Wells Fargo & Co Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ken Usdin - Jefferies - Analyst : Thanks a lot. Good morning. Mike, I wonder if you could provide a little bit more detail on those latter points you made on the changes on the deposit cost side. First of all, I guess, relative to the 12 basis points that you saw in terms of interest-bearing cost increase, which was lower than the 17. How do you just generally expect that to look going forward? And how -- and is that sweep pricing also a part of what that number will look like going forward? Thank you.

Question: Ken Usdin - Jefferies - Analyst : Great. And just a follow-up. The fees were really good, and the trading business continues to demonstrate that it's taking market share. I guess, how do we understand how to kind of measure that going forward, right, versus what the group is doing? You guys are definitely zigging and outperforming there. Where do you think you are in terms of market share gains? And how sustainable do you think this new kind of run rate of trading is going forward? Thanks.

Question: Ken Usdin - Jefferies - Analyst : Okay, got it. Thank you.

Question: John Pancari - EVERCORE ISI - Analyst : Good morning. Your just confident that NII should bottom towards the year end or towards the back half of this year. Maybe you could just give us -- what gives you the confidence in maintaining that view just given the loan growth dynamics that you mentioned, and you just mentioned the funding cost for the rate backdrop? If you could just kind of walk us through your confidence in that inflection. And I guess what it could mean as you go into 2025? Thanks.

Question: John Pancari - EVERCORE ISI - Analyst : Okay. Thanks, Mike. And if I just hop over to capital, buybacks, somebody bought back about $6.1 billion this quarter, similar to the first quarter. You indicated the pace will slow. Maybe if you could give us a little bit of color on how we should think about that moderation and how long that could persist at this point? And how long until you could be back at the run rate you were previously? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 2:00PM, WFC.N - Q2 2024 Wells Fargo & Co Earnings Call

Question: John Pancari - EVERCORE ISI - Analyst : Okay. Thank you.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Hey, good morning. Just maybe one follow-up first, Mike and Charlie, on capital. Is 11% the line in the sand right now as you wait for Basel and clarity there? And we, at least you're not guiding for it, but as we think about what the pace of buybacks might be or could CET1 go below 11%, still significant buffer with the 9.6% minimum? Would appreciate how you think about that ratio in the context of capital return.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Understood. And then just moving to expenses. So I get the guide -- the expense guide increased. But remind us, has anything changed maybe, Charlie, from you first, on the expense flex that's a big part of the wealth thesis around efficiency gains, which should lead to the path for that 15% ROTCE? And what are you baking in, in terms of the fee revenue for the back half as part of that guide? Like does it assume elevated levels of trading (inaudible). Thank you.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Got it. And you assume fees staying elevated in the back half as part of the guidance?

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Got it. Thank you so much.

Question: Erika Najarian - UBS Equities - Analyst : Hi, good morning. First, I just want to put context to this question because I didn't want to ask it just in isolation because it seems ticking tacky, but it's not. So the stock is down 7.5%. And if I just take consensus to the higher end of your NII range, to 9%, that would imply that consensus would adjust 3.5% in isolation. So this is just a context of why I'm asking this question on expenses. So your expenses went up in terms of -- from your original guide $1.4 billion. I guess -- and you laid out those three bullets and you quantified FDIC special assessment. I guess, I'm just wondering if you could give us a little bit more detail on how much more the remediation expenses and the op losses were up versus your original expectation? Because I think what the market wants to understand is PP -- NII, okay, we get it, that's happening because of deposit repricing. But is core PPNR outside of that going up, right? I just sort of want to have that assurance in terms of is the EPS going to be down as much coming out of this as the market is indicating. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 2:00PM, WFC.N - Q2 2024 Wells Fargo & Co Earnings Call

Question: Erika Najarian - UBS Equities - Analyst : Got it. Okay. That makes sense. And just maybe some comments on how you're thinking about credit quality from here. It looks like you continue to release reserves in the second quarter. Is this a message that you feel like you've captured most of the CRE-related issues, of course, absent of a further deterioration in the economy? And how should we think about the trajectory of the reserves from here relative to your charge-offs?

Question: Erika Najarian - UBS Equities - Analyst : Great. Thank you, Charlie and Mike. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 2:00PM, WFC.N - Q2 2024 Wells Fargo & Co Earnings Call

Question: Matt O'Connor - Deutsche Bank - Analyst : Good morning. Can you just elaborate a bit on why you increased the deposit cost for wealth? Was it to keep up with competition? Or is it trying to get ahead of some potential pricing pressures? What was kind of the logic there?

Question: Matt O'Connor - Deutsche Bank - Analyst : Okay. And how big is that? Those deposit balances?

Question: Matt O'Connor - Deutsche Bank - Analyst : Okay. And then just a separate topic here. I mean the credit card growth has been very good. You highlighted rolling out some new products. And the question is always when you -- anybody growth kind of (technical difficulty) too quickly. The loss rates have gone up maybe a little more than some peers, not as much as from others, obviously in line with what you were targeting. There was that negative Wall Street Journal article on one of your cards. So just kind of taken together, what kind of tax and balances you have to make sure that a somewhat new initiative for you that you're growing at the right place? Thank you.

Question: Matt O'Connor - Deutsche Bank - Analyst : Okay. That's helpful. And obviously, you talked about card losses going down in 3Q. So that's consistent with our community side as well. So thank you for the color.

Question: Betsy Graseck - Morgan Stanley - Analyst : Hi, good morning.

Question: Betsy Graseck - Morgan Stanley - Analyst : So, just wanted to make sure on the expense guide, I get the point that a bunch of that is related to better revenues from wealth management. And so we should be anticipating as a part of that, that revenues for wealth management in the second half is going to be at least at one-half or maybe even a little higher. Is that fair? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 2:00PM, WFC.N - Q2 2024 Wells Fargo & Co Earnings Call

Question: Betsy Graseck - Morgan Stanley - Analyst : Yeah. Okay. So I just wanted to make sure we balanced out the expenses with the rev fee that or -- I know you're not guiding revs up but interpretation leads you down that path. And so then I guess the other piece of the question I had just had to relate with, the loan balance discussion that was going on earlier. And what's your view of interest in leaning into the markets business today? I realize there's opportunity. There's still the asset cap constraint, but you're not at the asset cap. So there is room for you to lean in. There are players who are a little bit more constrained on capital than you even in that space. So is this an area that you would be interested in leaning into, especially when C&I and CRE and other types of loans are low demand right now, as you indicated earlier. Thanks.

Question: Betsy Graseck - Morgan Stanley - Analyst : Got it. Okay. Thank you.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Thank you. Good morning, Charlie. Good morning, Mike. Charlie, you mentioned in your opening comments about Fargo. You guys launched Fargo over a year ago, I guess, and you're having real good pickup. Can you share with us any other AI orientated programs that are in work in progress right now that could lead to increased efficiencies or cost savings or even revenue enhancements as you go forward?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. I appreciate those insights. And then just as a quick follow-up. You also mentioned about improved adviser retention in the quarter. And when you look at your wealth and investment management segment, I recognize commissions and brokerage service fees are not the main driver in investment advisory and other asset-based fees are in revenues for this division. But I noticed that they've been flat to down this year. They're up over a year ago. Is it seasonal in the second quarter that, that line of business just gets soft? Or is it the higher rate environment where customers are just leaving more cash in -- more assets in cash because they're getting 5% or so?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Yeah. Okay. Super. Okay. Appreciate it. Thank you, Mike.

Question: Steven Chubak - Wolfe Research - Analyst : Thanks, and good morning, Charlie, and good morning, Mike. Just given the sheer amount of, I guess, investor questions that we've received on the deposit pricing changes in wealth, I was hoping you could provide some additional context given many of your peers have talked about cash sorting pressures abating or at least being in the very late innings and I want to better understand what informed the decision to adjust your pricing? Was it impacting adviser recruitment or retention? Was it impeding your ability to retain more share of wallet? And -- or is this an effort to maybe go on the offensive and lead the market on pricing and sweep deposits and force others to potentially follow suit?

Question: Steven Chubak - Wolfe Research - Analyst : Understood. And just one follow-up on the discussion relating to expenses. And just given the fee momentum that you're seeing within CIB and wealth and you're clearly making investments in both of those segments. At the same time, the incremental margins have actually been quite high, especially in CIB, where it's running north of 75%, just first half this year versus last. I was hoping to get some perspective as we think about some of that fee momentum being sustained. What do you believe are sustainable or durable incremental margins within CIB and wealth recognizing the payout profiles are different?

Question: Steven Chubak - Wolfe Research - Analyst : That's really helpful color, Mike. Thanks for taking my questions.