Wells Fargo CFO Says Delinquencies Are Trending Down

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00:00We have to start with the return on tangible common equity being boosted to 17%. That is your

00:06aim here. The previous expectation, your prior guidance was 15%. So that has certainly turned

00:13a lot ahead. So starting there, what is going to drive that growth in your view?

00:19Yeah, well, thanks. Thanks, Katie, Matt, for having me again. You know, like, I think you

00:23got to look, rewind the story a little bit where we started this back, you know, the end of 2020,

00:29early 2021. Our return was 8% back then. You know, we're approaching, you know, a sustainable 15%

00:35you know, that we committed to, you know, a couple of years ago. And that's really driven by a number

00:41of things. One, it's, you know, the investments we've been making in all of the businesses that

00:44we've got. We're starting to see some of those returns. It's all the efficiency work that we've

00:49done. You know, we've, you know, through the end of when you get to the end of this year, we'll have

00:52saved, you know, $15 billion of gross saves over that time period and reinvested most of that back in

00:57the businesses. And then we've optimized our capital. And so now that we're at that, you know,

01:03you know, roughly 15%, you know, now it's time to set sort of the next milepost for us, which is the

01:1017%, 17, 18%, you know, goal that we put out there. And really, it's going to come from the same

01:15things. It's going to come from, you know, continuing to execute across all the investments

01:19we've been making, credit card, investment banking, the markets business, wealth management,

01:25you know, the core consumer businesses, you know, and that'll be, you know, a big piece of it. The

01:30second is just continuing to do the work that we started on efficiency. We still think there's a ton

01:34more to do across the whole company to make the place more efficient, more responsive to client needs,

01:39more flexible in terms of our approach. And then, you know, continuing to sort of optimize capital and

01:45then use that capital to grow, you know, the businesses now that we don't have the asset cap

01:50in place. So it's really a lot of the same things that we saw come through over the last, you know,

01:54couple of years. Well, let's talk a little bit more about efficiency. Where do you see scope for more

01:59work to be done when you think about further cost cutting? What areas come to mind that you need to

02:05maybe trim a little bit before you really focus on growth? Well, I mean, we're focused on both,

02:12right? And a lot of the things that are going to drive growth are the things that we've been

02:15invest, you know, reinvesting in over the last four or five years. But the efficiency is really going to

02:20come from a little bit of everywhere. You know, more process automation that helps us serve clients

02:25better, you know, less real estate as we continue to prune that portfolio, you know, less third party

02:31spend, more efficiency across all the things that we do, you know, internally. So it's going to be a little

02:36bit of a crop, you know, across a lot of different areas. And it's at any given time, it's hundreds of different

02:40projects that are underway that are going to drive that. But that focus of both, you know, efficiency

02:46and growth is really, you know, how we're what we're working on today. It's really doing both of

02:50those together that I think will drive the returns. Hey, Mike, Matt Miller here. Great to have you

02:55with us today. I want to ask about credit quality, given what we've heard out of, you know, first brands

03:02and Tricolor and Jamie Dimon's talk of cockroaches. Your loan loss provisions were lower than analysts

03:08estimated. Are you less concerned? Well, I think we're just, you know, telling you what we're seeing,

03:16right, which is really good performance. And it's been very stable now for a number of quarters.

03:22And that's both on the consumer side, the commercial side, the commercial real estate side, really across

03:27the portfolios. And, you know, on the consumer space, we're seeing delinquencies still trend down.

03:32We're seeing payment rates on credit cards still be higher than what we would have modeled.

03:36And we're not seeing delinquency trends get worse. And that's really across all types of clients that we that

03:43that we service. Similar themes on the other portfolios. We're just not seeing that yet. Now, you know, it's always,

03:50you know, you always have to be thinking about different scenarios that could, you know, to come come to bear.

03:55And that's a lot of that's already embedded in the allowance that we have up, you know, for, you know, for these portfolios.

04:01But we're just not seeing it yet. And we're seeing just consistent performance of inconsistent activity

04:06levels, you know, really across all the portfolios, which has been been really good to see. But,

04:11you know, we all think about what those risks could, you know, could look like, but we're just not seeing

04:15it manifest yet. I'm curious about your auto loans business, because I know you want to see some growth

04:20there. And because I just like cars, the market has been spooked by, you know, some subprime stories.

04:26I mentioned tricolor already. What are you seeing in autos? Yeah, I'm less of a car guy. But but I,

04:35you know, I think we've seen really good growth in originations now the last couple quarters.

04:39And, you know, while while we're expanding what we do there with the likes of Volkswagen, Audi,

04:44and just more broadly across the portfolio, we don't dip deep into subprime and we don't dip,

04:50you know, too far into that. And and anything we're doing to be kind of a more more full spectrum

04:55lender on the on like lower credit quality clients is very small in the scheme of our

05:00portfolio. So what we're seeing and what we do is actually, you know, perform quite it performs

05:05quite well. And, you know, I think we're not seeing we're seeing good, you know, stabilization or good

05:10support for used car prices where we're seeing good performance really across, you know, the the credit

05:16spectrum that that we're dealing with in that in that portfolio. So we're not seeing a lot of that

05:20weakness, at least in our our portfolio. And if we do think about risks here, though,

05:25I hear what you're saying. You're not seeing those specific weaknesses when it comes to auto

05:29lending in your portfolio. We talked a little bit about credit quality as well. But, you know,

05:33when it comes especially to some of your targets, what are the risks that investors should be thinking

05:38about here? Well, I think, you know, you should always be thinking about different scenarios that,

05:46you know, you need to look at as you sort of look over a longer time period. But but to get to our

05:50our, you know, return targets, you know, it's really going to take just good execution across

05:55a whole series of things that we've been doing now for a number of years across growing each of the

05:59businesses, managing credit. I think if you look back at the company over a very long period of

06:04time, we've got a really deep credit culture and are very focused on sort of managing sort of that risk

06:09return trade off across the portfolio. And then it's just it's it's continuing to get more more efficient.

06:15And we think about all kinds of different scenarios, you know, that that could come to play.

06:21And that's why we feel really good about, like, the capital position that we have as we sit here.

06:25You know, we've got, you know, tremendous amount of excess capital, 30 billion dollars worth of excess

06:29capital over sort of our required, you know, amounts. And so that positions us pretty well to think about whatever risk

06:36could be there. But but as you said, in the near term, we're not seeing it. But I think we're prepared in case it does come,

06:42you know, given the way the overall company is positioned.

06:46Hey, Mike, we just showed the buyback screen again, which reminds me that, you know, your stock is the second best

06:53performer of the big six, only trailing and just by a couple percentage points, Goldman Sachs over the past five

07:00years, which is, you know, a default window that I always pick to look at big stocks. Would you still be interested

07:06in buying back shares? Would you be interested in raising the amount of shares that you buy back going

07:12into this quarter?

07:15Well, we have raised the share buybacks in the in the third quarter. And we said the fourth quarter is

07:20going to be about, you know, the same amount, at least as that's our intention is to do about the same

07:24amount as we did in the third quarter. And so we'll see where it goes, where it goes from there. But I think we feel

07:31really comfortable, you know, doing that, you know, given kind of where where everything sits today and in our

07:36overall capital position, you know, given how much excess we have today.

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