CIB from eight eight to 10.8.
Just comment there in terms of.
What were some of the anecdotal drivers for the loan loss Reserve increase do you think you could have incremental increases here, maybe cite some of the office revaluations you've seen as you have.
<unk>.
Clearly the underlying collateral change hands or re appraisals. If you can give us some color there as well thanks.
Yes sure.
Speaker 8: So
Yes.
Michael Santomassimo: While average deposits were down, compared to both the second quarter and a year ago, the pace of the client slowed in the third quarter. As a reminder, the majority of wealth and investment management advisory assets were priced at the beginning of the quarter, so third quarter results reflected market valuations as of July 1st, which were higher from a year ago. Average loans were down 4% from a year ago, primarily due to decline in security-based lending.
Speaker 4: The hard part of office right now is that there aren't a lot of trades happening yet, right? There's a few in certain cities and they're all a little bit different in their complexion.
Yeah. The hard part of office right now is that there aren't a lot of trades happening yet right.
Q in certain cities and they're all a little bit different in their complexion.
Speaker 4: So you still have somewhat limited information in price discovery and a lot of places. And so we're doing, we do a lot of our own work to try to evaluate each of the underlying properties and what it could be worth in a bunch of different scenarios. And then...
So you still have somewhat limited information and price discovery and a lot of and a lot of places and so we're doing we do a lot of our own work to try to evaluate each of the underlying properties and what that could be worth in a bunch of different scenarios and then.
Speaker 4: And then it's starting, it's feeling like the appraisal market is starting to kind of catch up where they're, we're seeing appraisals that are more realistic and more updated. So that's certainly bringing in different data points as we look at it.
And then it struck its feeling like the appraisal market is starting to kind of catch up where there were seeing appraisals that are more realistic and more updated.
Michael Santomassimo: Slide 15 highlights our corporate results. This side includes venture capital and private equity investments, including the investments in funds that we stole from the third quarter. The sale had a nominal impact on third quarter of the income.
So thats certainly bringing in different data points as we look at it and as we looked at the quarter.
Speaker 4: And as we looked at the quarter, we sort of look at all those data points and the underlying loans and try to do our best to come up with what we think the different range of loss could look like here and that's what's embedded in the results. Hopefully we end up being.
We we sort of look at all those data points and the underlying loans and try to do our best to come up what we think the different.
Michael Santomassimo: Revenue declined 345 million from a year ago, reflecting a assumption change is related to the valuation of our B2B common stock exposure as well as lower venture capital revenue. In summary, our result in the third quarter reflected continued improvement in our financial performance. During the first nine months of this year, we had strong growth in revenue, pre-tax provision profit, and diluted earnings for share compared to a year ago. As expected, our net charge also continued to slowly increase from historical lows, and we increased our loans for credit losses by over 1.9 billion this year, primarily for serious loans and higher credit for loan balances. We are closely monitoring our portfolios and taking credit-tightening actions where we believe appropriate. Our capital levels have increased, and we can expect it to continue to return access capital shareholders.
So range of loss could look like here and that's what's embedded in the results hopefully we ended up being conservative.
Speaker 3: You know, conservative, but, but nonetheless, it's, you know, it's possible that this, this plays out this way. And so we haven't really seen any losses of significant yet, significant yet, but we will.
Conservative, but nonetheless.
<unk>.
It is possible that this plays out this way and so we haven't really seen any losses of significant yet significant yet, but we will.
Speaker 4: And it just takes some time for it to play out for each of these underlying situations. Probably longer than any of us would hope to, you'd hope that you could bring some of this stuff to resolution maybe faster than it really takes in real life. But it's really looking at all the data points, the limited sales, the new appraisals that are coming through, and then our own analysis, breach and underlying progress.
And it just takes some time for it to play out for each of these underlying situations.
Probably longer than any of US would hope you would hope that you could bring some of this stuff to resolution maybe faster than.
Then it really takes in real life, but it's really looking at all the data points are limited sales the new appraisals that are coming through and then our own analysis for each of the underlying properties.
Operator: We will now take your questions. Thank you.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star then one on your phone's keypad. Please unmute your phone and record your name at the prompt. If at any time your question has been answered, you can remove your request by pressing star two.
Speaker 7: Got it. All right, my friend. And then separately, but also within commercial real estate, we're getting more and more questions around multi-family exposures and just how well they really are holding up given some supply issues in certain markets. Can you just comment there? Are you seeing any more of these stress or any changes to underlying reserve for that book?
Got it alright, Thanks, Mike and then separately also within commercial real estate, we're getting more and more questions around multifamily exposures and just how well they really are holding up given some supply issues in certain markets.
Can you just comment there or are you seeing any noteworthy strengths or any changes to underlying reserved for that book.
John Mcdonald: Once again, that is star one for questions at this time, and we will take our first question from John McDonald of Autonomous Research. Your line is open, sir. Hi, good morning. I wanted to ask about the expenses, Mike. Obviously improving efficiency has been a big goal of yours. You've made progress even while investing in regulatory. What are the additional opportunities to improve efficiency from here as you head into 2024? I know you're probably not ready to give guidance for 24 yet, but are you going into the budget planning with a mindset that they should be roughly flatish, and any comments you can give on that would be helpful. Sure. Thanks, John.
Speaker 4: Yeah, not a lot. You certainly see certain markets that might appear to have some oversupply in condos in certain places, but it feels like that will work itself out over a period of time. We're not seeing real systematic stress in the portfolio at this point.
Yeah, not a lot.
You certainly see certain markets that might.
Appear to have some oversupply in condos in certain places, but but it feels like that will work itself out over a period of time, we're not seeing real systematic stress in the portfolio at this point.
Speaker 7: Got it. I can have just one last one on the heck out. You know, cut that you mentioned, you're looking at every business pretty much. Are any heck out got occurring yet in the risk area or anything or any changes with contracts with consultants in the risk over haul area at all?
Got it and if I can ask one last one on the headcount cut.
You mentioned, you're looking at every business pretty much or any head count cuts occurring yet.
And the risk area or do you think.
Michael Santomassimo: Let's just make sure we keep it all in context. We set out a program almost three years ago now to cut roughly $10 billion. That's all still on track. We've brought headcount down 40,000 or closer to 50,000 from the peak back in 2025, so very good progress to date. As Charlie and I have both said over the last couple quarters, we still have more to do to make it more efficient. I would say there are very few parts of the company that we would say are optimized at this point.
Any changes with contracts with consultants.
And the risk overhaul area at all.
Speaker 4: Yeah, no, look, the only thing I'd say on the risk and right work is that we're going to spend whatever we need to spend and put the resources we need against it to get it done.
Yeah, No look the only thing I would say on the risk and rate work is that we're going to spend whatever we need to spend and put the resources, we need against it to get it done.
Speaker 6: and we're going to continue to do that. And just to be clear, like we're not cutting headcount related to that, in fact, it's probably the opposite when you look over the past bunch of quarters. The only thing which goes up and down is depending on where we are with work with outside consultants, that number will go up or down in a given quarter. But we've also said if we can use outside resources to help get the work done sooner, we're going to.
And we're going to continue to do that and to work just to be clear, we're not cutting head count related to that in fact, it's probably the opposite when you look over the past bunch of quarters. The only thing, which goes up and down is depending on where we are with work with outside consultants that number will go up or down in a given quarter.
But we've also said if we can use outside resources to help get the work done sooner, we're going to so as we think about.
Michael Santomassimo: Some have more opportunities than others, some require investment in terms of automation and technology, some don't. But I do think that we go into the budget process and even just how we operate every quarter with a very disciplined approach to every single area of the company saying, what are we going to do to continue to drive more efficiency there? While we make investments as well, we highlighted some of those that we've been making in the prepared remarks. But I think it's the same mindset we've been bringing to it now for the last few years, and I think we're going to continue to do that.
Speaker 6: So as we think about our efficiencies, that is just not in scope at this point, or for the foreseeable future. Got it. Thanks, Charles.
We think about our efficiencies.
That is just not in scope at this point or for the foreseeable future.
Got it alright, thanks, Charlie sure of course.
Speaker 1: The next question comes from Erica Nazarian of UBS. Your line is open.
The next question comes from Erika Najarian of UBS. Your line is open.
Good morning.
Speaker 9: My first question is on the, you know, revenue side, you know, as a follow up, the chewbacks line of questioning, you know, I think not only the trading numbers come better this year, but also investment banking.
My first question is on the.
The revenue side as a follow up could chew bags line of questioning.
Not only that the trading numbers come better than this year, but also investment banking.
Speaker 9: And so, you know, here you're allowed to clear about the cyclicality of the trading business, but
So.
I hear you loud and clear about the cyclicality of the trading business, but.
John Mcdonald: Where that ultimately ends up, we'll share, for next year, we'll share it with you in January like we always do. Okay, fair enough.
Speaker 9: You know, I guess help us get a sense of, you know, if the industry wallets, for example, returned to 2019 levels.
I guess help us get a sense of you know.
If the industry wallet for example return to 2019 levels.
Michael Santomassimo: And then on the net interesting come outlook for the fourth quarter, are you building in assumptions, you mentioned deposit outflows and makeshift assumptions? Are they assuming that things accelerate from here or similar to what you've seen in this quarter? It seems like a pretty big sequential decline, just kind of wondering what some of the assumptions are there, thanks. Yeah, look I think as we talked about over the last, it feels like forever but certainly the last four or five, six quarters now, there's still a lot of uncertainty out there in terms of how the path of both deposits and pricing will shape up, whether it's all the quantitative tightening, all of the competitive reactions we may see from others.
Speaker 9: Do you think that you're going to have a generally a higher share of revenues in capital markets versus 2019?
Do you think that youre going to have.
Generally a higher share of revenues and capital markets versus 2019 and sort of the some question to that is yes. We think about the investments you have already made what are the other businesses that could potentially surprises to the upside where it's not quite optimized yet in terms of its revenue production.
Speaker 9: And sort of the some questions to that is, they think about the investments you have already made. What are the other businesses that could potentially surprise us to the upside, where it's not quite optimized yet in terms of its revenue production? And obviously everybody's thinking about, you mentioned CARD, and also everybody's also thinking about wealth management and investment advisory rep.
Obviously, everybody is thinking about you mentioned card and also everybody is also thinking about wealth management.
Advisory revenues.
Speaker 6: Yeah, well, let me take a shot at that. I think the answer is your question on share without getting overly specific. Yes, we think when you look at where we stand on our growth in our corporate investment banking share, whether it's on the trading side or whether it's on the fee related side, our shares have grown. And certainly on the...
Yes, well, let me take a shot at that I think listen I think the answer is.
To your question on share without getting overly specific yes, we think when you look at where we stand on our growth in.
Michael Santomassimo: And so I think we continue to think that we're going to see these trends appear at some point, now we've been pleasantly surprised to date this year that it hasn't progressed as fast as we thought it would, but at some point it will. And so hopefully we'll find ourselves in a position where it doesn't move as maybe fast as we've modeled in terms of pricing, but we still, all those trends are going to happen and are happening, as you look at shifts between non-interest bearing and interest bearing, you're seeing deposit costs continue to increase.
Our corporate investment banking share, whether it's on the trading side or whether it's on the fee related side.
Our shares have grown.
And certainly on the.
Sure.
Speaker 6: within the fee-based side of the business, we do hope they continue to grow. That's
Sure.
Within the fee based side of the business, we do hope they continue to grow.
Speaker 6: That's driven by the investments that we're making in, investments meaning people in terms of growing our capabilities. And we've got clear goals and targets.
That's driven by the investments that we're making in investments meaning people.
In terms of growing our capabilities and we've got clear goals and targets.
Speaker 6: by person that we bring on in terms of what we expect and we're gonna be tracking to that, you know, and just to remind her, certainly when we brought some of the people on, they bring some, you know, a lot of clients with them, some new transactions in the short term and we've been beneficiaries of that over the last couple of quarters just as we brought some people on, but you know, these are relationship based businesses and transactions don't occur every single quarter, so we would expect our share.
By person that we bring on in terms of what we expect and we're going to be tracking to that.
Michael Santomassimo: And on the consumer side you see people spending their money, and so exactly at what pace those things are all going to keep going, we've certainly modeled it, but we try to give you a base case forecast that we can hit under a bunch of different scenarios and this is the same. Okay, got it, thank you.
As a reminder, certainly when we brought some of the people on they bring some.
A lot of clients with them some new transactions in the short term and we've been beneficiaries of that over the last couple of quarters, just as we brought some people on.
But these are relationship based businesses in transactions don't occur every single quarter. So we would expect our share.
Steven Chubak: The next question will come from Stephen Chewback of Wolf Research, your line is open. Hey, good morning. So one of the start, Charlie, because you had made some comments about capital targets and those potentially evolving, the inflation RWA from Basel 3N game that you guided to does bring your CT1 minimum to eight and a half.
Speaker 6: to continue to grow and I just know as a reminder without taking any additional risks.
To continue to grow and I'd, just as a reminder, without taking any additional risk overall, because we are taking the risk today relative to.
Speaker 6: overall because we're taking the risk today relative to the exposures that we have.
The exposures that we have.
Speaker 6: When we look at where we can see growth coming, you know, overall across the entire company, we just go business.
When we look at where we can see growth coming overall across the entire company.
We just go business by business.
Speaker 6: Absolutely in our consumer small business, small and business banking segment.
Absolutely in our consumer small business.
Charles Scharf: You alluded, suddenly, mind you to the possibility of managing to a lower target. Since 150 Bips Management Cushion does feel excessive, what are some of the factors that would compel you to maintain a larger cushion than peers and maybe continue to run at or above 10%.
Small and business banking segment.
Speaker 6: because we've basically been treading water there. As we stabilize that business going back to the issues that we had there, which was an incredibly difficult thing to do, and we did. And we've not been on our front foot in that business. We're going to do it in a very different way than this company did it historically. But there are opportunities to be on the front foot and actually grow share on an organic basis. And so incredibly excited about that.
Because we've basically been treading water there.
As we stabilize that business going back to the issues that we had there which was an incredibly difficult thing to do and we did and we've not been we've not been on our front foot in that business, we're going to do it in a very different way than this company did it historically, but there are opportunities to be on the front foot.
Michael Santomassimo: Well, let me just, I'll start and then I'll hand it over to Mike. We were not trying to, I was not trying to give any direction about where we thought the appropriate buffer would be. We were just trying to be very factual about where we are and once everything is finalized, will determine what the right buffers are and will communicate those. So please don't try and read any more into what I said other than just that.
Naturally.
Gross share on an organic basis.
And so incredibly excited about that opportunity not excited as I have said about growing share in mortgage that's not where we're after and it's we've talked about where we're going there auto it's about returns not growth. So don't look for a lot of growth there unless the dynamics changed in the business Mike spoke about card we're incredibly energy.
Speaker 6: Not excited as I've said about growing Sharon Mortgage, that's not where we're after and it's
Speaker 6: We've talked about where we're going there. Auto, it's about returns, not growth. So don't look for a lot of growth there unless the dynamics change in the business.
Michael Santomassimo: Yeah, and I think, Steve, I know your estimate might be 150 basis points. But I think what we've talked about over time is that at least at this point, we've been saying our buffer is probably close to 100%. 100 basis points over where ever the reg minimum might be and that may evolve as Charlie said. As you look at Volga 3, the increase in RWAs is driven by the things that are probably pretty obvious whether it's operational risk plus some of the other factors.
Speaker 6: Mike spoke about CARD. We're incredibly energized by the evidence that shows.
<unk> bye.
The evidence that shows with with our brand and our relationships. When you put a great product out there, we get positive selection and real growth and by the way look at our spend numbers I mean, you want to see like the impact of what it means just look at the spend that we're seeing.
Speaker 6: with our brand and our relationships when you put a great product out there, we get positive selection and real growth. And by the way, look at our spend numbers. I mean, you wanna see like, the impact of what it means just look at the spend that we're seeing.
Speaker 6: which is much higher than the industry level.
Which is which is much higher than the industry levels, our wealth business as you pointed out no question.
Speaker 6: are wealth businesses you pointed out, no question. Also, credit water for a long period of time. We're attracting people and teams. We're rolling out new products. So we feel really good about the opportunities that are there.
Michael Santomassimo: But operational risk is certainly going to be one of the bigger pieces of it. And so I really do think that we have to see how the final rule shakes out next year. We're hopeful that there'll be some changes to areas that we think just make sense from a lining sort of the capital requirements to the risk while also maybe moderating some of the operational risk increases as well. And so we're going to engage as we go there.
So treaded water for a long period of time, we're attracting people and teams we're rolling out new products. So we feel really good about the opportunities that are there.
Speaker 6: And in the middle market segment, where it's a little bit more business as usual, because it is such a strong franchise for us. Even there, we look back at our asset, based lending businesses and the things that we acquired from G.E. They ran as standalone businesses here for a long period of time, and we didn't bring the entire product set of Wells Fargo to those customer bases. Under Kyle, Rannocky, Kristen Lesher, and, um,
And in the Middle market segment, where it's a little bit more business as usual because it is such a strong franchise for us even there we look back at our asset.
Based lending businesses and the things that we acquired from GE. They ran as Standalone businesses here for a long period of time, and we didn't bring the tire product set of wells Fargo to those customer bases.
Michael Santomassimo: But one of the factors that we've talked about now for a while in terms of how big our buffer should be is that we needed the rules to be finalized. And so could that lead you to having a slightly smaller buffer than what we would have had in the past potentially. But I think we have to get there and get these finalized and then we'll also take actions. You know once we have good clarity on what's going to change or not change as we go over the next year.
Under Kyle radically Christian lessor in.
Speaker 6: Then Kay DuBois, our Mayor Catherine Dubra, DuBois, are...
Mmkay Dubois, our mayor Catherine do broth to do both or.
Speaker 6: diligently working through that and bringing the investment banking product to that entire commercial banking product. So I mean, I can go on. I just, it should be broad base.
Diligently working through that and.
And bringing the investment banking product to.
That the entire commercial banking products. So I could go on I just it should be broad based most of it by the way I'll point out in terms of when we see opportunities. It is fee based growth.
Michael Santomassimo: So I mean we're probably nine months to 12 months away from getting a final rule. And so we still have a little bit of time for this to play out.
Speaker 6: Most of it, by the way, I'll point out, you know, in terms of when we see opportunities, it is the based growth, not because we've dictated that, but just because we focused a lot on NII as a company historically, and we just have a lot of opportunities that, you know, we get excited about that'll play out over a period of time.
Steven Chubak: Thanks for the color and for follow-up just on the trading business. It continues to surprise positively versus expectations.
Not because we've dictated that but just because we.
We focused a lot on NII as a company historically and we just have a lot of opportunities that we get excited about that will play out over a period of time.
Michael Santomassimo: You cited some of the investment that you've made, the benefits of volatility, but with revenues running multiples above what we've seen in prior years and that billion plus bogey being reached for three consecutive quarters, so many of you speak to whether we should be underwriting a billion plus as a new normal or if there are any particular benefits or anomalous benefits that maybe we shouldn't be underwriting go forward. Just try to think about what the normalized level of trading revenue should be given some of the investment you've made scaling of that business.
Speaker 9: got it. And I think that excitement is clear, Charlie. And my second question is, given all of that and taking a step back, you know,
Got it and I think that excitement it is clear Charlie.
My second question is given all of that.
A step back.
Speaker 9: I totally think it's too early to agree with you to give anything on 24 expenses, but more broadly discussing, do you feel like the company is in a little bit of an inflection point because on one hand, Mike was saying that very few parts of the bank are optimized.
I totally think it's too early.
I agree with you to give any anything on Tony for expenses, but more broadly discussing.
Do you feel like the company is in a little bit of an inflection point because on one hand, Mike was saying that very few parts of the bank are optimized.
Speaker 9: You know, on the other, I think you guys mentioned that the head count's not going the other way and perhaps it's really, you know, some of the outside consulting fee that could go up and down. But I'm wondering if, you know, you get asked about expenses in a framework of flat.
On the other I think you guys mentioned that the head count is not going the other way and perhaps it's really.
Michael Santomassimo: Yeah, I'll take that. You know, look, I think we've, as you said, we've just been methodically investing in the capabilities with a focus on supporting our core clients more than more, with more capabilities versus trying to expand the scope of what we do in a way that just doesn't fit who we are. And so I think that's what you've seen us try to do there in those businesses, businesses like FX and rates and just sort of methodically sort of adding people in a couple of plots or improving technology.
Some of the outside consulting fees that could go up and down.
I'm wondering if you can ask about expenses.
Framework of flat.
Speaker 9: But then all of this momentum on the revenue side seems to be on the come. And I'm wondering how you think about as you budget for the company. And as you think about just getting to that 15% Roth fee, let's just put bottles through endgame aside in terms of the denominator. How do you balance some of the shareholders and the analysts that are asking you about expenses in the context of flat?
Then all of this momentum on the revenue side seems to be on the con.
I'm wondering how you think about your budget for the company and as you think about just getting to that 15% ROTC.
Let's just put Basel III endgame aside in terms of the denominator, how do you balance some of the shareholders and the analysts that are asking you about expenses in the context of flat versus the revenue momentum that obviously would need expenses to keep sustaining versus that revenue momentum that you seem to be set.
Michael Santomassimo: And we've certainly been the benefit of some volatility in the market this year. So as you know, that could change pretty quickly one way or the other. But I think as we look at some of these businesses, what we're focused on is just adding the more clients, more flows, more incrementally each month and each quarter. And so whether it ends up being a billion plus or minus a quarter per quarter, I think we'll see as we go, but we're pretty pleased with what we've seen so far.
Speaker 9: versus the revenue momentum, you know, that obviously would need expenses to keep sustaining, versus that revenue momentum that you seem to be so excited in life.
Oh Wow.
Speaker 6: Let me start and Mike, you either come in at the end or just make your comments along the way as well. So I think first of all, we think about it as two separate exercises that we go through. And it's very timely, because we're in the middle of going through the exercise for next year as most other companies are, which is, this company is not efficient.
Let me, let me start and Mike.
Either come in at the end or just.
Make your comments along the way as well so I think first of all we think about it as two separate exercises that we go through and.
Yes.
Very timely because we are in the middle of going through the exercise for next year as most other companies are which is this company is not efficient.
Michael Santomassimo: And there isn't a big one-time event that happened in the quarter that drove the results. And so that's good to see as well. And you're also not seeing big growth in market risk RWA as we do this as well. And so that's part of what we've been trying to do as well is kind of sweat the balance sheet more and make sure that we're getting paid for the exposure and the risk we've got there. And so we're happy to see that it's starting to come together.
Speaker 6: like period and the story. And I've described this, it's even with all of the reductions that we've made. It's not surprising because as you peel the onion back, other things present themselves. And so, you know, you just go in order of things that are more obvious and things like that. But when we sit around as a management team, we feel great about the progress.
Period end of story.
And I've described us its EBIT, even with all of the reductions that we've made.
It is not surprising because as you peel the onion back other things present themselves and so.
You go in order of things that are more obvious and things like that but when we sit around as a management team.
Michael Santomassimo: And we're under no illusions though, that three quarters is like success. We've got to do this over a long period of time and continue to add capabilities and clients.
We feel great about the progress and.
Michael Santomassimo: That's great.
Speaker 6: you know, there's no clear way to see that in the head count numbers, which ultimately drive the expense of the company. And, you know, if we stood here and told you we were going to drive the head count down that much in this period of time, I'm not sure you'd believe this.
There is no clearer way to see that then in the head count numbers, which ultimately drive the expense of the company.
We stood here and told you we were going to drive the head count down that much in this period of time I'm not sure you would have believed us.
Scott Seifers: The next question will come from Scott Seifers of Piper Sandler.
Speaker 6: And so when we say we're going to do something, we really do mean it. And so when we sit around as the team, there are many more efficiencies to get and we're diligently working through those. And then separately from that, it's when we talk about making investments in the place, are we getting the pay off for?
Michael Santomassimo: Dr. Wynne is open. Well, you're on. Thanks for taking the question. Soping in Mike, you could spend another moment sort of discussing RWA mitigation in light of the Fed capital proposal. I guess specifically was hoping for maybe a little more color. I know you touched on in some of the earlier remarks, but the sale of the two billion in private equity. And then maybe if you could also discuss the newer agreement with Center Bridge for direct lending, just sort of how all these factor in tier thinking here.
And so when we say we're going to do something we really do mean, it and so when we sit around as the team.
There are many more efficiencies to get and we're diligently working through those.
And then separately from that it's when we talk about making investments into place are we getting the pay off for us and so whether it's the marketing in the card business, where we're spending more money on marketing than we had in the past and we feel great about.
Speaker 6: So whether it's the marketing in the card business, where we're spending more money on marketing than we had in the past, and we feel great about, as Mike pointed out, not just the volumes that we're getting, but the underlying quality relative to how we had modeled that.
As Mike pointed out.
Just the volumes that we're getting but the underlying quality relative to how we had modeled that.
Michael Santomassimo: Sure. When you look at mitigation, I'll just give you some examples of the types of things we're thinking about. So when you look at securities finance transactions, you have collateral, haircuts, floors that get implemented. And I don't want to get too technical on it. But there's some technical requirements there that just don't seem to make sense to us. And so, but if they do get implemented as written, we'll adapt and we'll change the way we, what collateral we require from clients to do trades or we'll reprise them.
Speaker 6: And so, you know, we'll do that with each and everything. And ultimately, we need to make a decision as we finalize the process of the budget, you know, on just much more of a technical basis of how those things net out. You know, we're well aware of what shareholders are looking for. We're well aware of, you know, that the expense side of this company is an important equation in what investors look at us.
So, we'll do that with each and everything and ultimately we need to make a decision as we finalize the process of the of the budget.
Much more of a tactical basis of how those things net out we're well aware of.
Of what shareholders are looking for we're well aware of that the expense side of this company.
Is an important equation and what investors look at us.
Speaker 6: in terms of where, you know, unlocking value and we hear it and we see it and whatever, wherever we come out when we talk to you about our guidance for next year.
In terms of where unlocking value and we hear it and we see it and whatever wherever we come out when we talked to you about our guidance for next year.
Michael Santomassimo: And so there'll be a number of things that we can do like on transactions like that that gets very, very technical for each of the underlying deals. There will be, I know others have talked about this too, we'll have to decide how much tax equity investing we do in renewables. If the risk weights hold there, the math just doesn't make sense from a return perspective. And so we'll probably have to do less, we'll probably do less of those.
<unk>.
Speaker 6: We will explain why we got to where we are. It's going to include efficiencies. It's going to include investments. You know, whether it, you know, where that turns out, and you know, we'll explain it. And, you know, I think so far,
We will explain why we got to where we are it's going to include efficiencies. It's going to include investments.
Whether it where that turns out and we'll explain it and I think so far.
We've been we've been as clear and as transparent as we can be and if it makes sense you'll like it.
Speaker 6: You know, we've been as clear and as transparent as we can be. And if it makes sense, you'll like it. And if it doesn't, you won't, you'll tell us. But so far, we've been able to, you know, have alignment there. But, you know, overall, I would just, you know, it's a long way of saying it's not, you know, lost on us that we have opportunities both to reduce expenses and to invest.
Michael Santomassimo: And so there's a number of things like that as you go through each of the underlying portfolios, just don't make sense. And we're going to continue, we'll make the adjustments as we need to. Now we're also in a position where we've got plenty of flexibility as we talked about in the prepared remarks, right? You know, our capital levels today are there with a buffer already. And so we have the flexibility to handle it, however we think makes sense for each of the underlying businesses.
And if it doesn't you won't you'll tell us, but so far we've been able to.
Have have alignment there, but overall I would just it's a long way of saying it is not lost on us that we have opportunities both to reduce expenses and to invest but.
Speaker 6: But making sure that the overall expense level stays and check at this place is incredibly important to us. And we have to prove that there is revenue growth there supporting investments that we make. And we have to prove that there is a revenue growth there supporting investments that we make.
Making sure that the overall expense level stays in check at this place.
Is incredibly important to us and we have to prove that there is revenue growth there supporting investments that we make.
Michael Santomassimo: And what we want to make sure we do is we're building real businesses and client relationships over a long period of time. So it's not about necessarily walking away from clients, it's about finding ways to serve them in ways that both make sense for them and from a return perspective for us. But it's going to be a very, very granular conversation. Some of it will be repricing. You know, you've got 364 day revolvers that will need to be repriced. There's a whole bunch of very technical things like that that we'll get done over time once the rules finalize. Yes.
Thank you for that.
Speaker 1: The next question will come from Eberheim, Poet Nuala of Bank of America. Your line is open.
The next question will come from Ebrahim <unk> of Bank of America. Your line is open.
Speaker 10: Good morning. This is a mic for you for now upon credit on the CNI side, non-accrual charge of.
Hey, good morning.
Just Mike for you follow up on that at all.
On the C&I side, non accruals charge offs staying in that it can be flat I guess.
Speaker 10: staying relatively flat, I guess, as we look through. The stock tours in terms of when you look at that CNI book, is the impact of the Fed rate hikes felt by your customers? And how are you seeing that evolve? Is your expectation right now you talked about the economy being resilient? Are you seeing any stock spots on the CNI? Book where you're seeing bankruptcy rise within a vertical or a certain segment?
We look to just talk to us in terms of when you look at the C&I book is the impact of the <unk>.
Michael Santomassimo: Switching to the partnership we have with Center Bridge, we have been getting demand from clients for a while now in the middle market kind of mid corporate space for solutions to help them in financing that they need, where it likely wouldn't make sense for us to put on our balance sheet anyway. And so instead of telling clients we can't help them or having them go direct to somebody else, we built the partnership with Center Bridge that allows us to remain an advisor to a client and help them solve a problem they may have.
<unk> takes by your customers.
How are you seeing that evolve as you had expectations I know you talked about the economy.
Are you seeing any soft spots on the C&I book that you've seen bankruptcies is within a vertical or a certain segment.
Speaker 4: Yeah, no, like I think first you're seeing it come through in utilization of revolvers, right, which are pretty much in check, right, aren't moving much in down in some cases. So people are building less inventory given where rates are. They may be making decisions on like how fast they want to invest in their businesses. And so you're seeing that come through in Lundgrove.
Yes.
I think first you're seeing it.
<unk> come through and utilization of revolvers, right, which are which are pretty much in check that arent moving much.
And down in some cases.
So people are building less inventory, given where rates are they may be making decisions on like how fast they want to invest in their businesses and so youre seeing that come through in loan growth.
Speaker 4: which is sensible from their perspective. I think when you look across the portfolio, there are certainly pockets where you may be seeing margin compression still, or different idiosyncratic issues, but across the portfolio, the credit quality is still good.
Which is which is sensible for from their from their perspective, I think when you look across the portfolio there are certainly.
Michael Santomassimo: And so that's the way we're thinking about it and we're excited to work with Center Bridge and that team. And they're a very high quality team has done a lot over time. And I think this gives us another arrow in the quiver to help us provide solutions for clients. And so it's early and you know, and it'll grow over time hopefully and hopefully clients will see it in the same way.
Michael Santomassimo: Okay, perfect. Thank you.
Pockets, where you may be seeing margin compression still.
Or different idiosyncratic issues, but across the portfolio the credit quality is still good.
Got it.
Speaker 10: And you think your customers have felt the hit from higher rates already or is that on the come?
Yes.
And do you think your customers are felt.
Michael Santomassimo: And then maybe as a follow-up might want to revisit or something to revisit the NII discussion for a bit. You know, I certainly appreciate all the comments on continuing mixed shift and deposit pricing pressure. But I guess as we get to this level at the end of the year, is the thought that there would still be, you know, unbalanced downward pressure on NII beyond there? Or is as you see it, is there enough to kind of ask that repricing opportunity that would ultimately allow things to settle out maybe sooner or as opposed to later?
Hit from higher rates already or is that on the comp.
Well I think they certainly felt it so far I mean, most of them have variable rate loans.
Speaker 4: Well, I think they've certainly felt it so far. I mean, most of them have variable rate, a lot of them that they serve us right. And then obviously the longer rates they hide, they'll maybe feel it more. But certainly, I think they've been in fact.
As a service right and obviously the longer the longer rates stay high they'll still.
Maybe feel it more but but but certainly I think they've been impacted.
Speaker 10: And just one separate quick question on the outlook for buybacks. Clearly, a big reset lower, when you give excess capital, you probably have visibility on the worst case on Basel and Game. It's very rare that banks have excess capital than the stocks are actually near-loars. You're creating a tangible book. How do you think about the outside of C-Car and SCB in terms of near-term pace of buybacks over the next few quarters relative to what we did this quarter?
Got it and just one quick question on <unk>.
The outlook for buybacks clearly because he said lower when you think you have excess capital you probably have visibility on the worst case in Basel and game.
The banks have excess capital then the stocks actually EMEA Lewis.
Michael Santomassimo: Yeah, I mean, we'll see. I think we do need to wait until we get towards the end of the year and in January for us to give you a real view in 2024. I mean, I think what the last number of quarters have to show over and over and over and over that, you know, there's a lot still to play out here and to get too far ahead of ourselves on it for next year.
A tangible book.
How do you think about the outside of CCAR SCB in terms of near term pace of buybacks over the next few quarters and relative to what we did this quarter.
Speaker 4: Yeah, we're not going to get into like trying to give you a view on pacing. We're going to go, we have a process we go through every quarter to look at all of what's happening. First, it's like how are we going to support clients? What's the man we're seeing? What kind of risks are out there? In the fourth quarter, we have the FDIC special assessment potentially coming. And so there's a whole, each quarter there's going to be a whole range of things that we're going to go through and then we'll decide on pacing.
Yeah, I mean, we're not going we're not going to get into like trying to give you a view on pacing.
Michael Santomassimo: I think would be a mistake at this point. So, but like it's the same, it's the same drivers we've been talking about for a while, right? It's like what's going to happen with the deposits, the mix, the pricing and then to a lesser degree right now, it's loan growth, but it still matters over a long period of time as well.
Michael Santomassimo: Yeah, perfect. Thank you very much.
We're going to go we have a we have a process. We go through every quarter to look at.
All of what's happening first it's like how are we going to support clients. What's demand. We're seeing you know what kind of risks are out there in the fourth quarter we have.
FDIC special assessment potentially coming in so there's a whole each quarter, there's going to be a whole range of things that we're going to go through and then we'll decide on on pacing.
Matt O'connor: The next question comes from Matt O'Connor of Deutsche Bank. Your line is open, sir. Good morning. Can you just elaborate on the comment of tightening the credit box a bit? And then I guess specifically in credit card thoughts there, I know you've been leaning into it and had real good growth. And I think it's still only about 5% of your loan book, but wondering your thoughts, you know, is this really the right time to be leaning into credit card and maybe us were kind of later cycle?
Thank you.
Speaker 1: Once again, as a reminder, if you would like to ask a question, please press star then one. Our next question comes from the RECASTITY of RBC.
Once again as a reminder, if you would like to ask a question. Please press Star then one our next question comes from Gerard Cassidy of RBC. Your line is open Sir.
Speaker 11: Good morning, thank you. Mike, can you share with us you and your peers as well as investors? We've all been surprised with how this deposit trend of moving money into higher yielding deposits is going slower than expected. Is there any categories within your deposit base whether it's just your regular consumer deposits or high net worth deposits or the non-operational commercial deposits that are moving more slowly? And I know you said you expected to happen but is there something that says it could pick up real quickly in the next six months or is it just a gradual increase?
Good morning. Thank you, Mike can you share with US you and your peers as well as investors. We've all been surprised with how this deposit trend of moving money into higher yielding deposits is going slower than expected is there any categories within your deposit base, whether it's just your rig.
Michael Santomassimo: Yeah, I'll start with credit card and come back to the broader point. So, you know, we started on a journey to transform that the card business back in the fourth quarter of 19. So, right after really Charlie started and what we've done since then is really refresh, you know, almost completely refresh the product line. We still have a little bit more to do there. And so part of what you're seeing, you know, come through in the results is actually putting out good products that people want to buy.
Consumer deposits or high net worth deposits or the non operational commercial deposits that are moving more slowly.
And.
I know you said you expect it to happen, but is there something that says it could pick up real quickly in the next six months or is it just a gradual increase.
Speaker 4: Yeah, you know, I think you really have to take it apart by, you know, the different, you know, businesses, you know, I think in the wealth business, it moved quite quickly, right? In terms of seeing deposits, you know, decline, you know, from where they were. And that is now moderated. So it's good to see that, you know, that that shifting has sort of slowed down, you know, quite substantially, you know, in the quarter relative to the last couple quarters.
I think you really have to pick it apart by the different businesses I think in the wealth business. It moved quite quickly right in terms of seeing deposits decline from where they were and that is now.
Michael Santomassimo: And you're seeing, you know, really we have really good new account growth in the quarter, you know, probably our best quarter in quite some time. And so it starts with just having a good product and good service, you know, behind it. And that's, you know, the key driver, I think of what you're seeing here. On the credit side on the new originations, the new accounts we're adding are really good relatives to the back book.
Great. It so it's good to see that.
Is that shifting has sort of slowed down quite substantially in.
In the quarter relative to the last couple of quarters.
Speaker 4: You know, on the consumer side, you know, the majority of the deposits that we've got sit in accounts, you know, with less than 250.
On the consumer side, the majority of the deposits that we've got sitting in accounts with less than $2 50, $250000 and so to some degree. These are large degree. These are operational accounts for folks and so there is some portion of those funds that are never going to move into other places because people needed in the <unk>.
Michael Santomassimo: And when you look at both and even even when you dig a little bit deeper there, you know, there's a majority of them are still well fargo bank customers, but we're seeing more and more traction with non-wells fargo customers. So first time customers and when you look at those first time to well customers, those the credit profiles really good. And so we feel we feel comfortable with like the risks that's being added there.
Speaker 4: $250,000 and so to some degree, these are large degree, these are operational accounts for folks. And so there's some portion of those funds that are never going to move into other places because people needed in the accounts to live and operate every day.
<unk>.
To live and operate every day.
Speaker 3: And so, I think what's, you know, what's, so I think we'll see, right? And I think we're all in a bit of uncharted territory at this point.
And so I think what whats so I think we'll see right and I think we're all in a bit of uncharted territory at this point.
Michael Santomassimo: And you know, we're going to continue to look for pockets of risk and if we see them, we'll tighten it down. But but in terms of, you know, what we're seeing in originations, you know, we feel good about what we're seeing so far.
Speaker 4: you know with rates being you know where they are in the piece of which they got there you know quantitative tightening happening and so
With with rates being where they are and the pace at which they got their quantitative tightening happening and so.
Michael Santomassimo: You know, just more broadly on on credit, you know, we've said now for probably the last four or five quarters, you know, we've been kind of incrementally tightening the credit box on the consumer side. You know, for a while, whether it's really across the board in in home lending, auto card, personal loans, really every single one of them has had some, you know, credit credit tightening. And it's a bit it's been a bit incremental over the last, you know, four or five quarters.
Speaker 4: So I think we need to be prepared for it to change exactly at what pace and over what period of time we'll see. But we certainly...
So I think we need to be prepared for it to change exactly at what pace and over what period of time, we'll see but we certainly.
Speaker 4: We certainly haven't seen the pilot of pricing move the way we modeled it a year ago for sure.
We certainly havent seen deposit pricing move the way, we modeled it a year ago for sure.
Michael Santomassimo: And so I would sort of think of that as like taking that last one or two or three percent, you know, of origination out that doesn't make sense in what could be a more difficult economic environment. It's not wholesale shifts in sort of the approach or or the, you know, the underlying, you know, box that we're operating in. It's really sort of modest and incremental. And then just on and just to be clear, I mean, it's and it's the very basic stuff.
Speaker 11: Very good. And as I follow up, it's in the few in Charlie of C'mon Board. Weld says really done a very good job in returning that excess capital. I understand everything that's going on today and you guys described it in your comments. Can you share with us? Is there a buffer? Whenever the final numbers come out, are you guys planning to keep a hundred basis point buffer above that or any color there?
Very good and then as a follow up.
Just you and Charlie have come on board Wells has really done a very good job in returning that excess capital I understand everything that's going on today and you guys described it and your.
Your comments can you share with US is there a buffer whenever the final numbers come out are you guys planning to keep a 100 basis point buffer above that or any color there.
Speaker 4: Yeah, we haven't decided exactly what the buffer will look like after Bob will 3 is implemented, but so far what we've said a number of times is that 100 basis points is about where we've been targeting. Obviously we've been running above that for a while, but as we get a better view of where these rules are going to shake out, we'll probably talk about that more. But I would think that 100 basis points, at least for now, is sort of that you know that the...
Yes, we haven't we haven't decided exactly what it will what the buffer will look like after Basel III is implemented but so far what we've said a number of times is that a 100 basis points is about where we've been targeting obviously, we've been running above that for a while but.
Michael Santomassimo: It's just, it's, it's just upping the lower pico boundaries. It's layered risks. And so, you know, it's just as you continue to, you know, make these changes, you just we're just continuing to do the same types of things without just wholesale exits or anything like that. It's just it's just kind of a smart type.
We will as we as we get a better view of.
Were these rules are going to shake out will probably talk about that more but.
But I would think that.
100 basis points at least for now and sort of the.
The bottom end of the range.
Speaker 12: Very good, much appreciated.
Very good much appreciate it thank you.
Michael Santomassimo: Yeah, and then outside of the consumer space, outside of consumer, really the only place that we've meaningfully tight and credit over the last couple years or few years is commercial real estate and other than that, I think there's probably some minor tinkering but we haven't really changed the appetite much outside of commercial real estate. Okay, that's helpful. And then this clarification on the seventh cost, can you give us what the absolute amount was this quarter?
And that was our final question for today I will now turn it over to your speakers for closing remarks.
Speaker 1: And that was our final question for today. I will now turn it over to your speakers for closing your remarks.
Speaker 6: All right, everyone, thank you very much. We look forward to talking to you again next quarter. Take care now.
Everyone. Thank you very much we look forward to talking to you again next quarter take care now.
Speaker 1: Thank you for your participation on today's conference call at this time all parties meet us.
Thank you for your participation on today's conference call at this time all parties may disconnect.
Michael Santomassimo: I think you give us the change verse a year ago and length quarter. What was the absolute level this quarter? Yeah, there wasn't a lot of year ago, so it's not far off of the total. So, you know, small difference, but it's there wasn't a lot. Okay, so that's 200 million. Yeah, and again, that'll sort of evolve as we go. I mentioned that in my script, as we look at next year and the attrition rates that we're seeing. Yeah, okay, thank you.
John Pancari: The next question will come from John Pancari of Evercore ISI.
Michael Santomassimo: Good morning. On the commercial real estate front and the site of the increase in the office loan loss reserve, you know, from the CID from 80 to 10.8. It can just comment there in terms of, you know, what were some of the anecdotal drivers for the loan loss reserve increase, do you think he could have incremental increases here and maybe site. Some of the office evaluations you've seen as you have, you know, the underlying collateral change hands or reappraisals if you can go some color of it as well.
Michael Santomassimo: Thanks. Yeah, sure. You know, the hard part of office right now is that there aren't a lot of trades happening yet, right? There's, you know, a few in certain cities and they're all a little bit different in their complexion. So you still have somewhat limited information and price discovery and a lot of places. And so, you know, we're doing, we do a lot of our own work to try to evaluate each of the underlying properties and what it could be worth in a bunch of different scenarios.
Michael Santomassimo: And then, and then it starts, it's feeling like the appraisal market is starting to kind of catch up where they're we're seeing appraisals that are more realistic and more updated. So that's certainly bringing in different data points as we look at it. And as we, you know, we looked at the quarter, you know, we sort of, you know, look at all those data points and the underlying loans and try to do our best to come up.
Michael Santomassimo: What we think the different, you know, range of loss could look like here. And that's what's embedded in the results. Hopefully we end up being conservative. But, but nonetheless, it's, you know, it's possible that this plays out this way. And so we haven't really seen any losses of significant yet significance yet, but we will. And, you know, it just takes some time for it to play out for each of these underlying situations, probably longer than, you know, any of us would, would, would hope to, you'd hope to, you could bring some of this stuff to resolution, maybe faster than, then it really takes in real life. But it's really looking at all the data points, the limited sales, the new appraisals that are coming through, and then our own analysis for each and underlying properties. [inaudible] Davis. Got it.
Michael Santomassimo: And then separately, but also within commercial realists, they were getting more and more questions around multi-family exposures and just how well they really are holding up given some supply issues in certain markets. Can you just comment there? Are you seeing any more of these stress or any changes to underlying reserve for that book? Yeah, not a lot. I mean, you certainly see certain markets that might appear to have some oversupply in condos in certain places, but it feels like that will work itself out over a period of time. We're not seeing real systematic stress in the portfolio at this point. Got it.
Michael Santomassimo: If I could have just one last one on the heck out cuts that you mentioned, you're looking at every business pretty much, are any heck out cut occurring yet in the risk area or anything or any changes with contracts with consultants in the risk overhaul area at all? Thanks. Yeah. No, look, the only thing I'd say on the risk and right work is that we're going to spend whatever we need to spend and put the resources we need.
Michael Santomassimo: We need to be against it to get it done. And we're going to continue to do that. And just to be clear, like we're not cutting headcount related to that. In fact, it's probably the opposite when you look over the past bunch of quarters. The only thing which goes up and down is depending on where we are with work with outside consultants, that number will go up or down in a given quarter.
Michael Santomassimo: But we've also said if we can use outside resources to help get the work done sooner, we're going to. So as we think about it, just as we think about our efficiencies, that is just not in scope at this point or for the foreseeable future. Thanks, Charlotte. Sure. Of course.
Erika Najarian: The next question comes from Erica Nazarian of UBS. Your line is open. Hi, good morning. My first question is on the, you know, revenue side, you know, as a follow up to two backs line of questioning, you know, I think not only the trading numbers come better this year, but also investment banking. And so, you know, here you're allowed to clear about the cyclicality of the trading business, but, you know, I guess help us get a sense of, you know, if the industry wallet, for example, return to 2019 levels, you know, do you think that you're going to have generally a higher share of revenues in capital markets versus 2019.
Erika Najarian: And sort of the some question to that is, you know, if they think about the investments you have already made, you know, what are the other businesses that could potentially surprise us to the upside where it's not quite optimized yet in terms of its revenue production. And obviously everybody's thinking about, you know, you mentioned card and also everybody's also thinking about wealth management and investment and advisory revenues.
Charles Scharf: Yeah, well, let me take a shot at that. I think, listen, I think the answer is your question on share without like getting overly specific. Yes, we think, you know, when you look at, you know, where we stand on our growth in our corporate investment banking share, whether it's on the trading side, or whether it's on the fee related side, our shares have grown. And certainly on the. Within the fee-based side of the business, we do hope they continue to grow.
Charles Scharf: That's driven by the investments that we're making and investments meaning people in terms of growing our capabilities. We've got clear goals and targets by person that we bring on in terms of what we expect and we're going to be tracking to that. And just a reminder, certainly when we brought some of the people on, they bring some, you know, a lot of clients with them, some new transactions in the short term.
Charles Scharf: And we've been beneficiaries of that over the last couple of quarters just as we brought some people on. But these are relationship-based businesses and transactions don't occur every single quarter so we would expect our share to continue to grow. And I just, you know, as a reminder, without taking any additional risk overall because we're taking the risk today relative to the exposures that we have. When we look at where we can see growth coming, you know, overall across the entire company, we just go business by business.
Charles Scharf: Absolutely in our consumer, small business, small and business banking segment because, you know, we've, you know, we've basically been treading water there. As, you know, we stabilized that business going back to the issues that we had there, which was an incredibly difficult thing to do. And we did. And we've not been on our front foot in that business. We're going to do it in a very different way than this company did it historically.
Charles Scharf: But there are opportunities to be on the front foot and actually grow share on an organic basis. And so incredibly excited about that opportunity. Not excited as I've said about growing share and mortgage. That's not where we're after and it's, we've talked about where we're going there. Auto, it's about returns, not growth. So don't look for a lot of growth there unless the dynamics change in the business. Mike spoke about card.
Charles Scharf: We're incredibly energized by the evidence that shows with, you know, with our brand and our relationships. When you put a great product out there, we get positive selection and real growth. And by the way, look at our spend numbers. I mean, you want to see like, you know, the impact of, you know, what it means just look at the spend that we're seeing. You know, which is, which is much higher than the industry levels.
Charles Scharf: Our wealth businesses, you pointed out no question. Also, we're trying to water for a long period of time. We're attracting people and teams. We're rolling out new products. So we feel really good about the opportunities that are there. And, you know, in the middle market segment where it's a little bit more businesses usual because, you know, it's, it is such a strong franchise for us. Even there, we look back at our, you know, our asset, you know, based lending businesses and the things that we acquired from G.E.
Charles Scharf: They ran a stand alone businesses here for a long period of time and we didn't bring the entire product set of Wells Fargo. Those customer bases. Under Kyle Rannocky, Kristen Lusher and. M.K. DuBois, our, our America and DuBois DuBois are diligently working through that. And bringing the investment banking product to that, you know, that entire commercial banking products. I can go on. I just, it should be broad based. Most of it, by the way, I'll point out, you know, in terms of when we see opportunities, it is the based growth.
Charles Scharf: Not because we've dictated that, but just because we focused a lot on N.I, as a company historically. And we just have a lot of opportunities that, you know, we get excited about that'll play out over a period of time. Got it. And I think that excitement is clear, Charlie.
Charles Scharf: And my second question is, given all of that and taking a step back, you know, I totally think it's too early, I agree with you to give anything on 24 expenses, but more broadly discussing, you know, do you feel like the company is in a little bit of an inflection point because on one hand, Mike was saying that very few parts of the bank are optimized, you know, on the other, I think you guys mentioned that the headcount's not going the other way, and perhaps it's really, you know, some of the outside consulting fees that could go up and down, but I'm wondering if, you know, you get asked about expenses in a framework of flat, but then all of this momentum on the revenue side seems to be on the come, and I'm wondering how, how, how you think about as you, you know, budget for the company, and as you think about just getting to that 15% roti, you know, let's just put bozzles through end game aside in terms of the denominator, you know, how do you balance, you know, some of the shareholders and the analysts that are asking you about expenses in the context of flat versus the revenue momentum, you know, that obviously would need expenses to keep sustaining versus that revenue momentum that you seem to be so excited and loud. Let me start and Mike, you either come in at the end or just make your comments along the way as well, so I think first of all, we think about it as two separate exercises that we go through, and it's very timely because we're in the middle of going through the exercise for next year as most other companies are, which is this company is not efficient, like period end of story, and I've described this.
Charles Scharf: Even with all of the reductions that we've made, it's not surprising because as you peel the onion back, other things present themselves, and so, you know, you know, you just, you go in order of things that are, you know, more obvious and things like that, but when we sit around as a management team, we feel great about the progress and, you know, there's no clear way to see that then in the head count numbers, which ultimately drive the expense of the company, and, you know, if I, you know, if we stood here and told you, we were going to drive the head count down that much in this period of time, I'm not sure you would have believed us. And so, when we say we're going to do something, we really do mean it.
Charles Scharf: And so, when we sit around as the team, there are many more efficiencies to get, and we're diligently working through those. And then separately from that, it's, when we talk about making investments in the place, are we getting the pay off for it? And so, you know, whether it's, you know, the marketing in the card business, where we're spending more money on marketing than we had in the past, and we feel great about, as Mike pointed out, not just the volumes that we're getting, but the underlying quality relative to how we had modeled that.
Charles Scharf: And so, you know, we'll do that with, with each and everything. And ultimately, we need to make a decision as we finalize the process of the budget, you know, on just much more of a technical basis of how those things net out, you know, we're well aware of what shareholders are looking for. We're well aware of, you know, that the expense side of this company is an important equation in what investors look at us, in terms of where, you know, unlocking value, and we hear it, and we see it.
Charles Scharf: And whatever, wherever we come out, when we talk to you about our guidance for next year. We will explain why we got to where we are. It's going to include efficiencies, it's going to include investments, you know, whether it, you know, where that turns out, you know, we'll explain it. And, you know, I think so far, you know, we've been, you know, we've been as clear and as transparent as we can be.
Charles Scharf: And if it makes sense, you'll like it. And if it doesn't, you won't, you'll tell us. But so far, we've been able to, you know, have alignment there. But, you know, overall, I would just, you know, it's a long way of saying, it's not, you know, lost on us that we have opportunities both to reduce expenses and to invest. But, you know, making sure that the overall expense level stays in check at this place, you know, is incredibly important to us. And we have to prove that there is revenue growth there, supporting investments that we make. Thank you for that.
Charles Scharf: The next question will come from Eberhem, Poet Nuala of Bank of America. Your line is open. Hey, good morning. This is a mic for you, follow up on credit on the CNI side, non-accrual charge-offs, staying relatively flat, I guess, as we look through. The stock tours and terms of, when you look at that CNI book, is the impact of the Fed rate hikes felt by your customers? And how are you seeing that evolve?
Charles Scharf: Is your expectations right now? You talked about the economy being resilient. Are you seeing any stock spots on the CNI book where you're seeing bankruptcy ties within a vertical or a certain segment? Yeah, no, look, I think first you're seeing it, you know, come through in utilization for revolvers, right, which are pretty much in check, right, aren't moving much in down in some cases. So people are building less inventory, given where rates are.
Charles Scharf: They may be making decisions on, like, how fast they want to invest in their businesses. And so you're seeing that come through in loan growth, which is sensible from their perspective. I think when you look across the portfolio, there are certainly pockets where you may be seeing margin compression still, or, you know, different idiosyncratic issues, but across the portfolio, the credit quality is still good.
Michael Santomassimo: Got it. And you think your customers have felt the hit from higher rates already or is that on the come? Well, I think they certainly felt it so far, right? I mean, most of them have variable rates, you know, one of the they serve us, right? And then obviously the longer the longer rates they hide, they'll maybe feel it more. But certainly, I think they've been impacted.
Michael Santomassimo: And just one separate quick question on the outlook for buybacks, clearly a big reset lower, when you, like, your excess capital, you'd probably have visibility on the worst case on Basel Endgame. It's very rare that banks have excess capital than the stocks are actually near the lows, you're creating a tangible book. How do you think about the outside of C car and SCB in terms of near term pace of buybacks over the next few quarters relative to what we do, this quarter?
Michael Santomassimo: Yeah, I mean, we're not going to get into, like, trying to give you a view on tasting. You know, we're going to go, we have a we have a process we go through every quarter to look at, you know, all of what's happening. But, you know, first, it's like, how are we going to support clients? What's the man we're seeing? You know, what kind of risks are out there? You know, in the fourth quarter, we have, you know, the FVIC special assessment potentially coming. And so the whole, each quarter, there's going to be, you know, a whole range of things that we're going to go through, and then we'll decide, you know, on, on pacing.
Operator: Thank you. Once again, as a reminder, if you would like to ask a question, please press star then one.
Gerard Cassidy: Our next question comes from Gerard Cassidy of RBC. Your line is open, sir. Good morning. Thank you. Mike, can you share with us, you and your peers as well as investors, we've all been surprised with how this deposit trend of moving money into higher yielding deposits is going slower than expected. Is there any categories within your deposit base, whether it's just your regular consumer deposits or high net worth deposits or the non-operational commercial deposits that are moving more slowly?
Gerard Cassidy: I know you said you expected to happen, but is there something that says it could pick up real quickly in the next six months or is it just a gradual increase? I think you really have to take it apart by the different businesses. I think in the wealth business, it moved quite quickly in terms of seeing deposits decline from where they were and that is now moderated, so it's good to see that shifting has slowed down quite substantially in the quarter relative to the last couple quarters.
Gerard Cassidy: On the consumer side, the majority of the deposits that we've got sit in accounts with less than $250,000 and so to some degree, a large degree, these are operational accounts for folks and so there's some portion of those funds that are never going to move into other places because people needed in the accounts to live and operate every day. I think we'll see and I think we're all in a bit of uncharted territory at this point with rates being where they are and the pace of which they got there, quantitative tightening happening and so I think we need to be prepared for it to change exactly what pace and over what period of time we'll see, but we certainly haven't seen deposit pricing move the way we modeled it a year ago for sure.
Gerard Cassidy: Very good and as I follow up, since you and Charlie have come on board, Welts has really done a very good job in returning that excess capital. I understand everything that's going on today and you guys described it in your comments. Can you share with us, is there a buffer, whenever the final numbers come out, are you guys planning to keep a hundred basis point buffer above that or any color there?
Gerard Cassidy: Yeah, we haven't decided exactly what the buffer will look like after Bobble 3 is implemented, but so far what we've said a number of times is that a hundred basis points is about where we've been targeting. Obviously we've been running above that for a while, but as we get a better view of where these rules are going to shake out, we'll probably talk about that more, but I would think that a hundred basis points at least for now is the bottom end of the range. Very good. Much appreciated. Thank you.
Operator: And that was our final question for today.
Charles Scharf: I will now turn it over to your speakers for closing your remarks. All right, everyone. Thank you very much.
Operator: We look forward to talking to you again next quarter. Take care now. Thank you for your participation on today's conference call. At this time, all parties made this.