Q1 2025 Wells Fargo & Co Earnings Call
Welcome and thank you for joining the Wells Fargo first quarter 2025 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press star one.
If he would like to withdraw your question Press Star two.
Please note that today's call is being recorded.
Speaker Change: I would now like to turn the call over to John Campbell Director of Investor Relations. Sir you may begin the conference.
Charlie Scharf: Good morning, Thank you for joining our call today, where our CEO, Charlie Scharf, and our CFO Mike's Animas chemo will discuss first quarter results and answer your questions.
Speaker Change: This call is being recorded.
Speaker Change: Before we get started I would like to remind you that our first quarter earnings materials, including the release financial supplement and presentation deck are available on our website at Wells Fargo Dotcom.
Speaker Change: I'd also like to caution you that we may make forward looking statements during today's call.
Speaker Change: They are subject to risks and uncertainties.
Speaker Change: 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.
Speaker Change: Information about any non-GAAP financial measures referenced including a reconciliation of those measures to GAAP measures can.
Speaker Change: Can also be found in our SEC filings in the earnings materials available on our website.
Charlie Scharf: I will now turn the call over to Charlie.
Charlie Scharf: Thanks, John I'll make some brief comments about our results update you on our priorities and provide some observations on what we're seeing in the current environment.
Charlie Scharf: I will then turn the call over to Mike to review first quarter results in more detail before we take your questions let.
Charlie Scharf: Let me start with first quarter highlights.
Charlie Scharf: We had solid first quarter results with diluted earnings per share up 16% from a year ago, including some items noted in the earnings release.
Charlie Scharf: <unk> revenue declined from a year ago, driven by lower net interest income as expected.
Charlie Scharf: We grew our fee based revenue across many of our businesses, reflecting the benefit of the investments we've been making to diversify revenues and reduce our reliance on net interest income.
Charlie Scharf: We continue to take a disciplined approach to expenses with expenses declining from a year ago as we executed on our efficiency initiatives, which have helped drive head count reductions for 19 consecutive quarters.
Charlie Scharf: We maintained our strong credit discipline and credit performance improved during the quarter with lower net charge offs from both a year ago and the fourth quarter driven by improved performance in our commercial portfolio, while consumer losses were relatively stable.
Charlie Scharf: We have been actively returning excess capital and in the first quarter, we returned $4 8 billion of capital to shareholders through dividends and share repurchases and our diluted average common shares outstanding were down 8% from a year ago.
Charlie Scharf: Regarding our strategic priorities and I'm very proud of the significant progress we've made on our risks and controller at <unk>.
Charlie Scharf: <unk>, our top priority and closing consent orders is an important sign of progress.
Charlie Scharf: <unk> consent orders were terminated in the first quarter. Some of these were long standing and others were resolved with Timeframes that are much improved from other historical orders, which is an indication that our team is establishing the right processes and controls meet our regulators and our own expectations.
Charlie Scharf: Since 2000 1911 orders have been terminated we.
Charlie Scharf: We are a different company today than when this new management team arrived. These recent closures reflect that we have completed much of the common risk and control infrastructure work across the company that is required by other orders.
Charlie Scharf: I'm incredibly proud of the work done by our teams and remain confident that we will complete the work needed to close our other opened in February.
Charlie Scharf: We also continued to show progress on our other strategic priorities, which are helping to improve wells fargo's returns.
Charlie Scharf: Our investments in our card business have continued to drive higher balances in spend from a year ago.
Charlie Scharf: While credit results have continued to be within our expectations.
Charlie Scharf: During the first quarter, Ed elite joined us as the head of cards and merchant services.
Speaker Change: I want to thank Ray Fischer for his leadership of our card business over the last five years, where he was my first hire when I joined wells and I worked with rate for much of the 38 years, we've known each other.
Speaker Change: So I'm not surprised at the great job he did in transforming our card and merchant business, we brought great talent into the business transformed our product offerings and greatly improve the customer experience, while making the card business an important strategic part of Wells Fargo.
Speaker Change: Equally excited to welcome to the company. He brings more than 25 years of financial services and credit card experience and his expertise will be invaluable as we continue to grow our credit card business and expand our payment capabilities across merchant services.
Speaker Change: Turning to our auto business, we started to launch our partnership with Volkswagen and Audi brands as their preferred purchase financing provider in the United States.
Speaker Change: Following the termination of the sales practices consent order over a year ago, we've been taking measured actions in consumer small business banking.
Speaker Change: Started to generate modest growth across a number of metrics, including net checking account growth or credit cards originated in our branches and improve customer experience scores.
Speaker Change: We've also continued to invest in refurbishing our branches, while at the same time, making enhancements or count of the experience in both our digital and branch channels in.
Speaker Change: In the first quarter active mobile customers grew 4% from a year ago and digital account openings continue to grow.
Speaker Change: We continued to increase collaboration between our bankers and advisers that is helping drive an increase in net asset flows into the wealth and investment management Premier channel.
Speaker Change: We've also seen more of our clients investing in alternative products, which is one of our goals.
Speaker Change: Turning to our commercial business, we continued to generate strong growth in investment banking fees driven by strength in debt capital markets I want to thank Jon Weiss, who announced his retirement earlier this year and started leading corporate investment banking in 2020 John.
Speaker Change: John has built a great management team and together they have taken a good corporate investment bank and it made it an important driver of growth and strong returns for the company.
Speaker Change: Better and stronger company because of John's leadership, and he is leaving corporate investment banking well positioned for future growth for.
Speaker Change: Fernando read US joined Wells Fargo last year with nearly 30 years of industry experience is now the sole CEO of corporate and investment banking.
Speaker Change: We are also focused on expanding our commercial banking business and the investments we've made in relationship managers and business development officers has helped to attract new clients and we've seen some early success in offering our investment banking capabilities to our commercial banking clients.
Speaker Change: Now, let me turn towards what we're seeing from our customers through the first quarter, our internal indicators continue to point towards the strength of our customers' financial position.
Speaker Change: Consumers have remained resilient and debit and credit card spending patterns have remained stable.
Speaker Change: More affluent customers continued to show strength, while less affluent customers show more stress.
Speaker Change: Consumer credit also continues to perform well delinquencies appear to have leveled at historical norms and payment rates on unsecured portfolios quite strong.
Speaker Change: Positive flows for both consumer and commercial clients have been consistent and in line with seasonal trends.
Speaker Change: And while overall loan growth was modest.
Speaker Change: We've seen pockets of increased loan demand from our commercial clients, resulting in modest growth in both average and period end commercial loan balances from the fourth quarter.
Speaker Change: All of this points to the strength of our customer base through the end of the first quarter.
Speaker Change: Some broader comments now on what we see currently.
Speaker Change: I'm encouraged by the willingness of the administration to take on some very difficult issues.
Speaker Change: It's been over 15 years since the financial crisis, and we greatly support the willingness to look at the cumulative impact of the regulatory changes that have been made during this period and evaluate where changes are needed to better support our growing U S economy.
Speaker Change: This is not just a bank issue. We also hear from our corporate clients that they experienced significant regulatory barriers to growth and support the effort to look at regulations and make meaningful changes.
Speaker Change: We believe the changes that are being discussed would allow us to better support our customers that means make more loans take more deposits and provide more liquidity to the markets, while still preserving robust regulatory oversight.
Speaker Change: Regarding trade, we also support the administration's willingness to look at barriers to fair trade to the United States.
Speaker Change: So there are certainly risks associated with such significant actions and we see concern playing out in the markets.
Speaker Change: And the economic uncertainty that now exists timely resolution, which benefits the U S would be good for businesses consumers and the markets and therefore, good for Wells Fargo. Since we're predominantly a U S Bank Wells Fargo Prospers, when the U S prospers.
Speaker Change: So we have heard a great deal from our clients as they work through this transition of our environment, we have not seen an impact on their condition yet this.
Speaker Change: This is a complicated issue and is our current expectation that we will face continued volatility and uncertainty and are prepared for a slower economic environment in 2025.
Speaker Change: The actual outcome will be dependent on the results and timing of policy changes.
Speaker Change: We and our customers come into the current environment from a position of strength and that should serve us well.
Speaker Change: Managed credit well over many cycles.
Speaker Change: Past couple of years, we have taken several credit tightening actions that have reduced our origination volume and improved our credit performance.
Speaker Change: Which should position us well if there is an economic downturn.
Speaker Change: We have a strong balance sheet, including our capital and liquidity levels, which allow us to support our customers and clients in a variety of economic scenarios.
Speaker Change: We will continue to react to both known and anticipated policy changes and their potential effects on the economy and we will continue to carefully monitor these trends and respond accordingly.
Speaker Change: Focus is unwavering.
Speaker Change: Want to be an important partner for our clients communities and governments and driving sustainable economic growth in the U S.
We are transforming wells Fargo by investing to build a well control faster growing and higher returning company, while we work to better serve our customers to become more efficient.
Speaker Change: I am proud of all that we've accomplished and even more excited about our future as we build one of the most respected financial institutions in the country.
Mike: I will now turn the call over to Mike.
Mike: Thank you Charlie and good morning, everyone.
Mike: Our first quarter results were solid with net income of $4 9 billion or $1 39 per diluted common share both up from a year ago.
Mike: These results reflect the consistent execution on our strategic party priorities, we continue to see growth in fee based revenue across many of our core businesses and a focus on reducing expenses and maintain strong credit discipline and continued to return excess capital to shareholders.
Mike: Our first quarter results included 313 million or <unk> <unk> per share of discrete tax benefits related to resolution of prior period matters.
Mike: And a $263 million or <unk> <unk> per share gain on the previously announced sale of the non agency third party servicing segment of our commercial mortgage servicing business.
Mike: These benefits were partially offset by a $149 million or <unk> <unk> per share of losses related to two.
Mike: $2 6 billion of debt securities as we continue to repositioning the investment portfolio.
Mike: Turning to slide four.
Mike: Net interest income was down $341 million or three 3% from the fourth quarter driven by two fewer days in the quarter as well as the impact of lower rates and floating rate assets.
Mike: I will update you on the full year net interest income expectations later on the call.
Mike: Moving to slide five.
Mike: Both average and period end loans grew slightly from the fourth quarter driven by growth in commercial and industrial loans.
Mike: While still quite modest it's the first time, we've seen growth in average loans since first quarter of 2023.
Mike: Average deposits increased from a year ago across our commercial and consumer businesses, enabling us to reduce higher cost higher cost corporate charging deposits $5 69 billion or 58%.
Mike: Average deposits declined 1% in the fourth quarter as higher consumer balances were more than offset by a reduction in higher cost corporate treasury deposits.
Mike: While our seasonal declines in our commercial businesses.
Mike: Average deposit costs declined 15 basis points from the fourth quarter with declines across all of our businesses.
Mike: Turning to slide six.
Mike: Noninterest income was stable compared to a year ago.
Mike: Impairments in the venture capital portfolio and losses from the investment portfolio repositioning were offset by growth across many of our businesses.
Mike: Where we have been investing resulting in higher investment advisory and investment banking fees.
Mike: Also benefited from the gain on the sale of a part of our commercial mortgage servicing business.
Mike: Turning to expenses on slide seven.
Mike: Noninterest expense declined 3% from a year ago, driven by lower operating losses, and the lower FDIC special assessment as well as the impact of our efficiency initiatives.
Mike: Noninterest expense was relatively stable compared to the fourth quarter, which included $647 million of severance expense.
Mike: While the first quarter included approximately $700 million of seasonally higher expenses, including payroll taxes.
Mike: <unk> stock expense for retirement eligible employees and 400 K matching contributions.
Mike: Turning to credit quality on slide eight.
Mike: Credit performance improved with our net loan charge off ratio down five basis points from a year ago.
Mike: And eight basis points from the fourth quarter to 45 basis points of average loans.
Mike: Commercial net loan charge offs decreased $192 million from the fourth quarter to 16 basis points of average loans driven by lower losses in the commercial real estate office portfolio.
Mike: Consumer net loan charge offs declined $10 million from the fourth quarter and were 86 basis points of average loans as declines in auto and other consumer loans were partially offset by higher losses in the credit card portfolio, reflecting seasonality, which was consistent with our expectations.
Mike: Nonperforming assets increased 4% from the fourth quarter, driven by an increase in commercial and industrial nonaccrual loans.
Mike: Moving to slide nine.
Mike: Our allowance for credit losses for loans was down $84 million from the fourth quarter, reflecting a lower allowance for commercial real estate loans and lower loan balances.
Mike: Although we haven't seen evidence of weakness in our consumer or commercial portfolios when setting the allowance in the first quarter, we made a modest adjustment to reflect the potential economic weakness that could develop.
Our allowance coverage for our corporate and investment banking commercial real estate office.
Mike: Office portfolio declined to 11, 2%, which was in line with the coverage ratio. We have in this portfolio for most of last year.
Mike: Turning to capital and liquidity on slide 10.
Mike: Our capital position remains strong with our CET one ratio stable at 11, 1%.
Mike: Well above our CET, one regulatory minimum buffers of nine 8%.
Mike: We repurchased $3 5 billion of common stock in the first quarter and have the capacity to continue to repurchase shares.
Mike: Moving to our operating segments, starting with consumer banking and lending on slide 11.
Mike: Consumer small and business banking revenue declined 2% from a year ago, driven by higher deposit costs.
Mike: Likely the impact of customer migration to higher yielding deposit products.
Mike: Of note deposit balances grew from a year ago, marking the first year over year gains since fourth quarter of 2022 as the average balance per checking account stabilized and the pace of migration to higher yielding products continued to slow.
Mike: Debit card spending remains strong up 4% from a year ago, consistent with the fourth quarter growth rate.
Mike: Lending revenue was stable from a year ago.
Mike: Mortgage loan originations increased 26% with increases in both purchase and refinance volume.
Mike: We continue to streamline the business with head count down, 47% and the amount of third party mortgage loan service for others down 31% since the end of 2022.
Mike: Credit card revenue grew 2% year from a year ago on load as loan balances increased.
Mike: Other revenue decreased 21% from a year ago, driven by lower loan balances and loan spread compression.
Mike: The spread compression reflects our previous credit tightening actions, which have resulted in an increased concentration of higher FICO borrowers in our portfolio as well as improved credit performance.
Mike: The decline in personal lending revenue from a year ago was driven by lower loan balances.
Mike: Commercial bank turning to commercial banking results on slide 12 revenue was down 7% from a year ago as growth in noninterest income driven by higher Treasury management fees.
Mike: Increased revenue from tax credit investments and higher investment banking fees was more than offset by lower net interest income due to the impact of lower rates.
Mike: Average loan balances in the first quarter were stable from a year ago and up 1% for the fourth quarter.
Mike: Turning to corporate and investment banking on slide 13.
Mike: Banking revenue was down 4% from a year ago, driven by the impact of lower interest rates.
Mike: This decline was partially offset by lower deposit pricing and higher investment banking revenue from increased activity in debt capital markets.
Mike: Commercial real estate revenue grew 18% from a year ago, driven by the gain on the sale of a part of our commercial mortgage servicing business.
Mike: Increased capital markets activity and higher revenue in our low income housing business also benefited revenue in the first quarter.
Mike: Markets revenue was stable from a year ago as higher revenue from activity across most commodity products as well as foreign exchange was offset by lower results in structured products and credit trading.
Mike: The 22% from the fourth quarter, reflecting seasonality and higher trading activity across most asset classes.
Mike: Average loans declined 2% from a year ago, but increased 1% from the fourth quarter as growth in markets and banking more than offset continued declines in commercial real estate as transaction activity remained muted capital markets remain liquid in our office portfolio continued to decline.
On slide 14, wealth and investment management revenue increased 4% compared with a year ago as higher asset based fees driven by increased market valuations were partially offset by lower net interest income due to higher deposit costs.
Mike: As a reminder, the majority of win advisory assets are priced at the beginning of the quarter. So second quarter results will reflect market valuations as of April one.
Mike: Which were down from January one, but up from a year ago.
Mike: Despite the market volatility during the first quarter the mix of our clients' asset allocation was relatively stable average deposit balances continue to increase and Mike and the migration of deposits to castle alternatives continue to slow.
Mike: Slide 15 highlights our corporate results revenue declined compared to a year ago, driven by lower results from our venture capital investments and higher net losses on debt securities related to the repositioning of the investment portfolio.
Mike: Turning to our 2025 outlook on slide 16.
Mike: We've not changed our net interest income outlook and we still expect 2025 net interest income will be approximately 1% to 3% higher than in 2024. However, given whats occurred over the past three months. We currently expect our full year 2025, net interest income to be in the low end of the range.
Mike: It is still early in the year and clearly we are entering a period with more volatility. So we will need to see how the key variables driving net interest income such as rates deposit flows and mix as well as loan growth play out and we will continue to update you over the remainder of the year.
Mike: I would also point out that the amount of trading related net interest income will be impacted by rate asset levels, which would be largely offset by trading related noninterest income.
Mike: Regarding our expense outlook, we still expect 2025 non interest expense to be approximately $54 2 billion.
Mike: In summary, our results in the first quarter reflected the progress we have been making to improve our financial performance.
Mike: Compared with a year ago, we had double digit growth in diluted earnings per share.
Mike: Through fee based revenue across many of our businesses.
Mike: Reduced our expenses and improved our credit performance.
Mike: Lastly, the strength of our balance sheet, including our capital and liquidity positions, our risk discipline and our diversified business model allows us to be a source of strength for our customers throughout economic cycles.
Mike: We'll now take your questions.
Mike: At this time, we will now begin the question and answer session.
Mike: I would like to ask a question. Please first on mute your phone and then press Star one please record your name at the prompt.
Mike: We'd like to withdraw your question you May press star two to remove yourself from the question queue.
Mike: Once again, please press star one and record your name if you would like to ask a question at this time. Please standby for our first question.
Speaker Change: And our first question will come from Scott <unk> of Piper Sandler your.
Mike: Your line is open.
Mike: Thank you good morning, everybody I appreciate you taking the question.
Speaker Change: Charlie maybe I was hoping you could start by perhaps a standing on your thoughts regarding current customer sentiment.
Mike: That.
Mike: Customers are still eager to do things once we get past all of them.
Mike: The turmoil in other words, we just sort of need a finite.
Mike: Termination too some of this uncertainty or are they now beginning to gear themselves.
Mike: A more prolonged slowdown that would sort of dial back some of their plans.
Mike: Yes, listen I would say.
Mike: Yes.
Mike: I think theyre trying to figure it out.
Mike: <unk>.
Mike: Everything that we see in Bihar.
Mike: Behavior, both in terms of both our consumers as well as our corporate customers.
Mike: <unk> has been just continued strength, which is which is a great position to start from.
But everyone is trying to.
Mike: Assess the situation in terms of.
Mike: Will there be resolution to some of these things what does it mean for their business.
Mike: And thats not completely clear so business hasn't come to a halt in any way at this point that people are certainly.
Mike: Taking stock of what it means figuring out where to sit and wait and where to continue to move forward and I think there is still a hope that the positives of regulation positives of tax reform.
Mike: The long term positives of changes in trade.
Mike: Can put us in a position.
Mike: To feel better about the future at a growing economy.
Mike: But people are cautious so I'm just kind of put it.
Mike: Put it in the wait and see category.
Mike: Cautious in the shorter term, but.
Mike: Still bullish for the longer term.
Mike: Okay perfect. Thank you very much and then Mike I was hoping you could unpack a little more on the.
Mike: NII commentary.
Mike: Caveat in there and I appreciate you're thinking more towards the lower end of the range given what we see currently but maybe as you as you look at sort of some of the puts and takes regarding rates the forward anticipated loan growth or lack thereof.
Mike: Could just maybe point to where you feel like you're most confident by contrast, what might need to be right too.
Mike: To get a little little stronger performance as the year plays out.
Mike: Yes.
Mike: I appreciate it and there are a lot of puts and takes and.
Mike: Certainly a lot of uncertainty just more broadly around like where the path is.
Mike: If you start and think about where where rates are relative to the expectations. We set in January.
Mike: Really the difference is on the short end and fed funds. It really the differences in the second half of the year. The first half of the year, it's pretty close.
Mike: And that's moving around a lot right in that you can just look at the <unk>.
Mike: Implied forwards for year end on fed funds and it's you know you've got a 30 basis point plus or minus move like over the last six to seven days and so that will I think thats going to continue to evolve.
Mike: As we kind of look forward.
Mike: On the long end right now.
Mike: Rates are a little bit lower than what we projected but it's not a huge driver of what's going to be success for NII and we're up 50 basis points in the last seven days and so that can move.
Mike: Pretty.
Mike: Or a little over that actually as of now and so that can move pretty pretty quickly. So so we will see and it's hard to predict exactly where rates are going to go just given sort of the volatility that we've seen on the loan side.
Mike: Like we said in January we didn't expect to see a lot in the first half we expected to see more than in the second half.
Mike: And call it sort of mid single digit kind of growth rates.
Mike: Three three ish four ish percent sort of growth rates that kind of that kind of place.
Mike: When you look at the fourth quarter versus fourth quarter, and that's still like an open question.
Charlie Scharf: Charlie sort of highlighted a little bit of the uncertainty that's there.
Charlie Scharf: We did see a little bit of growth in the first quarter. So that's a positive as I mentioned in my remarks, we haven't seen that in a while so so thats good and so we'll see how that progresses and hopefully we get a little bit more clarity and things calm down a bit and we start to see some of that growth that will be.
Charlie Scharf: To happen, but thats, certainly going to be a place that.
Charlie Scharf: It could move around a little bit and then when you look at deposits.
Charlie Scharf: Come into the first quarter, you see noninterest bearing down a little interest bearing up a little bit. So you got a little bit of on a negative side, you've got a little bit of mix changes there.
Charlie Scharf: On the positive side, though as we look at the consumer business, we saw a little bit of growth plus.
Charlie Scharf: We're doing we're getting better results when we look at the retention of some of the savings promotions that we had on or the Cds that are rolling over so we're retaining more of those deposits then we'd model. So there's some puts and takes there.
Charlie Scharf: There as well.
Charlie Scharf: And so as you look.
Charlie Scharf: Then you have like trading NII, that's going to move around a little bit you'll see a little bit of that in the first quarter, where we had higher trading assets driving a little bit lower NII.
Charlie Scharf: But that's offset in fees.
Charlie Scharf: And so you see.
Charlie Scharf: There's lots of puts and takes and so at this point, we still feel like that low end of the ranges is kind of what it looks like now, but it could move around a little bit as we go.
Speaker Change: Into the middle of the year bolt on a positive or negative way I just want to emphasize what Mike just said, which is we're trying to be as transparent as we can be.
Charlie Scharf: About.
Charlie Scharf: What the outcomes can be in terms of NII.
Charlie Scharf: But there are huge unknowns in the huge unknowns can can go both ways. In this right you can make you can make arguments.
Charlie Scharf: If I look at the forward curve in terms of.
Charlie Scharf: How many rate cuts there'll be he can also make an argument that suggest there just won't be nearly the amount of rate cuts that are embedded in.
Charlie Scharf: In the forwards and you'll see what's happened to the curve over the last couple of days, let alone the past couple of hours.
Charlie Scharf: Same holds true relative to what happens in terms of just loan balances there are scenarios where.
Charlie Scharf: For a host of reasons, both positive can be positive or negative in terms of customers wanting to borrow.
Charlie Scharf: And so it's just it's a it is a volatile.
Charlie Scharf: Time. It is a time of unknowns again, we're trying to be as clear as we can about what we think today.
Charlie Scharf: As we think about.
Charlie Scharf: What the future is.
Charlie Scharf: We're not locked in on one scenario that's locked in on the low end of NII.
Charlie Scharf: How could this play out it could play out in multiple ways.
Charlie Scharf: As we sit here next quarter, we will hopefully be.
Charlie Scharf: Be able to share more because.
Charlie Scharf: Time will just a past.
Charlie Scharf: But hopefully.
Charlie Scharf: The issues that are driving the rate curve out there, we'll have a little bit more clarity on.
Charlie Scharf: Perfect. Thank you all for the additional color.
Speaker Change: The next question will come from Ken Houston of Autonomous Research. Your line is open.
Ken Houston: Thanks, Good morning.
Speaker Change: Charlie.
Speaker Change: Interest rate that you mentioned.
Speaker Change: and the continued progress on knocking down more of the contenders. And I just want to ask a bigger question about...
Speaker Change: The regulatory backdrop and anything in the moving parts that we're all watching happen in terms of the...
Speaker Change: Whitman's and new heads and such impact how you move forward on trying to get the rest of them done and just if you have to make adjustments like one of those adjustments that you have to just be thinking about thanks.
you know, um...
the willingness of people in...
Speaker Change: You know, the regulators are very objective when it comes to these things. They're very fact-based. They want us to see to do the work. They want us to do their validation and if we do that they'll close the orders. They want us to do their validation and if we do that they'll close the orders.
Speaker Change: and you know we've seen that, we've had 11 close since 2019 and so I think
No, I don't think that changed the administration.
Speaker Change: I do think certainly the view that this administration has and the people that are both whether they're acting or those that have been nominated or those that are in new positions.
Speaker Change: You know, would certainly want to be constructive when it comes to not just regulation, but supervision. And so I presume that, you know, they will react in a very positive way to the progress that they've seen us made.
Speaker Change: Press release about, you know, our view on the importance of the work that's been completed in the closed consent orders and what that means for, you know, some of the orders that are outstanding. And so I think, you know, these things come together to
Speaker Change: You know, not have us, you know, feel any different, meeting we're still are extremely confident in our ability to do what needs to get done here.
Great.
And Mike, one for you, [inaudible]
Speaker Change: You mentioned that you did a little bit of adjustment on the reserve.
Speaker Change: I think people are noticing that there was a bit of a reserve release. You guys are one of the more conservative in your scenarios, but you can kind of just talk through. Thank you very much.
Speaker Change: Just how you feel about where you stand now and how the environment also just makes you think about whether that was fully captured in the first quarter reserve or anything we should be thinking about going forward thanks.
Speaker Change: Yeah, sure. You know, I think first, you know, in terms of the adjustment we made that I highlighted, it was a couple hundred million dollars and so we would have had a bigger release given, you know, both the change in balances we saw in the quarter, but also sort of the credit performance which has been really, really good.
Speaker Change: and you can kind of see that come look at the charge offs and so it would have been you know a bigger release.
Speaker Change: I think when you take a step back and look at the way we've approached the allowance now for consistently now for a number of years.
Speaker Change: We start with a pretty significant waiting on the downsides scenarios. We have a baseline scenario. We have a couple downsides scenarios.
Speaker Change: and we've had a pretty significant waiting on those scenarios now for a number of years.
Speaker Change: When you look at how that projects out, and you can see a little bit of this in the queue, but it doesn't quite give you the whole time series, but when you look at what that shows, it shows unemployment kind of getting to a little over 5.8%, so a little under 6%.
Speaker Change: out a couple quarters versus what you may see in the queue. So, it already is pretty...
Speaker Change: You know, a pretty significant uptick in sort of unemployment running through the models.
Speaker Change: But I would also point out like that's like step one so running the models getting you know 5.8%
Speaker Change: You know, as like the unemployment, you know, that's that's step one in terms of, you know, where we get with the allowance. Step two is then
Speaker Change: You know, really being thoughtful about all of the things the models might not you know capture you know appropriately. [inaudible]
Speaker Change: and so we increase the allowance based on a lot of the judgment that we then apply across the different you know risks that might be there within the scenario so so
Speaker Change: and more allowance on top of it. Now, will that change based on, you know, the path of the economy? Maybe, right? We've got to see where this starts to go. If we have a much deeper recession, would you see allowance up to? Probably, but I think, you know, it's something's got to change, you know, pretty, you know, change in terms of the outlook in a pretty significant way. And I sort of bring it back to where Charlie was before when, you know, clients coming into this are in really pretty good shape, right? And you can see that through the charge-off performance. And so, you know, [inaudible]
Speaker Change: We're both on the consumer side, you know, in good shape. We're not seeing deterioration happen in any meaningful way relative to what the trend that we've had over the last couple quarters, even on that lower end consumer. And on the corporate side same thing, very consistent performance now for a number of quarters. [inaudible]
Speaker Change: So away from those two places where we did reduce the reserve.
Speaker Change: We kept what we think are relatively conservative assumptions for unemployment and the weighting of scenarios and didn't release.
Speaker Change: It's more conservative today than it was at the end of last quarter.
Speaker Change: Which is which which was unintentional reaction to what we should see going on out there, but as Mike said.
Speaker Change: Would that be enough under a range of scenarios it depends on how bad the scenario where to get.
Speaker Change: Great color. Thank you.
Speaker Change: The next question will come from John Mcdonald of Truth Securities. Your line is open.
John Mcdonald: Yes, Hi, good morning, Mike I was wondering if you could give a little more color on what you saw at the commercial loan growth this quarter. It seemed like it picked up a little bit.
John Mcdonald: Change in utilization or Buildout of customers just give a little color there. Please.
John Mcdonald: Yes sure John.
John Mcdonald: First in the commercial bank. It was mostly utilization story there may have been a few new customers as well, where we saw kind of a slight uptick there and utilization mostly in kind of the bigger clients segments.
John Mcdonald: Mid corporate segment not the smaller clients in the commercial bank. We also saw some upticks in our asset bit asset based lending.
John Mcdonald: Our portfolio as well both on the commercial bank.
John Mcdonald: Again, mostly utilization, but a little bit of a couple of new clients and then we also saw some uptick in the corporate investment bank.
John Mcdonald: Again, a mix there of utilization in a couple of new clients that sort of came into the portfolio.
John Mcdonald: So it was encouraging to see that and the question I got earlier in the day to us.
John Mcdonald: Related to tariffs or was it related to just be.
John Mcdonald: <unk> sort of borrowing and it appears like it was mostly just active.
John Mcdonald: Activity out there, we haven't really seen any any evidence of people pre positioning significantly.
John Mcdonald: Significant borrowing at least.
John Mcdonald: As it relates to their expectations around tariffs.
John Mcdonald: Got it thanks, and I was wondering if you could give some more color on what you saw this quarter in terms of the market sensitive fee businesses across trading IP and venture capital how does the environment impact this quarter and what should we keep in mind as we think about the outlook for those items.
Speaker Change: Yes first one on the venture portfolio. What you saw was a couple of things in that in that portfolio one.
Speaker Change: We had a we had an exit event late last year and we're in a lockup period on IPO and so you saw some mark to market.
Speaker Change: Losses on the on that stock in that that's been moving around a little bit but that was part of it is still by the way an amazing return on that investment even with.
Speaker Change: The noise there and then you had some impairments across a number of portfolios and given the volatility that we've seen.
Speaker Change: The equity market in particular, but also just more broadly that's going to have that's going to have an impact on exits coming out of that venture portfolio and kind of pushing that back in time, and so you really have to that number can be a little volatile quarter to quarter. So you really have to look at that over a slightly longer period of time.
Speaker Change: But overall, we still we feel really good about the portfolio. We feel good about the investments that are made there and it's just going to take some time to monetize that given some of the volatility.
Speaker Change: When you look at.
Speaker Change: Trading.
Speaker Change: As part of the other piece, we had decent quarter in trading.
Speaker Change: Across a number of different.
Speaker Change: There and Thats, just a continuation of of.
Speaker Change: What we have.
Speaker Change: <unk> seen now for the better part of I guess, two years or three years, almost now where we've gotten better and better and more consistent driving good good results there.
Speaker Change: And then obviously, we have some volatility coming into this quarter in early April or at least and so we'll see how that progresses through the rest of the quarter.
Speaker Change: Okay, and just again on the on the IV, obviously things are kind of ground to a halt a bit on activity levels, but you guys are building out your investment bank and adding people just kind of some thoughts there would be helpful. Thanks.
Speaker Change: Yes.
Speaker Change: The investments that we're making continue.
Speaker Change: We've announced a few more over the last number of weeks with different people joining in different roles.
Speaker Change: Got a really disciplined plan there and.
Speaker Change: We'll continue to make those and as you know.
Speaker Change: Really have to have consistent coverage and product capabilities over a long period of time and we're going to continue to do that I think in the activity. What you saw in the quarter. It was really led by debt capital markets not surprising probably you did see a little bit of equity capital markets activity.
Speaker Change: At this <unk>.
Speaker Change: The volatility that we've seen over the last two weeks.
Speaker Change: Is going to be hard to see much activity in the equity capital market space until that comes down a bit.
Speaker Change: I think do you expect Youll continue to see good activity in debt capital markets and then M&A.
Speaker Change: The conversations are good the pipeline is good and to Charlie's point earlier, I think it's going to be dependent on.
Speaker Change: And when people start to get a little bit more certainty around around the policy adjustments that are being made and how thats going to impact their business. So.
Speaker Change: We will see how that goes but it is.
Speaker Change: And the investment banking, it's a long game and so we need to be consistent there over a long period of time.
Speaker Change: The goal.
Speaker Change: Got it thank you.
Speaker Change: The next question will come from Steven Chu Bank of Wolfe Research. Your line is open.
Speaker Change: Hi.
Speaker Change: For taking my questions, maybe just a follow up to the discussion around the fee outlook.
Speaker Change: Maybe with the expense lines are framing it with an expense lines, just given the better core expense outcome in the quarter versus the quarterly run rate implied by the full year guide and some of the headwinds you cited just on the fee side from various impairments or negative AUM marks I was hoping you could speak to the expense flexibility in the model if the fee out.
Speaker Change: Look our backdrop continues to deteriorate further.
Speaker Change: Yeah sure look I think there's always a degree of flexibility as you go through as you go through the year, we want to try to make sure that we stay consistent and execute on a lot of the core investments, we're making but.
Speaker Change: But if you start with like the easy ones right. If the market is.
Speaker Change: <unk> continues to.
Speaker Change: The decline from where it is today youll see less revenue related expense, particularly in wealth and investment management.
The IV comp will be a function of sort of activity and revenue that we see throughout the year and so there is some flexibility obviously, there depending on sort of where revenues.
Speaker Change: Come in.
Speaker Change: I think we've seen really good performance in the quarter on operating losses. So we gave you an estimation there thats, obviously running below sort of the run rate. So there is hopefully that will continue as well and.
Speaker Change: And so I think it's an active.
Speaker Change: We are actively managing that.
Speaker Change: Each week each month each quarter as we have now for the last four or five years and so we will take action. If we think this is going to be sustained in some way in but while we protect some of the core investments that we need to make.
Speaker Change: Thanks for that color and Mike for my follow up I was hoping to drill down into some of the NII comments you made around the second half ramp and some of the factors like the CD roll off you sided.
Speaker Change: Yes.
Speaker Change: Okay, certainly encouraging guide, especially given the changes in the forward curve, but.
Speaker Change: Myself and others appear to be struggling to reconcile.
Speaker Change: Some of the resiliency in Italy with all the incremental costs that are now in the forward curve and I was hoping you could maybe just speak to the exit rate on NII. Once those cuts are fully absorbed.
Speaker Change: Just as we try to think about the jumping off point looking ahead to 2026.
Speaker Change: Yes, I mean, thats a difficult one to have.
Speaker Change: To give you a lot of specificity I can understand why you'd want me to try to do that but but but I think obviously rates are one factor that go into sort of the jumping off point.
Speaker Change: I think as you just sort of look at.
Speaker Change: Where the forwards are relative to what we showed you in January and as I said earlier.
Speaker Change: Youre 40, or 50 basis points lower potentially on the forwards.
Speaker Change: As part of the second half of the year, but remember the fourth quarter.
Speaker Change: Cut usually comes in later in the quarter. So it doesn't have a lot of it doesn't have a big impact in.
Speaker Change: In 2025.
Speaker Change: And then I think loan growth, we're still expecting to see some loan growth. We think some of it will be resilient to the environment, but some of it obviously in the commercial bank and some of the corporate franchise is going to be a function of.
Speaker Change: The broader macro view here.
Speaker Change: And so we'll see how it plays out but I think trying to trying to estimate where 2020 and where we're going to exit 2025 is does not something I think we're going to try to get very specific on at this point.
Speaker Change: Just to remind everyone.
Speaker Change: That.
Speaker Change: Just as we plan for different scenarios, you all should plan for different scenarios as opposed to just what the forward curve.
Yeah forward curves usually wrong.
Speaker Change: And changes dramatically.
Speaker Change: It's almost always wrong and there is always changing but can certainly appreciate that sentiment. Thanks, so much for taking my questions.
Speaker Change: Yes.
Speaker Change: The next question comes from Betsy <unk> of Morgan Stanley. Your line is open.
Betsy: Hi, good morning.
Betsy: Charlie a couple of questions for you one is on the five consent orders that were closed so far year to date 2025.
Betsy: And I'm, just wondering how does that impact to you.
Betsy: Does that give you more management time does it enable you to take down expenses at all does it make you more efficient or.
Betsy: Or not I'm, just wondering if theres any tangible.
Betsy: Impact that we should see from that.
Betsy: Yes, that's a good question.
Betsy: I would listen I think.
Betsy: As we've done been doing.
Speaker Change: All of the work that needs to get done individually on consent orders.
Betsy: Picks up a lot of management time.
Betsy: And a lot of internal and external resources.
Betsy: So as we complete the work.
Betsy: We have to dedicate less resources towards just like the project.
Betsy: Aspect of getting these things done.
Betsy: The fact that like the operating committee spends.
Betsy: First chunk.
Betsy: Chunk of time at every management Committee meeting we have our operating committee, we have going through where we are on these things absolutely it clears up.
Betsy: Time for us to do other things and focus on other things.
Betsy: The fact that the consent orders are closed doesn't mean, we're going to stop doing the work it doesn't mean that we're.
Betsy: Committed to doing.
Betsy: What's underlying network.
Betsy: But we do then have a chance to figure out are we doing everything as efficiently as we can because now we have a much better understanding of the control environment.
Betsy: And how to run it properly so I wouldn't put a number on it per se, but it does give us more degrees of freedom certainly in terms of how we run the place.
Speaker Change: Okay and then the follow up is you mentioned in your remarks about being excited about the future.
Betsy: And it would be helpful to understand how you're thinking about that.
Betsy: What underlies that statement, especially given.
Betsy: Hugh.
Betsy: Still do on the asset cap on I mean.
Betsy: We're all expecting at some point will be taken off but in an environment with the asset cap still on what underlying that statement and environment without it what underlying that statement would be helpful to unpack a bit thanks.
Betsy: Sure so.
Betsy: In an environment, where the asset cap is still on I think what you've seen us do over the past.
Betsy: Four or five years is to focus on growing businesses, where we don't rely on balance sheet.
Betsy: Which by the way are things, we should be doing anyway, because they're important strategic things for us to grow to round out our franchise and so whether it's been focused on spending in the card business whether it's.
Betsy: Focused on our investing in the wealth business, whether it's building out the fee based businesses in the corporate investment bank.
Betsy: Be it underwriting advisory be it our treasury management businesses.
Betsy: The focus we have on delivering those products and services into the commercial bank. Those are all things we've been investing significantly and have helped our.
Betsy: Our non interest revenues and those things are going to continue with or without an asset cap and we think all.
Betsy: Give us significant opportunity and a world without an asset cap.
Betsy: As I talked about multiple times, we have.
Betsy: Ltd.
Betsy: Our ability to grow the ability to finance customers in our trading businesses and associated inventory. We wouldn't look for don't expect any kind of step functions and how we think about risk there, but just facilitating more customer activity balance sheet, certainly would be very helpful and as loan demand picks up across all of our.
Betsy: It gives us the opportunity.
Betsy: To grow there as well as not having to limit deposits as we've had to limit deposits all along so.
Betsy: The financial dynamics with and without an asset cap I think lead us to feel very very good about the future and I've talked to.
Betsy: In the past and in the shareholder letters strategically about why we think we're so well positioned.
Betsy: In all of our businesses hopefully thats helpful and is there an opportunity for uneven.
Betsy: Elevated more elevated Roe.
Betsy: ROTC outlook here as you progress through that opportunity set.
Betsy: Listen I would say.
Betsy: We arent going to be happy until we get to the 15% that we told you we were going to get to.
Betsy: Which in terms of having it be sustainable and then we said when we get there we're going to look at where we should be.
Betsy: And we don't think of our businesses.
Betsy: Or let me say differently our business each business individually has the opportunity to have the returns amongst the best in the industry and then you weight that to look at like what we think about in terms of.
Betsy: Answer the question why we Shouldnt get there eventually.
Betsy: That's how we think about it but we also know that we're going to continue to grow investments and things like that so.
Betsy: We feel very good about whats in front of us regardless of the short term.
Betsy: Volatility that we see in the economic environment in the markets.
Betsy: Thanks, so much.
Speaker Change: The next question will come from Ebrahim <unk> of Bank of America. Your line is open.
Ebrahim: Hey, good morning, I guess, maybe just on.
Betsy: The last thing you mentioned.
Betsy: Charlie.
Betsy: Each business should have best in class, how do we you've talked about that for a while.
Betsy: <unk>.
Betsy: The consumer business, obviously stands out there.
Betsy: Give us a sense of how much of that improvement in the consumer business on ROE is.
Betsy: All of the asset cap, maybe there's some efficiency opportunities that arise out of that versus.
Betsy: Better using your branch network after the consent order that got lifted not just would love to hear how we should think about that ROE gap relative to best in class peers narrowing from here and if you have a timeframe that you have in mind.
Betsy: Well I'm not going to talk about a timeframe because what we again, what we've said very consistently is get to 15% and so that's what we're that's what we're focused on and when we get there then we'll talk about how we think of.
Betsy: Overall returns.
Betsy: At that point, but I'm, just trying to provide some context for how we think about.
Betsy: The longer term opportunities here are.
Betsy: When we talk about internally the opportunity to increase ROE and I just wanted to also make the statement that we're focused not only on growing sustainable our OTC.
But we're focused on sustainable growth.
Betsy: Because it would be very easy for us to get to a much higher Aro TCE number without investing to build the kind of growth we want to build into the franchise.
Betsy: So that does elongate the time theoretically that it takes to get to some of these industry leading numbers because it's not lost on us that some of our great competitors.
Betsy: Have both very high rotc's, while investing significantly and they've been doing that over a long period of time to get to where they are.
Betsy: But when I think about just specifically the consumer business.
Betsy: And I referred to some of these some of these things in our shareholder letter, we think about our consumer lending business.
Betsy: Almost all of our businesses and are consuming lift in our consumer lending segment are earning far below the <unk> that they should be earning for different for different reasons.
Betsy: In a growth phase in the card business, we've talked about just what that means in terms of how so many of the expenses for frontloaded balances get built over a period of time, but.
Betsy: As long as the <unk>.
Betsy: <unk> play out on top of the models that we assumed we know.
Betsy: That's just.
Betsy: A matter of time until those returns increased significantly.
Betsy: Our auto business is on a journey.
Betsy: Programs, obviously, we've got some question marks in terms of what tariffs will mean to our.
Betsy: Our partner out there but.
Betsy: The deal that we've done to be the the captive on new cars with Volkswagen Audi, We think certainly is a significant plus.
Betsy: He will help us become more of a full spectrum lender, where we can increase profitability.
Betsy: That business.
Betsy: And we're still on a journey, which we're very confident we're going to get there not just to run a better home lending business, but that business.
Betsy: Is not does not have the returns that it shouldnt. That's just as we transitioned to this different models. So.
Betsy: We look at those things and then when we look at our consumer and small business bank.
Betsy: The returns are very strong, but we've not had the kind of growth that other people have had and I've talked about the constraints that we've had there, but we feel really good about what we're doing and so.
Betsy: There as you see that growth given the nature of the business.
Betsy: It's not capital intensive per se. So it increases returns and so we see a pretty clear path in our consumer businesses.
Betsy: For some material improvements.
Betsy: That's helpful.
Betsy: Just a second question.
Speaker Change: Would love to hear how you're thinking about capital management.
Speaker Change: We went up 90 basis points last year, and we'll see what the results have come end of June.
Speaker Change: Assuming we have a similar size to some decline this year.
Speaker Change: An internal philosophy, it on where you think the <unk>, regardless of where the FCB shakes out.
Speaker Change: That's potentially changes in sort of the regulatory backdrop.
Speaker Change: Reduce the need for a 100 basis points buffer.
Speaker Change: In terms of how you've talked about that.
Mike: Yes, listen I would say, Mike I'll start and then you either correct me or add to it based on what you think.
Speaker Change: Listen our Seb went up 90 basis points last year, and we have no idea why.
Speaker Change: When we look at the company when we look at the balance sheet of the company. When we look at the businesses, we're a less risky business today.
Speaker Change: Have higher margins higher returns than we had and so.
Speaker Change: Trying to understand why our SCB went up just it's illogical.
Speaker Change: When we look at the scenarios in the CCAR, you've obviously seen them there are different scenarios.
Speaker Change: Less severe and so.
Speaker Change: Hopefully that produces a different outcome, but who knows because we haven't had the kind of transparency that we think is appropriate to wait and see.
Speaker Change: So we've got to get through CCAR before we actually make any of those determinations and then layer on top of that the comments that we've heard from regulators of.
Speaker Change: Sure.
Speaker Change: Our commitment to increase transparency to re look at a lot of these things both.
Both from the fed as well as the administration's desire to look at these things and it appears that we have.
Speaker Change: More aligned regulators across the different regulators have to agree on some of these things away from whats just specifically in the fifth purview. So I think all of these things align too.
Speaker Change: A better capital environment.
Speaker Change: <unk>.
Speaker Change: Which means it gives us more flexibility to serve customers.
Speaker Change: Said this in my comments that means make loans take deposits provide more liquidity in the markets, which banks are supposed to do.
Speaker Change: But I think it would be wrong for us to get too specific about what that all looks like and how that determines what we think about buffers until we know what they're actually thinking but directionally. It is certainly a positive not just from what was proposed but hopefully from where we are today.
Speaker Change: Thank you.
Speaker Change: The next question will come from John <unk> of Evercore ISI. Your line is open.
John: Good morning, Thanks for taking my questions just related to that.
Speaker Change: Last topic I just wanted to get your thoughts on how youre feeling about the pace of buybacks here. We saw you bought back $3 5 billion in the quarter and you just talked about.
Speaker Change: CET one level, where it stands now how are you feeling about the pace of buybacks as you look forward, particularly if we are looking at some softening in the economic backdrop does that make you feel any different in terms of how you're approaching the pace of buybacks. Thanks.
Mike: Yeah, John It's Mike I'll take a shot at that and.
Mike: Like our approach is no different in this environment that it is every quarter.
Mike: Since we've been here, we start with like what's the opportunity set we have in terms of.
Mike: Providing supporting clients either through loans or other activity.
Mike: We go through a series of conversations around risks that are there in the short and medium and longer term.
Mike: And then whatever is left is sort of goes towards buyback. If we think it's appropriate and I think we'll go through that same process.
Mike: Tried really hard not to get in this game of trying to predict like each quarter, what we're going to buyback.
Mike: But I think as we've said we've got capacity to do more it's been a priority for us over the last number of years.
Mike: We will continue to go through the same process, we go through and see where we end up and just to emphasize what Mike said.
Mike: We've said this I think in our remarks is we have a very strong capital position now we have significant excess capital.
Mike: And that's been very very intentional both.
Mike: Well at the time, we were unsure whether or not capital requirements, we're going to go up and what was necessary there that seems to be off the table.
Mike: And directionally it looks like it will go the other way.
Mike: But we're also in this period of uncertainty so we have the flexibility.
Mike: <unk> certainly to continue to buy stock back given the position that we have and we're just going to have to evaluate it.
Mike: Throughout the quarter as time goes on but.
Mike: Sure.
Mike: We will certainly tell you when there is more to talk about.
Charlie Scharf: Got it okay. Thanks, Charlie and then separately on credit.
Speaker Change: On the commercial front are you seeing any indications of borrowers beginning to draw down lines.
Speaker Change: As a precaution given the economic backdrop and recessionary fears and then secondly on the commercial.
Speaker Change: Front.
Speaker Change: Since then apply to consumer as well is there any areas that you are tightening lending standards incrementally now post the tariff.
Speaker Change: And the economic implications.
Speaker Change: What are you looking at things more cautiously and therefore tightened.
Speaker Change: Yes, let me take a stab so on the draws were.
Speaker Change: Monitoring it really really closely both on the commercial banking side in the CIB side.
Speaker Change: Theres been one I mean literally one draw that we've actually talked about and we don't really think it relates to COVID-19 quite frankly tariffs definitely they are unrelated.
Speaker Change: Isn't ready to go but we don't think it relates to tariffs. It's just a situation of that company and not something that anyone is worried about but it just.
Speaker Change: This gives you a sense for how actively we're monitoring draw activity. The moment. It happen, we're talking about is communication across everything.
Speaker Change: Second part of the question was Oh credit tightening actions.
Speaker Change: What are the things.
Speaker Change: Referred to this in my remarks, we have made a whole series of tightening actions, which have reduced volume and thats part of the reason why we're seeing such strong credit performance, including on the card side. So we've gone into this environment with what we think are pretty conservative.
Speaker Change: Underwriting parameters, we had been having some conversations about whether or not we should reverse some of those so we will certainly be.
Speaker Change: Slower in terms of nor willingness to do that and we will sit and have a conversation as you would expect us to do if we really were nervous about how this could affect the consumer what we should be doing but we haven't made any decisions at this point.
Speaker Change: But its a living breathing thing, which I hope you would expect us to do.
Charlie Scharf: Got it alright, Thank you Charlie appreciate it.
Speaker Change: The next question will come from Matt O'connor of Deutsche Bank. Your line is open Sir.
Matt O'connor: Good morning, I, just wanted to follow up on expenses in terms of how much benefit there is still that come from.
Speaker Change: Call It natural passage of time you referenced.
Matt O'connor: Legacy servicing costs were down.
Matt O'connor: On the top.
Matt O'connor: But how much more savings are there things like that decision that you've already made and taken it will just take time to play out.
Matt O'connor: Yes.
Matt O'connor: I'm not going to quantify it specifically, but.
Matt O'connor: We've said, probably I don't know over and over and over in different forums, we still feel like there's a significant amount of opportunity to make the company more efficient.
Matt O'connor: And better automating what could be manual processes today, its continuing to take down.
Matt O'connor: Excess real estate that we might have it just takes some time sort of work through its continuing to work on third party expenses operating losses and on and on and on and I'd say, there's really almost no part of the company that we feel is like.
Matt O'connor: Completely optimized at this point.
Matt O'connor: And so we're going to continue to just methodically focus on it and.
Matt O'connor: Not one one or two things has hundreds of different activities that are underway at any given point that sort of drive a lot of that efficiency work and we still have more to do.
Matt O'connor: And I guess.
Matt O'connor: Taking a more medium term outlook my friends with those.
Matt O'connor: Those opportunities will allow you to self fund kind of back to the expense base.
Matt O'connor: Clepsydra, youre kind of relatively stable on costs, hopefully, but I think growth.
Matt O'connor: It's up a little bit is that still a reasonable framework.
Matt O'connor: Over the next several years.
Matt O'connor: Yes, I mean, we're not going to we're not going to project out into the future, but I think certainly if you look backwards for the last.
Matt O'connor: Number of years like we've cut.
Matt O'connor: 12, or $13 billion of expenses and reinvested a significant amount of that back into the businesses and so.
So we will see is we'll get we'll continue to give a view each year in terms of what it looks like but.
Matt O'connor: But as I said, we still feel like we've got opportunity to make the place more efficient and we will decide each year, how that sort of gets allocated between investments and other stuff.
Speaker Change: Okay. Thank you.
Speaker Change: The next question will come from Saul Martinez of HSBC.
Speaker Change: Your line is open.
Saul Martinez: Hey, good morning, guys. Thanks for taking my question just wanted to maybe follow up on the <unk>.
Speaker Change: Auto business.
Speaker Change: It's obviously not a big part of your total loan book, but the Delta on growth has changed a lot.
Speaker Change: And it is no longer declining.
Speaker Change: As much as it was and that's helped the overall loan growth trajectory, but.
Speaker Change: Curious what your views are from here my sense is that this business has become more rational in terms of the competitive landscape, but you also mentioned in the prepared remarks that you see there.
Speaker Change: Results were impacted by.
Speaker Change: Loan spread compression and obviously you have tariffs in the background. So just if you can give us an update on what youre thinking for this business what the outlook is.
Speaker Change: We are strategically positioned.
Speaker Change: Yes, just any color.
Speaker Change: Sure it's Mike.
Speaker Change: Ill try to answer that so so again, just maybe I'll start with the last piece of the loan spread compression what I said in my remarks was that really the bulk of that is driven by the fact that the book has migrated to higher FICO clients over time is we've done a bunch of credit tightening.
Speaker Change: Three years ago, and I think that served us quite well over the last couple.
Speaker Change: A couple of years and you can see the credit performance coming through.
Speaker Change: And over the but what we've been really focused on now for the better part of a couple of years as its two things one finding opportunities like the Volkswagen relationship.
Speaker Change: Charlie referenced before which is again, a great way to sort of.
Speaker Change: Improve not only the growth, but the return of that business over time, and then and then to some degree becoming a more full spectrum lender there as we built out other capabilities to do that in a very very methodical rational way and so it will it will always likely be a relatively small part.
Speaker Change: Of the balance sheet, but I do think that you should over time see that trough.
Speaker Change: In terms of the balances start to grow some.
Speaker Change: And see better returns over time, our focus there is not growth at any cost right and we've talked about this over the last couple of years to like we're going to continue to focus on generating solid returns as we sort of grow that business and so if things get a little irrational at times, we'll pull back in focus in the right places, but I do think youll.
Speaker Change: Start to see over time that that.
Speaker Change: Those balances the trough grow a little bit and hopefully at better returns.
Speaker Change: Okay, great. Thanks, and then maybe a follow up on the on the markets business, obviously, you're building those out.
Speaker Change: The equities piece was flat year on year, and it's a small small business at this point, but some of your competitors.
Speaker Change: We reported this morning had.
Speaker Change: Reported very big increases year on year, obviously, you've had a lot of engagement and volatility.
Speaker Change: I'm just curious if.
Speaker Change: Forget it last year the base was very.
Speaker Change: Very stronger or there is a base effect, but just any color on what drove this is a disappointing result and.
Speaker Change: And just is there anything in terms of your ability to use balance sheet that is really impairing you from from growing in this business just any color would be helpful.
Speaker Change: Well first the business is just arent comparable right. So if you look at some of the another another peer or two sort of reported today that the equity businesses are just different right and one there are more global we're not their prime business is massive we're not.
Speaker Change: And so those are a couple of the big.
Speaker Change: Big differences.
Speaker Change: And you get very different outcomes, depending on the environment here and we're actually very happy with the way. The team has been managing the market's business overall and we've seen this consistent sort of performance now for a while.
Speaker Change: I'd say some of the equity finance business.
Speaker Change: Is resident within Prime is impacted by the asset cap. We don't have the same flexibility to grow that and that's part of what we've been talking about.
Speaker Change: For a while in terms of the opportunity in a post asset cap world, but.
Speaker Change: So I just think you've got a you've got to look through a little bit of the differences in the business.
Speaker Change: At this point and I just want to pile on just for a second just to do a shout out to our markets team run by Dan Thompson, Mike Riley I mean, these guys have done an amazing job building, both our fixed income and our equity business without the luxury of balance sheet. In fact, it's been the opposite.
Speaker Change: <unk> gone out of their way to help the rest of the company by giving up balance sheet and our businesses.
Speaker Change: Albeit from a smaller levels are they are stronger we are spending money on technology, we're taking share we're building out broader corporate and institutional relationships and so.
Speaker Change: The gains that we've seen in the.
Speaker Change: The performance, we've seen in terms of our trading revenues.
Speaker Change: Are being built the right way without without being.
Speaker Change: Based on taking additional risk it's building, an additional customer activity and technology.
Speaker Change: Okay, Great. That's helpful. Thank you.
Speaker Change: The next question will come from Erika Najarian of UBS. Your line is open.
Erika Najarian: Hi, Good morning, I know, we've run long so I just had one follow up question.
Erika Najarian: Mike just going back to Steve's question I think.
Erika Najarian: On the previous call you talked about net interest income trajectory that was flattish in the first half.
Erika Najarian: And then.
Erika Najarian: Sort of ramps in the second half I'm wondering number one.
One is that still your expectation and perhaps help us frame, maybe the impact of the swing in trading NII to this quarters.
Erika Najarian: NII print and additionally.
Speaker Change: Cindy Securities.
Speaker Change: Positioning have on your margin as you think about a pro forma basis.
Speaker Change: Yes, well the incremental repositioning we did is relatively small.
Speaker Change: And the pickup is pretty similar to what we quantified in terms of yield that we quantified for the stuff. We did late last year, so pretty probably pretty easy to model, but pretty pretty pretty small overall.
Speaker Change: Interrupt for a second just like we don't make those decisions because of guidance, we make those decisions based upon what we think is smart economically to do in the investment portfolio relative to where rates are yes for sure.
Speaker Change: The.
Speaker Change: The expectation is still pretty similar to what we talked about it hasnt changed much.
Speaker Change: Flattish.
Speaker Change: With more loan growth in the second half of the year, and then obviously rates and the other factors will sort of drive the ultimate outcome.
Speaker Change: And then we haven't we haven't really provided a lot of.
Speaker Change: Detail on trading NII, Erika and I think given how volatile rates are right now it would probably be a little bit of a mistake for us to do just given it moves around quite a bit and just keep in mind that whatever NII whatever trading NII is either up or down there is likely an offset in fee revenue. So.
Speaker Change: A lot of it.
Speaker Change: Revenue neutral.
Speaker Change: Got it and Charlie I hear your message loud and clear I just wanted to.
Speaker Change: I'm sure that the Investor base will look first of all these questions on NII, given everything that you've gotten from that on your recurring trajectory going flooring and thank you for the color Mike.
Erica: Totally understand Erica.
Speaker Change: Our final question for today will come from Gerard Cassidy of RBC capital markets. Your line is open Sir.
Gerard Cassidy: Thank you good morning, guys. Charlie you said in your prepared remarks how.
Gerard Cassidy: Youre going to be reducing the reliance on net interest income can you remind us.
And they are asking when you think the asset cap is going to be released.
Gerard Cassidy: And when that happens what's the optimal mix that you think you guys can get to between net interest income and noninterest income or the fee revenues and then what's the main driver of that fee revenue line.
Gerard Cassidy: Yes.
Gerard Cassidy: We've not gone there yet to say exactly where we think each have to get to because.
Gerard Cassidy: The point until the asset cap is lifted we really don't want to be talking about what the implication of that can be other than in general terms.
Gerard Cassidy: Which we've which we've tried to do.
Gerard Cassidy: But listen when we think about the things that we're doing in building the fee oriented businesses.
Gerard Cassidy: The things that we're doing are referred to these earlier, it's what's happening what we're doing in the card business, it's what's happening in the wealth business.
Gerard Cassidy: <unk>.
Gerard Cassidy: Our advisory our underwriting businesses, both through larger companies as well as middle market companies and our payments related businesses and those are smart things to do strategically regardless of whether we have the asset cap or not.
Gerard Cassidy: And.
Gerard Cassidy: Make us a.
Gerard Cassidy: A more attractive provider of services for our customers and so that's the reason to do it predominantly.
Gerard Cassidy: It builds a more diverse and hopefully more valuable revenue stream for the company and but ultimately I think your point is right. We will have the continued opportunity to both to grow both.
Gerard Cassidy: To grow both.
Gerard Cassidy: <unk> businesses as well as NII with more degrees of latitude on NII without an asset cap.
Gerard Cassidy: Very good and then Mike I know you've touched on credit quality throughout the call.
Gerard Cassidy: In terms of your focus going forward on the C&I loan portfolio are there specific.
Gerard Cassidy: Categories within the C&I loan portfolio that you guys are.
Gerard Cassidy: During that you're checking maybe more rigorously today than 12 months ago, just as a potential.
Gerard Cassidy: This could develop in a slower economy.
Gerard Cassidy: We're looking at the whole portfolio Gerard as we always do and it's something we've got a we've got a really long standing great credit discipline across the company.
Gerard Cassidy: It's something I think the team does really well.
Gerard Cassidy: Focus for all of us.
Gerard Cassidy: You can't you can't like pick and choose you got to really look at the whole thing.
Speaker Change: Great I appreciate the color guys. Thank you.
Alright, thanks, everyone. We appreciate the call take care.
Speaker Change: Thank you.
Speaker Change: [music].