Q3 2024 Wells Fargo & Co Earnings Call

Speaker Change: Welcome, and thank you for joining the Wells Fargo 3rd quarter 2024 earnings conference call.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one. If you would like to withdraw your question, press star two. Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, director of investor relations. Sir, you may begin the conference. Thank you very much.

John Campbell: Thank you. Good morning, everyone. Thank you for joining our call today with our CDO Charlie Sharp and our CFO Mike Santomassimo. We'll discuss third quarter results and answer your questions.

John Campbell: It's call it being recorded.

John Campbell: Before we get started I would like to remind you that our third quarter earnings materials, including the release, financial supplements and presentation deck, are available on our website at www.wellfargo.com

John Campbell: I'd also like to caution you that we may make for looking statements during today's call that are subject to risks in uncertainties.

John Campbell: Backers of Mayca, the actual results of different materially-provexifications are detailed in our SEC filings, including the form AK file today containing our earnings materials.

John Campbell: Information about any non-gap financial measures reference, including a reconciliation of those measures to get measures, can be found in our SEC filings and the earning materials available on our website.

Speaker Change: will now turn the call over to Charlie.

Charlie Sharp: Thanks, John. I'll make some brief comments about our third quarter results and that's what you want to play already. I'll then turn the call over to Mike through the U.R. results and more detail before we take your questions.

Charlie Sharp: Let me start with some third quarter highlights. Our results were solid with $5.1 billion net income, diluted earnings per share of a dollar 42 in the ROE of 11.7%.

Charlie Sharp: and an ROTCE of 13.9% all were up from the second quarter. Our earnings profile is very different than it was five years ago, as we've been making strategic investments in many of our businesses and de-emphasizing or selling others.

Charlie Sharp: Our revenue sources are more diverse, and her fee-based revenue has grown 16% during the first nine months of the year, largely offsetting the net interest income headwinds we had faced over the last year.

Charlie Sharp: We have maintained strong credit discipline and driven significant operating efficiencies in the company while investing heavily to build a risk and control infrastructure appropriate for a bank of our size and complexity.

Charlie Sharp: Headcount has declined every quarter, four years and was down 20%.

Charlie Sharp: since the third quarter of 2020.

Charlie Sharp: Our expenses in the third quarter were down from both the second quarter and the year ago. Average loans declined from the second quarter as we have maintained strong credit standards, and our focus on returns over volume.

Charlie Sharp: We continue to grow our credit card portfolio with balance is growing for 13 consecutive quarters. And commercial loan demand remains weak, reflecting economic uncertainty and the expectation that rates will be lower in the future.

Charlie Sharp: Overall the positives declined slightly from the second quarter, but the positive balances are customer-facing businesses continue to grow, which has enabled us to reduce higher-cost treasury corporate treasury deposits.

Speaker: Overall deposits that climb slightly from the second quarter, but deposit balances are customer-facing businesses continue to grow, which has enabled us to reduce higher cost treasury corporate treasury deposits. We've started to reduce deposit pricing and response to the recent FedRA cuts and replacing monetary market conditions and will continue to make adjustments. Both consumer and commercial customers have remained resilient. In our wholesale businesses, credit performance improved from the second quarter, with lower losses in both our commercial real estate and commercial and industrial loan portfolios.

Charlie Sharp: We've started to reduce deposit pricing in response to the recent FedRACuts and we're closely monitoring market conditions and will continue to make adjustments.

Charlie Sharp: Both our consumer and commercial customers have remained resilient.

Charlie Sharp: in our wholesale businesses.

Charlie Sharp: Credit Performance improved from the second quarter, with lower losses in both our commercial real estate and commercial and industrial loan portfolios.

Charlie Sharp: The Office Market remains weak, and we continue to expect additional charge-offs in our commercial real estate office portfolio, and have accordingly maintained strong allowance cutters.

Speaker: The office market remains weak, and we continue to expect additional charge offs in our commercial real estate offs portfolio, and have accordingly maintained strong allowance cutters. Overall, customers and our consumer businesses continue to hold up relatively well, benefiting from a strong labor market and wage growth. Consumer charge-offs declined from the second quarter, driven by lower losses in our credit card portfolio, while our other consumer portfolios continue to perform well, reflecting the benefit of prior credit tightening actions. We continue to look for changes in consumer health, but we have not seen meaningful changes in trends when looking at the link in statistics across our consumer credit portfolios.

Charlie Sharp: Overall, customers in our consumer businesses continue to hold up relatively well, benefiting from a strong labor, market, and wage growth.

Charlie Sharp: Consumer Charge Office declined from the second quarter, driven by lower losses in our credit card portfolio. While our other consumer portfolios continue to perform well, reflecting the benefit of prior credit tightening actions.

Charlie Sharp: We continue to look for changes in consumer health, but we have not seen meaningful changes in trends when looking at the link in these statistics across our consumer credit portfolios.

Charlie Sharp: Both credit card and debit card spend were up in the third quarter from the year ago, and although the pace of growth has slowed, it is still healthy.

Speaker: Both credit card and debit card spend were up in the third quarter from the year ago, and although the pace of growth has slowed, it is still healthy. We continue to see more pronounced stress in certain customer segments with lowered deposit and asset levels, where inflation has partially offset strong employment and wage growth. The benefits of inflation slowing and interest rates started to ease should be helpful to all customers, but especially those on the lower end of the income scale. Our capital position remains strong with our CBT-1 ratio of 11.3%, up from 11% less quarter, and we continue to return significant amounts of excess capital to shareholders.

Charlie Sharp: We continue to see more pronounced stress in certain customer segments with lower deposit and asset levels, where inflation has partially offset strong employment and wage growth.

Charlie Sharp: The benefits of inflation slowing and interest rates started to ease should be helpful to all customers, but especially those on the lower end of the income scale.

Charlie Sharp: Our capital position remains strong with our CETI-1 ratio of 11.3% up from 11% less quarter. And we continue to return significant amounts of excess capital shareholders.

Charlie Sharp: We repurchased $3.5 billion common stock in the quarter and 15.6 billion a common stock during the first three quarters of this year, up over 60% from the year ago, and we increased our stock dividend in the third quarter by 14%.

Speaker: We repurchased $3.5 billion common stock in the quarter, and 15.6 billion common stock during the first three quarters of this year, up over 60% from the year ago, and we increased our common stock dividend in the third quarter by 14%. Shareholders have meaningfully benefited from our capital management actions as our earnings per share are up over 50% since the third quarter of 2019, benefiting from the 22% decline in diluted average common shares over the same period.

Charlie Sharp: Sherholders have meaningfully benefited from our capital management actions as our earnings per share are up over 50% since the third quarter of 2019 benefiting from the 22% decline in deluded average common shares over the same period.

Charlie Sharp: Now let me update you on our strategic priorities, starting with our risky control work, which remains our top priority.

Charles Scharf: Now, let me update you on our strategic priorities, starting with a risk and control work, which remains our top priority. We continue to move forward with confidence and believe we have the right culture, team, discipline, and sense of urgency to complete the work that's required. That includes what is required under the recent formal agreement we entered with the Office of the Control of the Currency.

Charlie Sharp: We continue to move forward with confidence, and believe we have the right culture, team, discipline, and sense of urgency to complete the work that's required. That includes what is required under the recent formal agreement we entered with the office of the control of the currency.

Charlie Sharp: We are also continuing to execute our other strategic priorities.

Speaker: We are also continuing to execute on our other strategic priorities. We continue to build our credit card business, and this past quarter we launched two new co-branding credit cards with Expedia, which provide our customers a unique travel rewards program with institute discounts, enhanced perks, and accelerated rewards. Offering losses declined from a year ago, from the higher levels we had in the first half of this year. Turning to credit quality in slightly net loan charge-ups, decreased eight basis points from the second quarter to 49 basis points of average loans. The decline was driven by lower commercial net loan charge-offs, which were down at 145 million from the second quarter to 24 basis points of average loans, with lower losses in both our commercial real estate and commercial and industrial portfolios.

Charlie Sharp: We continue to build our credit card business, and this past quarter we launched two new co-branding credit cards with Expedia, which provide our customers a unique travel over words program with institute discounts, enhanced perks, and accelerated rewards.

Charlie Sharp: Our broadest broader set of credit card products continued to be well received by both existing customers and customers new to Wells Fargo with nearly 2 million new credit cards accounts this year.

Charlie Sharp: Last month, we announced a multi-year co-branded agreement with Volkswagen Financial Services.

Charlie Sharp: Starting in the first half of next year, we will be the preferred purchase financing provider for Volkswagen and Audi brands in the United States. The investments we've been making in our consumer small and business banking segment are starting to generate growth.

Charlie Sharp: After several years of no growth, met Chuck E. Counts of now-grown for three consecutive quarters, and we believe our debit card share has started to increase as well.

Charlie Sharp: Mobile Active Users increased by 1.6 million or 5% from last year. We are also investing in our branches and a brief purpose over 460 branches during the first three quarters of this year.

Charlie Sharp: We continue to hire proven leaders in our corporate investment bank.

Charlie Sharp: In Investent Banking, we made several important hires focused on key coverage and product groups to help us build on our momentum and grow the business. We also hired a new Vice Chair of Corporate Banking who was focused on helping us continue to expand and grow that franchise.

Charlie Sharp: We also continued to track experienced leaders in other areas, and in the third quarter, Richard Engel joined Wells Fargo as head of technology reporting to me.

Charlie Sharp: I've worked with Bridget in the past and though firsthand how for deep experience leading large-scale technology transformations at large global financial institutions will benefit well as far back.

Charlie Sharp: Our strategic priorities also include focusing on businesses that are core torque and soomer and corporate clients and when they aren't, shrinking or selling them.

Charlie Sharp: As part of this effort during the third quarter, we announced we had entered into a definitive agreement to sell the non-agency third-party servicing segment of our commercial mortgage servicing business. We will continue servicing agency loans and loans held on our balance sheet.

Charlie Sharp: Looking ahead, overall the U.S. economy remains strong with inflation slowing and a resilient labor market, boosting income and supporting consumer spending.

Charlie Sharp: Company Balanced Future Strong, contributed contributing to both consumption and investment economy, but slowing demand for commercial lending. We continue to be prepared for a variety of economic environments and will balance our desire to increase returns and grow while protecting the downside.

Charlie Sharp: We have one of the most enviable franchises of the industry and a top management team capable of delivering strong results

Speaker Change: I want to thank everyone who I work with at Wells Fargo for everything they've done to transform this great company. I'll now turn the call over to Mike.

Mike Santomassimo: Thank you, Charlie, and you're morning everyone.

Mike Santomassimo: We are pleased with the results in the third quarter. We again saw good growth in not interesting come across most businesses and expenses were well controlled.

Mike Santomassimo: Denningcome for the third quarter was $5.1 billion or a dollar-42 for a diluted common share. During the quarter we took the opportunity to reposition a portion of the investment securities portfolio.

Mike Santomassimo: Our results included 4479 were 10 cents per share of net losses on the sale of debt securities.

Mike Santomassimo: This included the sale of approximately 16 billion of securities and reinvestment of the proceeds into securities with yields approximately 130 basis points higher than the securities we sold. The estimated earnback period for this repositioning is a little over two years.

Mike Santomassimo: Without the impact of the investment security as portfolio, requisitioning earnings for share would have been a dollar 52.

Mike Santomassimo: When looking at our results compared with the year ago, I'd remind you that our third quarter results last year are concluded 349 million or nine cents per share of a discrete tax amount of votes.

Mike Santomassimo: turning to slide four.

Mike Santomassimo: Net Interest Income Decline, 233 million or 2% from the second quarter. 128 million of this decline was due to the increased pricing on sweep deposits and advisory brokerage accounts in wealth and investment management that we highlighted on last quarter's call. This was the lowest link quarter to find in Net Interest Income since third quarter, 2023.

Mike Santomassimo: as customer migration to hiring yielding to positive products continued to slow and the pace of the positive pricing increases also accelerated. The positive costs were up 7 basis points in the third quarter, with approximately half of this increased driven by the pricing increased on sweep deposits in advisory brokerage accounts.

Mike Santomassimo: The third quarter increase in deposit cost was lower than the 10 basis point increase in the second quarter and the 16 basis point rise in the first quarter. In response to the Federal Reserve rate cut in September , we have reduced rates on promotional deposit offers in our consumer businesses, pricing on sweep deposits and advisory purchase accounts which are aligned to money market funds will continue to move in line with Fed rate cuts. [inaudible]

Mike Santomassimo: Commercial deposit pricing is responding quickly to federal reserve rate reductions just as it did when rates were rising. We are continuously monitoring headed at conditions and deposit trends and we'll just price in tender and e-vowels requirements based on our observations.

Mike Santomassimo: We highlight loans in a pot of some five-five, average loans were down from both the second quarter and a year ago, with continued growth and credit card loan balances more than offset by the clients and most other categories.

Mike Santomassimo: I'll highlight specific drivers when discussing our operating segment results. Average deposits increase 1.4 billion from a year ago and growth in our customer deposits enabled us to reduce higher cost corporate treasury deposits.

Mike Santomassimo: Average deposits were down 4.8 billion in the second quarter. This decline was driven by 18.5 billion dollar reduction in higher cost corporate treasury deposits while customer deposits grew 13.7 billion in from the second quarter.

Mike Santomassimo: All out to each role in reduction in corporate charity deposit is a positive for an interest income in the current environment.

Mike Santomassimo: Turning to non-interesting come and flight sex. We had strong growth in non-interesting come up 12% from a year ago. As Charlie highlighted, this growth reflects the benefits of the investments we've been making in our businesses as well as market conditions. We grew non-interesting come across most categories, including double digit increases year to year, in many of our largest fee generating activities, including investment advisory, net gains from trading activities, deposit related fees, and investment banking.

Mike Santomassimo: We also benefited from improved results in our venture capital investments. I will highlight this specific drivers and that interest to income growth and discussing our operating segment results.

Mike Santomassimo: Turning to expenses on Flight 7, not interested expense decline from both the second quarter and a year ago. The impact of our patient's initiatives helps reduce salaries and professional math life services as expense compared to the year ago. These declines were partially offset by higher revenue-related compensation, predominantly in wealth and investment management, as well as higher technology and equipment expense.

Mike Santomassimo: Operating losses declined from a year ago and from a higher level we have in the first half of this year.

Mike Santomassimo: Turning to credit quality in slightly net loan charge ops decreased eight basis points from the second quarter to 49 basis points of average loans.

Mike Santomassimo: As a crime was driven by lower commercial net loan charge costs, which were down at 145,000 from the second quarter to 24 basis points of average loans, with lower losses in both our commercial real estate and commercial and industrial portfolios. While losses in the commercial real estate office portfolio declined in the third quarter.

Speaker: While losses in the commercial real estate office portfolio declined in the third quarter, market final medals remain weak, and we still expect commercial real estate office losses to be lumped. As we continue to actively work with our clients, consumer net loan charge-offs declined 45 million from the second quarter to 83 basis points of average loans, driven by lower losses in the credit card portfolio. Non-performing assets decreased 3% from the second quarter, driven by lower commercial real estate, non-equal loans. Commercial real estate office, non-equal decline, 164 million, which included pay-downs in net loan charge-offs, moving to slide 9.

Mike Santomassimo: Markets final medals remain weak and we still expect commercial real estate office losses to be lumpy as we continue to actively work with our clients.

Mike Santomassimo: Consumer Net Lone Charge Offs Declined 45 million from the 2nd quarter to 83 basis points of average loans driven by lower losses in the credit card portfolio. Non-performing assets decrease 3% from the 2nd quarter, driven by lower commercial real estate, not-of-cool loans, commercial real estate, office, not-of-cools declined $164 million, which included pay-downs in net loan chargeoffs. [inaudible]

Speaker Change: Moving to slide 9, our allowance for credit losses for loans was down 15 million in second quarter with modest appliance across most asset losses largely offset by increasing allowance for credit card loans driven by higher balances.

Speaker: Our allowance for credit losses for loans was down 15 million from the second quarter, with modest declines across most asset losses, largely offset by increased no allowance for credit card loans, driven by higher balances. Our allowance coverage for loans has been relatively stable over the past year, as credit trends remain within our expectations. Our allowance coverage for our corporate investment banking commercial real estate office portfolio has also been relatively stable at approximately 11% since third quarter 2020 break. Turning to capital liquidity in slide 10, our capital position remains strong in our CET-1 ratio of 11.3%. Continue to be well above our new CET-1 regulatory minimum plus buffers of 9.8%, which became effective in the full fourth quarter.

Speaker Change: Our allowance covers for loans has been relatively stable over the past year, as credit trends remain within our expectations.

Speaker Change: Our allowance coverage for our corporate investment banking transfer real estate office portfolio has also been relatively stable at approximately 11% since third quarter 2020 break. Turning to capital liquidity in by 10.

Speaker Change: Our capital position remains strong, and our CET1 ratio of 11.3% continue to be well above our new CET1 regulatory minimum plus buffers of 9.8% which became effective in the fourth quarter.

Speaker Change: The increase in our CET1 ratio from the second quarter included a benefit of 28 basis points from higher accumulated other comprehensive income to to lower interest rates and tighter mortgage back security spreads.

Speaker: The increase in our CET-1 ratio from the second quarter included a benefit of 28 basis points from higher accumulated other comprehensive income to lower interest rates and tighter mortgage-back security spreads. With the 3.5 billion of common stock we've purchased in the third quarter, our sharing purchases during the first quarter of this year were 6 billion higher than in the same 30 year ago, and diluted average shares outstanding decline 7% per year ago. Turning to our operating second results, starting with consumer banking and lending in slide 11, consumer small and doesn't spanking revenue decline 5% per year ago, driven by lower deposit balances and the impact of customers migrating to higher yielding deposit products.

Speaker Change: With the 3.5 billion of common stock we've purchased in the third quarter, our sharing purchases during the birth report of this year were 6 billion higher than in the same year to year ago, and diluted average shares outstanding decline 7% per year ago.

Speaker Change: Turning to our operating segment results, starting with consumer banking and lending on slide 11. Consumer small and doesn't banking revenue to find 5% of New Yorko driven by lower deposit balances, and the impact of customers migrating to higher yielding deposit products.

Speaker Change: However, the pace of migration continues slow.

Speaker: However, the pace of migration continues slow. The sliding increase in home lending revenue from a year ago is driven by higher mortgage banking fees. Credit card revenue decline 2% per year ago is lower fee revenue more than offset higher than interest income. Auto revenue decrease 24% per year ago driven by lower loan balances and continued loans spreads compression. The declining personal lending revenue per year goes also driven by lower loan balances and loans spreads compression. Turning to some key business drivers in the slide 12, retail mortgage origination defined 14% from year ago, reflecting the progress we've made and simplifying the whole lending business.

Speaker Change: The sliding crease in home lighting revenue from a year ago was driven by higher mortgage banking fees.

Speaker Change: Credit card revenue decline 2% from year ago as low-referior revenue more than offset higher than interesting come.

Speaker Change: On a revenue decrease 24% from a year ago, driven by low and low balances and continued loans for the compression.

Speaker Change: The declining personal lending revenue from a year ago was also driven by lower loan balances in loans for the compression.

Speaker Change: Turning this in key business drivers was like 12. Retail mortgage originations to find 14% from a year ago reflecting the progress we've made and simplifying the whole letting business. But, grew 4% from the second quarter. We also continue to make progress on reducing the size of our service in business.

Speaker: But grew 4% from the second quarter.

Speaker Change: The amount of third-party mortgage loans service was down 16% from a year ago. Since we announced our new strategy early last year, we've reduced headcount and home lending by 46%.

Speaker Change: Origination, buying in the third quarter was stable year over year in row 11 per cent for the second quarter.

Speaker Change: Devacard Spending increased $2.3 billion or 2% from a year ago.

Speaker Change: and credit card spending was up 10% from a year ago with growth in all categories except fuel. Payment rates were mostly lower than a year ago but remained above pre-pandemic levels.

Speaker Change: Turning to commercial banking results on slide 13.

Speaker Change: We'll mark the banking revenues down 1% from a year ago, driven by lower net interest income reflecting higher deposit costs, partially offset by growth and treasury management fees.

Speaker Change: Activates Lining and Leasing revenue decreased 4% from a year ago, driven by lower net interest income and leasing income, partially offset by improved results from our permacuity investments.

Speaker Change: Average loan balances in third quarter were down 1% compared with a year ago. Loan demand remained weak as many clients were being cautious about investing in inventory buildup and capital expenditures due to economic uncertainty in high borrowing costs.

Speaker Change: Turning the corporate investment banking on slide 14.

Speaker Change: Banking revenue is down 5% from a year ago during my higher deposit cost from lower loan balances.

Speaker Change: and Russia real estate revenue decrease 1% from a year ago reflecting the impact of lower loan balances. Partly offset by higher capital markets revenue.

Speaker Change: Markets revenue increased 6% from a year ago, driven by strong performance in rates, structured products and municipal, partially offset by low revenue and equities.

Speaker Change: Average loans decline 6% from year ago, driven by continued reductions in our commercial real estate portfolio, and lower loan mouths as embanking as clients continue to access capital markets funding.

Speaker Change: On slide 15, wealth and investment management revenue increased 5% compared with a year ago. Did a higher asset-based fees, should provide increased market valuations, as well as higher brokerage transaction activity, partially offset by lower net interest income, should everybody increase pricing on sweeping deposits and advisory brokerage accounts.

Speaker Change: As a reminder, the majority of the wind advisory assets are priced to be getting in a quarter of support quarter results, where we collect market valuations as of October 1st, which were optimal the year ago and from July 1st. Slide 16 highlights our corporate results.

Speaker Change: Revenue declined a year ago, which had been my net losses on deaf securities related to the repositioning of the investment securities portfolio, partially offset by improved results from our venture capital investments.

Speaker Change: Turning to our 2024 outlet for net interest income in non-interest expense by 17. We currently expect 4.24 net interest income to be roughly in line with the third quarter of 2024, which would imply an approximately 9% decline in the fully year of 2024 net interest income compared with 2023.

Speaker Change: Based on this expectation, we believe we are close to the trough. However, exactly when the secures will be influenced by a variety factor, including the pace of better great changes to positive mix, who quite saying in day down.

Speaker Change: Turn into expenses.

Speaker Change: We still expect full year 2024, not as your expense to be approximately 54 billion, which has not changed from our guidance last quarter. As a reminder, we have outstanding litigation regulatory and customer remediation matters that could impact operating losses during the remainder of the year.

Speaker Change: In summary, we had solid results in third quarter, which demonstrated the progress we're making to transform most far-go and improve our returns.

Speaker Change: We grew not interested in him at 12% from year ago with growth across most businesses.

Speaker Change: We had achieved this double digit growth even with the 447 million loss we took to redesign the investment securities portfolio which will start to benefit our results in the fourth quarter.

Speaker Change: While this growth and not interesting comes more than offset by an expected decline in an interesting come, the investments we have made in our businesses try better being come to first fight our revenue or evidence.

Speaker Change: We continue to make progress on our efficiency initiatives with expenses down from a year ago and headcount down for 17 second quarters.

Speaker Change: Our results also reflected our credit discipline in strong capital position, which has enabled us to return more than 23 billion shareholders over the past year through commstock dividends and share repurchases.

Speaker Change: And while we are pleased with the progress we've made, we're even more excited about the additional opportunity we have throughout all of the businesses to continue to improve our results.

Speaker Change: We will now take your bushings.

Speaker Change: At this time, we will now begin the question and answer session. If you would like to answer a question, please first unmute your phone and then press star 1. Please record your name at the prompt. If you would like to withdraw your question, you may press star 2 to remove yourself from the question queue. Once again, please press star 1 and record your name if you would like to ask a question at this time. Please stand by for our first question.

Speaker Change: The first question will come from Scott Seifers of Piber San Larger, please go ahead.

Speaker Change: and everybody, thank you for taking the question.

Speaker Change: Mike was up in two start with NII, so your fourth quarter number should be.

Scott Seifers: Gladys with the third quarter level and I believe you mentioned toward the end of your prepared remarks that you believe well is sort of close to the trough with something you could just unpack please a bit more what you see is the swing the main swing factors either way as well as kind of what it might take from here for it to begin to reflect back up pardon me back upward more visibly. [inaudible]

Speaker Change: Yeah, Scott, no, I appreciate the question. I mean, it's the same drivers we've been talking about now for the last number of quarters. So obviously deposits and the mix of those deposits is going to be a big factor in the near term. I think as you can see in our trend that NIB deposits were behaving pretty well. I will note, though, in the trend.

Speaker Change: that there is a product switch, you know conversion that we did that sort of impacted an IV's and IV's. So if you take that out or the percentage of non-interpreting deposits.

Speaker Change: is effectively flat to the third quarter. [inaudible]

Speaker Change: and so that's the first time down a while where we've seen that be the case and so that's one of the factors that we'll have to see sort of play out for a little bit longer time period.

Speaker Change: But but so far so good in terms of you know that trend participating in the way we thought or behaving the way we thought. You know obviously deposit pricing as rates come back down or is going to be a big factor. You know if you look at you know as I said in my remarks on the consumer side, you know we've already adjusted. [inaudible]

Speaker Change: The promotion, the promote rate as well as CD, those will continue to adjust as rates move. We're seeing exactly what we thought we would see on the most interest rate sensitive deposits on the commercial side as...

Speaker Change: As Raid started to come down, the betas are exactly what we thought are pretty high for those deposits, so that's working. Obviously we haven't seen any long growth, but we weren't expecting that, but that will be a factor as you sort of look a little bit longer time period. And then this is a little bit in the weeds, but as you sort of look at the first quarter, you do have day counts and things to kind of adjust for, so you could bounce around a little bit depending on the quarter based on factors like that. That as well.

Speaker Change: Okay, perfect. And then you touch, I appreciate that. Then you touched on, you know, loan demanded the factor as well. You all have been pretty reserved regarding that backdrop throughout the year, which has, you know, been born out to be correct. I guess hopefully we're beginning to get some clarity on some of the unresolved issues like, you know, cost tomorrow. I guess we're getting closer to the election. Maybe just some additional thoughts on the overall outlook there if possible, please.

Speaker Change: Yeah, I think you hit out a couple of the things that people are thinking about, but based on the conversations our teams are having with clients, people are still being very true and about borrowing, I think the 50-50 basis point reduction is helpful but not by itself a factor.

Speaker Change: that will drive people to borrow or not. I think you'll need to see that come down more meaningfully if that's like the driving force.

Speaker Change: The uncertainty around the election, the uncertainty around the macro backdrop, I think as people get more confidence that the baseline case of a soft landing will materialize, you get past the election, you see rates come down a little bit. I think all those things will come together and help give clients more confidence about either building inventories or making further capital expenditures that they're holding off on now. So I think you've got to see a few of those things come together. And you know, as you say, as we get closer to the end of the year, you'll start to get a little bit more visibility there and we'll see as it goes.

Speaker Change: Perfect, thank you very much.

Speaker Change: The next question will come from Ibrahim Punewala of Bank of America. Your line is open sir.

Speaker Change: Good morning.

Ibrahim Punewala: I think Charlie addressed this a little bit in his opening remarks around expenses, and I appreciate you not talking about 2025 today, but big picture looking at your slide 7, personal expenses, flat 8.6 year-over-year, non-com flat, 4.2 year-over-year, from a shareholder perspective and given what you've said, it's fair to assume we continue to see some of the flat lining trend where there are enough savings to reinvest in the platform, grow fee revenues and do all the stuff that you're doing, but without seeing a meaningful change in these two categories as we look forward.

Ibrahim Punewala: We remember Mrs. Charlie, I guess, for people we've said in the past, which is...

Charlie Sharp: We think that there continue to be meaningful efficiencies around the company.

Charlie Sharp: but we also are investing, not, you know, in both spending whatever we need to spend in the risking regulatory space.

Speaker Change: as well as investing for the future and when we get to next quarter we'll talk about 2025 and we just don't want to get ahead of ourselves.

Speaker Change: because that's something that we think we've done a good job of balancing historically and we'll continue to balance it going forward in our thinking and we've got specific to share, we'll share it.

Speaker Change: In Ebrahim, I've just maybe put out one other thing, as you look at things like personnel expense, obviously there's lots that go on underneath that. So, you know, we are seeing the efficiency come through on salaries and other items. And that's offset by revenue-related expense, mostly in the wealth and investment management business. And so that's a good thing, right? So, you may see that bounce around, but underneath that is, you know, the efficiency really coming through as headcount continues to come down. I think we both probably pointed it out. That headcount came down again in the quarter. So, we're continuing to execute on that part of the efficiency agenda as well as all the other non-personnel expenses. But again, I just, I don't think our thinking has changed about...

Speaker Change: efficiency opportunities, but also opportunities to invest themselves.

Speaker Change: We just need to go through our own internal processes, we think about 20 to 25 and when we finish that we'll share it.

Speaker Change: that's helpful in just a maybe one quick mic, I'm sorry if I missed it on NRI.

Speaker Change: It will have to sense this balance sheet we got a September 50 basis points cut

Speaker Change: I would have assumed fourth quarter and I would have declined and maybe there's about 50 million dollars of bond book These structuring have just why then I not going down despite the 50 pieces point Scott and it's a more room for additional reseructuring as we look forward. Thank you.

Speaker Change: Yeah, I mean, look, it's just a confluence of all the, you know, factors that come together right around sort of what's happening with the mix of deposits, you know, our mix is a little bit different, you know, obviously than others. I think, you know, the pricing actions we took across the deposit base, you know, you know, help help as you look into the fourth quarter as well. And then obviously we've got assets continue to kind of reprice up. We've got the repositioning but also just normal reinvestment as we've seen the maturity's role.

Speaker Change: I think on repositioning, we've been repositioning the portfolio for a while and we'll continue to look at it. Nothing on the horizon right now, but we'll continue to look at it as we always do, and we'll let you know if we decide to do more. I'm the only thing I'd add is you know when you think about just rate movement, you need to look at the different points along the curve.

Speaker Change: God and the steeper the better I assume.

Speaker Change: Thank you very much for your time, man.

Speaker Change: and I thank you for taking my questions.

Speaker Change: Good, thank you.

Speaker Change: The next question will come from Erica in the sharing of UBS, your line is open.

Speaker Change: The way consent orders work, I'll answer it very generally, because we don't talk about anything specific relative to where we are, what the timing is, we haven't and we won't.

Speaker Change: is, you get a consent order. We need to do the work to develop a very detailed plan. Regulators then look at that plan and give us feedback on the plan. We execute on that plan. And whatever is required in that submission, when we're done with the work, we submit it to them.

Speaker Change: and then they have done some work along the way but they generally do a review after the submission and then they've got a series of formal processes that they need to go through to make the decision on whether the work has been done to their satisfaction and when that's done we find out about it and you find out about it.

Speaker Change: and just as a follow-up, you've got back three and a half billion of shares in the third quarter. Mike, is this about the pace that we should expect until we get your next SCB in June? I just turn it to think about framing the buy-back opportunity over next few quarters.

Mike Santomassimo: Yeah, Eric, we don't really talk about quarter to quarter pace, but I think if you look at where we stand from a capital perspective, 150 basis points over the new Regminimum plus buffers, 9.8%.

Mike Santomassimo: So we go into this environment with plenty of excess capital. We're going to generate more capital obviously through earnings as we go. And then we go through the normal process that we go through every quarter to look at sort of the opportunities we have to help support clients. We look at the risks that are out there and then we'll decide on exact pacing sort of as we go. But we're happy that we were able to buy back in a 15 and a half billion dollars so far year to date. And continuing to give excess capital back to shareholders is something that's top of mind for us.

Speaker Change: Thank you.

Speaker Change: The next question will come from Betsy Graffick of Morgan Stanley, your line is open.

Betsy Graffick: Hi, good morning.

Speaker Change: Morning, this is S.S. Okay, so first question, just for understand, if the ASICAP or to be removed, well, I should say when the ASICAP is removed, right?

Betsy Graffick: Are there opportunities for you to lean in anywhere in terms of asset growth? Because I've heard you in the past several times and I would assume it's same today that the asset cap is not keeping you from doing anything that you want to do and maybe that's wrong. But I just want to understand where you would lean in when it does get removed.

Speaker Change: Sure, Mike, I'll start and then you can either amplify your change if you disagree with anything I say. I think what we see and what we have talked a little bit about is the place is where we have been the most careful.

Speaker Change: about the assets and our liabilities today is around.

Speaker Change: on the wholesale deposit died.

Speaker Change: There's certainly been places where we've had to be very careful about not bringing on significant deposits because we want to make sure that we've got the room to serve.

Speaker Change: Customers elsewhere, both relative to their borrowing needs as well as consumer deposits. And obviously when commercial deposits come in and brings cash with it.

Speaker Change: The other place has been in our markets business, where we actually have...

Speaker Change: Since the asset cap has been in existence, we've not just limited, but reduced somewhat the financing abilities that we have for our customers. So those are the two places where we would probably see the impact immediately, not incredibly significant changes by any stretch of the imagination, but we've had to be very, very careful in those two places. And then beyond that, it's just, you know, normal growth opportunities that we would see across all the different parts of the company.

Speaker Change: And on the expense side, you've talked in the past about the 2.2 billion that has been invested to, you know, address the issues in the consent order and to deal with them. When the consent order goes away, is there an opportunity to pull back on that at all?

Speaker Change: You know, we're not even, honestly, we literally aren't even thinking about that. You know, we still love more work to do. We've said that that is the most important thing. At some point, can we become more efficient in some of the things? Absolutely. But, you know, what's most important is, from our standpoint, to make sure that the things we've built become part of the culture of the company. So, when we think about efficiencies, we think about there are plenty of other places for us to drive efficiencies and not focus on those activities at this point.

Speaker Change: Okay, thanks so much Troy.

Speaker Change: Yes. The next question will come from Matt O'Connor of Deutsche Bank. Your line is open.

Speaker Change: Good morning. I'll talk to you guys to talk about the anti-Money Wandering KYC. They're the scores from the tent you're about to get in. And then there was some regulatory outcome on that. They've been living the tent you and so public, wondering if you could just add some color around it. And then also just one of my means to expand to anything else we should mine for love, golf or anything.

Speaker Change: Yeah, I mean, you know, we put out something when we entered into the formal agreement with the OCC and like other things that we find and they find we take them extremely seriously, we're gonna get the work done. As I said in my prepared remarks, I think as we identify issues and we see that there are things that have to get built, we've got confidence that we've got the ability to do it.

Speaker Change: I would say, you know, relative to, you know, the cost around it, I'd say, you know, the two different pieces, which is...

Speaker Change: Just like all of the control related work we're going to spend with ever is necessary.

Speaker Change: At this point, as we sit and look at the $54 billion spend space, don't see it having anything meaningfully that we need to talk about beyond our ability to spend as we've discussed.

Speaker Change: and I would also mention that, and I think, you know, we've said something about this, which is, you know, a significant amount of the work that is required in the consent order we've been working on. And so we think about what we're spending, a significant amount of money relative to what's necessary in that order already.

Speaker Change: Okay, and then, are you able to comment is this kind of a wealth-specific thing, or an industry-wide kind of area focus? Because even the banks are responsible, not just for kind of releasing their cost in most, but, you know, really keep in track of all the money that's moving around.

Speaker Change: It seems like it could be a lie when you look at some of that.

Speaker Change: is not right or appropriate.

Speaker Change: Okay, thank you.

Speaker Change: The next question will come from David Long of Raymond James. Your line is open.

David Long: Good morning, everyone. I just wanted to follow up with the regulatory sign and can you remind us of the mechanics of the asset cap without providing any insights? It's too much you think it may come off, but can the asset cap be removed in your opinion without the consent order being removed completely?

Speaker Change: Listen, I would, for anyone who's, you know, if you have questions on the 2018 Fed consent order, it's very readable. It's something like, I don't remember exactly, but it's like five pages. Seven pages, Mike is telling me of which they're like, you know, there's a page in there, which is really the page that lays out what we have to accomplish and how the Fed is going to look at things. So really is very digestible.

Speaker Change: So I'll give you a brief summary, but again, please, I'll point you back to it if you want to go through it. We're required to, the board needs to be more effective. We need to build out operational risk and compliance in the company.

Speaker Change: There is, to lift the asset cap, that work needs to be adopted and implemented, and to lift the entire consent order needs to be effective and sustainable. And so, you know, that's, that's what's laid out. The way the Fed will interpret those things and relative to things going on in the company is, you know, certainly in their bellywick. As I said, we're very focused on getting the work done. And feel good about our ability to get it done given what we've shown that we can do here.

Speaker Change: [inaudible]

Michael Santomassimo: Thank you, Charlie. I appreciate it, and then the other question I had was related to the trading gains line, and you've been putting up over a billion dollars there per quarter in trading gains. What are some of the puts in takes that in that line that can create some volatility on a quarter-to-quarter basis? Yeah, although it's Michael, I think that obviously volatility in the market is a big factor, though it's kind of the market conditions that we operate in.

Speaker Change: Yeah, it's Michael, I'll take that. Obviously volatility in the market is a big factor. It's kind of the market conditions that we operate in. You generally have some seasonality to that line item as well, but in the third and fourth quarter, as you get to it, a holiday season.

Michael Santomassimo: You generally have some seasonality to that line item as well in the third and fourth quarter as you get to a holiday season. And then I think where we've been focused there is really just continuing to methodically improve the capabilities, make sure we got the right people and the right seats. We continue to improve our technology and e-training capabilities, and we're seeing good results of that, but it's something that can move around based on market conditions quite a bit. But our focus is just to make sure that we continue to have the right capabilities to serve clients and, you know, we've been pleased now that we've strung together, you know, probably seven quarters of pretty good performance there and we're going forward to two happens going forward.

Speaker Change: And then I think where we've been focused there is really just continuing to methodically improve the capabilities, make sure we've got the right people and the right seats. We continue to improve all of our technology and e-training capabilities and we're seeing good results of that but it's something that can move around based on marketing conditions quite a bit but our focus is just to make sure that we continue to have the right capabilities to serve clients and we've been pleased now that we've strung together probably seven quarters of pretty good performance there and we look forward to what happens going forward.

Speaker Change: Great, thanks Mike, thanks for taking my questions back.

Speaker: Great, thanks Mike. Thanks for taking my questions back.

Speaker Change: The next question will come from John Pankerry of Evercore. Your line is open.

John Pancari: The next question will come from John Pancary of Evercore; your line has opened. Good morning. It's just around the, a little bit more on a Sturdy's repositioning, how much of a benefit to. Ninetercycum did these curdy's repositioning have. This quarter and how much of a would be a full quarter impact that you would expect for the fourth quarter. Very little in the third quarter; it's all done. So, well, it's in the run rate for the fourth quarter. Okay, I mean, how you sized up that impact and what it would mean for an AI for the fourth quarter.

John Pankerry: Good morning. Just around the little bit more around the securities repositioning, how much of a benefit to managers that come to the securities repositioning have this quarter, and how much of a, would it be a full quarter impact that you would expect for the fourth quarter?

Speaker Change: Very little in the third quarter, it's all done, so it's in the run rate for the fourth quarter.

Speaker Change: Okay, I mean, you have your sights up that impact and what it would mean for MII for the fourth quarter.

Speaker Change: It's in my remarks where we did about 16 billion of repositioning, we picked up the 130 basis points on that on that.

Speaker: It's in the, in my remarks where, you know, we did about 16 billion of repositioning. We picked up about 130 basis points on that on that. So, I mean, okay, obviously, you got a date count and other things to adjust. But it's pretty easy to model.

Speaker Change: I mean, okay, I've got to say you got a date calendar, things to adjust, but you're pretty easy to model

Speaker Change: All right, thanks. And then separately, just around the scene come commentary, I appreciate the color you provide around the trading outlook. Can you perhaps unpack the rest of your expectations there just on the feed side? How we should think about the trajectory of what management and possibly on the card side and ideas, well, just what you're seeing there in terms of underlying drivers.

Speaker: Right, okay, all right, thanks.

Speaker: And then separately, just around the scene come commentary. I appreciate the color you provide around the trading outlook. Can you perhaps unpack the rest of the, your expectation there just on the feed side. How we should think about the trajectory of what management and possibly on the card side. And ideas, well, just what you're seeing there in terms of underlying drivers. Well, I first, you know, it's a hard quote. I mean, they're like 15 underlying drivers. And so you should look at each of the specifics and do your own modeling based upon what you think.

Speaker Change: Well, I first, you know, it's a hard quote, I mean they're like 1500 line drivers.

Speaker Change: and so you should look at each of the specifics and do your own modeling based upon what you think. We've got credit card revenues, we've got trading, we've got all these different pieces. It's just not one monolithic number.

Speaker: Right, we've got credit card revenues, we've got trading, we've got all these different pieces. It's just not one model at the number. Yeah, I mean, maybe I'll just give you a couple of pieces of color underneath that. Obviously, you know, and the investment management line market levels matter a lot, as we've pointed out. You know, about two thirds of that line is equity; the rest is fixed income. You know, most of it gets priced in advance, you know, based on the prior, you know, the first day of the quarter, you know, last day of the quarter prior quarter.

Speaker Change: Maybe I'll just give you a couple of pieces of color underneath that. Obviously, you know, in the investment management line, market levels matter a lot, as we pointed out.

Speaker Change: about two thirds of that line in the equities and the rest is fixed being come.

Speaker Change: Most of it gets priced in advance based on the first day of the quarter or the last day of the quarter, prior quarter, so that's a pretty good way to sort of think about that line going forward.

Speaker: So you can, so that's a pretty good way to sort of think about that line going forward. You know, if you look at card fees, it's totally talked about. We've got a debit card and credit card business. You know, as we sort of see growth across, you know, the economy and we're successful growing our business. That will drive that line. Investment banking is somewhat market dependent, but we've been investing there quite a bit. And so the goal is to increase market share, you know, methodically over time. And so, you know, those are those are kind of the biggest, you know, pieces of the public there, but hopefully that's what it all.

Speaker Change: You know, if you look at card fees, as Charlie talked about, we've got a debit card and credit card business, you know, as we sort of see growth across, you know, the economy and are and and we're successful growing our business that will drive that line.

Speaker: Campbell.

Speaker: Now that it is helpful, Mike, I appreciate you walking through the details there.

Speaker Change: And the final question will come from Gerard Cassidy of RBC Capital Markets, your line is open.

Gerard Cassidy: And the final question will come from Gerard Cassidy of RBC Capital Markets. Your line is open. Are indicators of getting less worse, or when you go in to mark a property down, the marks maybe aren't as severe as they were six months ago or 12 months ago? Any further details here? Hey, I'll take it.

Gerard Cassidy: i high charalley can you guys share with us maybe a little color on the commercial real estate office portfolio looks like this stabilization maybe setting in on the credit quality can any indicators of is it getting less worse or you know when you go in to mark a property down the marks maybe are a severe they were six months ago or twelve monsago any further details here

Speaker Change: I'll take it, it's an interesting question because it depends on who you talk to and how you actually ask the question.

Speaker: It's an interesting question because it depends on who you talk to and how you actually ask the question. Meaning, when we look at what's actually happening, things aren't getting better. And it is kind of more of the same, but it's impacting more properties. Maybe, to some extent, there's a little bit of contagion to properties that are fairly well leased, but people looking for better deals because they think there's weakness out there. So you see a little bit of that. But what you see is just more of the significant revaluation because the supply and demand that's going on as these properties kind of move through the cycle.

Speaker Change: Meaning, um...

Speaker Change: When we look at what's actually happening, things aren't getting better.

Speaker Change: and it is...

Speaker Change: It is kind of...

Speaker Change: More of the same, but it's...

Speaker Change: I think it's impacting more properties. You know, maybe to some extent there's a little bit of contagion to properties that, you know, are fairly well least but people looking for better deals because they think there's weakness out there. So, you know, you see a little bit of that. But what you see is just, you know, more of, you know, the significant revaluation because the supply and demand that's going on as these properties kind of, you know, moved through the cycle. So as we look at it, you know, our kind of big picture is. [inaudible]

Speaker: So, as we look at it, our kind of big picture is based upon what we expected; there aren't material changes at all. We're actually seeing that play out. But things are getting worse because there are more properties being impacted. So it depends on whether it's versus your expectations or what you've seen in the prior period.

Speaker Change: based upon what we expected.

Speaker Change: There aren't material changes at all. We're actually seeing that play out. But things are getting worse because there are more properties being impacted. So it depends on whether it's versus your expectations or what you've seen in the prior period.

Speaker Change: Andrew, I mean, I would just have one other piece. So it's the same, you know, we're seeing the same kind of, you know, trend where, you know, kind of new buildings, you know, renovated buildings and good locations are doing fine. It's older office buildings, pretty consistent across the U.S., but it's Charlie said it's within the expectations we've had, which have been pretty, you know, we were pretty down on the space now for a while. And so it's playing out kind of largely within that range of what we thought. But it's going to, and as I have said over and over, like, it's going to take a while to play out.

Speaker: And I would just have one other piece. So we're seeing the same trend where new buildings, renovated buildings, and good locations are doing fine. It's older office buildings, pretty consistent across the U.S. But, as Charlie said, it's within the expectations we've had, which have been pretty down on the space now for a while. And so it's playing out kind of largely within that range of what we thought. But it's going to, and as I have said over and over, like it's going to take a while to play out. This is not something that will take a quarter or two and be over, and it'll play out over a longer period of time.

Speaker Change: This is not something that we'll take a quarter or two and be over, it'll play out over a longer period of time and we feel really good about our allowance for coverage ratio, we feel like that's more than appropriate for what we expect to see here and we're going to continue to work with clients as best we can through it.

Speaker: And we feel really good about our allowance for coverage ratio. We feel like that's more than appropriate for kind of what we expect to see here. And we're going to continue to work with clients as best we can through it.

Speaker Change: very good and then I know it's gosh it's only been less than a month since the Fed cut the Fed funds rate and obviously the forward curve is calling for more and you guys and you have dressed in your prepare remarks Mike about the positive costs. And part of that question with your loan to deposit ratio you know not being very high of course is there more room for you to lower deposit costs and not have to be as concerned being over levered.

Speaker: Very good.

Speaker: And then I know it's, gosh, it's only been less than a month since the Fed cut the Fed funds rate, and obviously the full curve is calling for more. And you guys and you trust in your prepared remarks, Mike, about deposit costs behavior. I know, again, it's early, but any comments on are you seeing the consumers and the corporate customers behaving as expected in terms of what they're doing with their deposits with lower rates.

Speaker: And as the second part of that question, with your loan to deposit ratio, you know, not being very high, of course, is there more room for you to lower deposit costs and not have to be as concerned being over-levered? Yeah, I'd say, you know, look, the short answer on the behavior side is not much has changed since in the last three weeks. The trend, though, that we have seen now for the better part of a year-ish is that, you know, we've seen less migration to higher yielding alternatives. We've seen good stabilization deposits across the businesses.

Speaker Change: Yeah, I'd say you know, the short answer on the behavior side is not much has changed since in the last three weeks. The trend though that we have seen now for the better part of a year orish.

Speaker: That those trends are all still, you know, still true. And we're not seeing that shift in any significant way.

Speaker: And any of the businesses at this point, you know, I think as you look at, you know, both the positive pricing and the other side of the equation that you sort of brought up on the loan side. You know, we feel it's really important to have a very consistent, you know, approach to underwriting credit over a long period of time. And that's kind of where what we've been doing. And I think that's, you know, that's served us well. And I think that's going to continue to be the approach.

Speaker: On the deposit side, you know, I think we'll do, we'll make the decisions we think are, you know, the right decisions to, you know, product by product and client by client based on the relationships we have. And I think, in so far again, that's worked out well for us. So that's the approach we're going to continue to take.

Speaker: Great. I appreciate the color and candor. Thank you. Okay.

Speaker: We thank everyone for joining us, and we'll talk next time. Thank you all for your participation on today's conference call.

Speaker: At this time, all parties may disconnect.