00:00You take a look at Wells Fargo's shares down currently about 5% in reaction to that net interest income
00:06and that net interest margin.
00:09And I know you said on this morning's earnings call that NIN will likely compress further when it comes to
00:15the second quarter.
00:16But take us past that. How do you see this measure developing over the quarters to come and the year
00:22to come?
00:25Yeah, well, thanks. Thanks again for having me.
00:27And just one correction there. We talked about the net interest margin coming down a little bit in the second
00:32quarter.
00:32NII should be up actually versus the first quarter. So with that aside, you know, I think you know,
00:38like I think you have to sort of look at the broader backdrop of what we saw in the quarter.
00:44And I think you can see a lot of this in our earnings materials.
00:48You know, there's a lot of a lot of the metrics that sort of drive the P&L in this
00:53quarter,
00:53but also sort of, you know, for the years to come, we're actually, you know, showing really good momentum.
00:57You saw good growth in, you know, in our auto originations up 2x from what it was a year ago,
01:0460% increase in card originations, 15% increase in new checking accounts.
01:10You saw our markets revenue up 19%, our banking revenue up 11%, good recruiting in our wealth management business,
01:16and good growth, you know, starting to come through, you know, from all the investments we've been making
01:21in the commercial banking business. So there was actually a lot of positives there.
01:25You know, from a net interest income point of view, as you look at the year,
01:28it's all the things that we actually expected to happen so far.
01:32And we're right where we thought we would be, you know, given what we were seeing.
01:36You saw another good quarter loan growth.
01:38You saw growth in interest bearing deposits.
01:40And you have the impact of rates that got, you know, that declined at the end of last year,
01:45sort of impacting the quarter overall.
01:48And then you saw our markets business growing, which is going to be very creative over a long period of
01:54time
01:54that has a small impact on net interest margin in the quarter.
01:57Well, let's talk about that a little bit because, you know, you think about some of the reasons why
02:01that you named growing the balance sheet in part to really grow the markets business
02:06was one of the reasons cited for why we saw this miss.
02:10And when it comes to the balance sheet, I know that we saw that asset cap lifted last year.
02:16That was certainly a big catalyst for shares.
02:18But where do you expect growth to come from here when it comes to the balance sheet?
02:22Is it more in the trading business?
02:25Are we talking commercial lending, consumer balances?
02:27Where do you see the most opportunity?
02:30It's really across the board, which is kind of the exciting part about, like,
02:34where we have opportunity.
02:37In the consumer businesses, you're going to see the card balances continue to grow.
02:41You're going to see auto balances grow.
02:43You're going to see, you know, good stability in our mortgage portfolio.
02:47And we expect overall consumer deposits to continue to grow as we see more engagement
02:53with, you know, prospects and customers, you know, take hold there.
02:57You know, on the commercial side of the businesses, you know,
03:00we are going to see our markets, you know, business grow, the balance sheet grow there.
03:03But it's not necessarily going to always be, you know, some of the repo activity and some
03:09of these low ROA.
03:10We are starting to see, you know, the pipeline get implemented for some of the other activity
03:15that we can do with these customers.
03:16We're seeing good traction in places like investment banking.
03:20We're seeing good new account acquisition sort of in the commercial bank with loan growth
03:25and deposit growth there as well.
03:28And then same thing in the wealth management business.
03:31So I think, you know, as you look at the areas of growth, the good news is that we do,
03:34we have opportunity to expect to see growth in every one of the businesses.
03:38You know, different ones of them will grow at different paces.
03:41But nonetheless, you'll see that over a long period of time.
03:44Let's shift a little bit to private credit.
03:46You have around $36 billion tied to private credit.
03:49What's a stress scenario investors should think about?
03:51What's in your underwriting, in your lending terms that protects you in case we see a downturn
03:56in the credit cycle?
03:58Yeah, no, it's a great question and somewhat topical.
04:01And we try to cover a lot of that today.
04:03And, you know, what you see in that portfolio are, you know, very good advance,
04:08very conservative advance rates.
04:10So roughly about effective advance rates of roughly about 60%.
04:14So you can have cumulative losses of approximately 40% in sort of that portfolio.
04:20So it's hard to model a scenario where that will actually, you know, come to, you know, come to fore.
04:26We also have, you know, diversification limits.
04:28We have structural enhancements where we underwrite each of the underlying loans that go into that portfolio.
04:33So we spend a lot of time making sure the structures are set up for it,
04:37that we understand the collateral that's in there.
04:39And over a very long period of time, this portfolio has actually performed very well from a credit perspective.
04:45And we think that's going to continue.
04:48And we're very comfortable with what we've got there.
04:50And if inflation stays sticky and cuts get delayed, will that affect your return targets?
04:55I mean, what specifically needs to improve so that you're on track for how you stay in the next couple
05:00of quarters?
05:02You know, we, we, I think we are on track to, you know, continue to improve the returns.
05:08And if you look at, you know, we covered this on our call as well.
05:10If you look at like where we're going to get the enhancement in return, it's really a little bit from
05:15each of the businesses, you know,
05:17and it's benefit from the investments that we've made now for three, four or five years in some cases.
05:22In our card business, as an example, you know, we started, you know, replatforming all of our products five or
05:28six years ago at this point.
05:30And those earliest vintages are starting to really mature.
05:33And you'll see the profitability of that business, you know, come through, you know, over the, over the coming quarters
05:37and next couple of years.
05:39You'll see, you know, the investments in the corporate investment bank, the commercial bank and WIM and then broadly in
05:44consumer, you know, come, you know, come to bear.
05:47And so the good news is we're not over reliant on any one thing and as, and we're very confident
05:52in our path to get to 17, 18%.
05:55And as we said in the past, like, we don't think that's the end.
05:58Once we get there, we'll kind of reset expectations for where, where the returns go from, from, from there.
06:04Well, Isabel mentioned, you know, stickier inflation, what that means for the Fed.
06:08I do want to talk just directly about higher oil prices, because you think about the consumer here spending more
06:14on gas as energy costs go up.
06:16I wonder what you're seeing in terms of spending patterns over the past month or so.
06:21And, you know, if we see oil stay around these levels, when might that start to impact some of the
06:27other businesses?
06:28You know, when you think about commercial lending to fertilizer companies, for example.
06:34Yeah, well, look, on the consumer side, spending has been very resilient, you know, through the last month.
06:39It's still up year on year, every week.
06:43You know, people are certainly spending more on, on gas than they were, you know, before the, the conflict started
06:50in earlier in March.
06:53But if you look in aggregate, it's about 3% of spend.
06:56If you look at for lower wage earners, it's probably closer to 6% of spend or 7% of
07:00spend.
07:01So it's not insignificant, but it's, but it's something that people can sort of manage around.
07:06And overall, you're still seeing very, you know, very good growth.
07:09And you couple that with, you know, really good credit performance still.
07:12And so it's not having an impact on, you know, overall credit performance on the, on the consumer side of
07:18the house.
07:18You know, delinquencies model a little, you know, actual delinquencies are a little bit better than we model, not worse
07:23still.
07:24So, so quite constructive overall.
07:26Now, now if it persists for a very long period of time, it will have some impact, but it's, it's
07:31really hard to predict yet, you know, what that will bring.
07:34And I think as long as, you know, unemployment stays, you know, low, you know, people should be able to
07:40manage through this for some, some period of time.
07:43But, but it, it may have some impact the longer it, you know, if oil stays higher for much longer.
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