WEBVTT - Wells Fargo CFO Talks Earnings

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<v Speaker 1>Three of the biggest banks already out with their earnings,

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<v Speaker 1>Wills Fargo among them. Those shares down about six percent.

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<v Speaker 1>Some concerns here about higher than expected costs, some concerns

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<v Speaker 1>right now here about a slowdown in cost cutting efforts.

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<v Speaker 1>Mike Sanamssimo joining us right now, the CFO over at

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<v Speaker 1>Wells Fargo, and Mike, let's start off with the cost

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<v Speaker 1>cutting here. Some commentary and the press release, some commentary

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<v Speaker 1>on that conference call about a slowdown in some of

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<v Speaker 1>those efforts characterize us as to what exactly that means.

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<v Speaker 2>Well, thanks, thanks again for having me Marina and Alex.

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<v Speaker 3>I appreciate it.

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<v Speaker 2>You know, look, I think you got to look through

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<v Speaker 2>into the quarter and you know, there was it was

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<v Speaker 2>actually quite a solid quarter. You know, we saw really

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<v Speaker 2>good momentum in our fees revenue generating businesses that more

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<v Speaker 2>than offset sort of what we saw as the expected

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<v Speaker 2>decline and an interest income. We saw, you know, headcount

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<v Speaker 2>continue to come down in the core efficiency agenda stole

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<v Speaker 2>in place. We saw good capital return to shareholders. We

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<v Speaker 2>saw our investments really start to pay off, you know,

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<v Speaker 2>in terms of that fee income I mentioned, And so

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<v Speaker 2>there's a lot and there's a lot of opportunity there

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<v Speaker 2>on the expense side. It was really three things that

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<v Speaker 2>sort of drove the increase in the full year guidance.

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<v Speaker 2>You know, first is revenue related expenses in our wealth

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<v Speaker 2>management business, which is a good thing because there's revenue

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<v Speaker 2>that more than offsets all of that and so as

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<v Speaker 2>the equity markets stay higher than what we predicted earlier

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<v Speaker 2>in the year, you know that that is a positive

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<v Speaker 2>contribution to earnings, but it increases the expense line. Second

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<v Speaker 2>is related to some remediation costs that we have to

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<v Speaker 2>put some of these client remediations that are related to

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<v Speaker 2>some historical matters behind us, and that was in the

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<v Speaker 2>first half of the year. And the third is the

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<v Speaker 2>special assessment for the FDIC related to the events of

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<v Speaker 2>last year. So when you look beyond those three things,

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<v Speaker 2>the core efficiency agenda is still very much the same

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<v Speaker 2>as it was last quarter last year, and we continued

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<v Speaker 2>excon and feel really good about the opportunity we have there.

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<v Speaker 1>With regards to the FDIC costs and the other customer

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<v Speaker 1>remediation costs in theory costs that should be temporary. Are

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<v Speaker 1>we sort of the end of this path? Is there

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<v Speaker 1>a light at the end of the tunnel when it

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<v Speaker 1>comes to those issues.

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<v Speaker 2>Yeah, well, I think the remediation stuff was related to

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<v Speaker 2>a couple of matters. You know, they're historical, and so

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<v Speaker 2>we're nearing, you know, the we're nearing. We're closer to

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<v Speaker 2>the end on those than we are otherwise. And then

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<v Speaker 2>the fd I see, you know, we get that'll be

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<v Speaker 2>driven by the losses that we see ultimately through the

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<v Speaker 2>FDIC fund there. But we've accrued for you know, everything

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<v Speaker 2>we know about there, and we'll see how that progresses,

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<v Speaker 2>and so it shouldn't you know, we don't know that

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<v Speaker 2>it'll be any higher than it's been, and so we'll

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<v Speaker 2>get more information each quarter from the FDICE.

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<v Speaker 3>Hey, Mike. The other part of the quarter that disappointed

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<v Speaker 3>the street though was net interest margin, net interest income,

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<v Speaker 3>and a big part of that is going to be

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<v Speaker 3>that loan demand. Why do you guys still see that

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<v Speaker 3>loan demand as tepid when a lot of your peers

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<v Speaker 3>don't see that. What is it specific to Wells Fargo?

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<v Speaker 2>Well, I think, you know, keep in mind that the

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<v Speaker 2>guidance we put out there for the years, the same

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<v Speaker 2>guidance we put out in January down seven to nine

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<v Speaker 2>percent we just set at this point in the year,

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<v Speaker 2>we think we'll be around eight to nine percent versus

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<v Speaker 2>you know, anywhere else in the range, and so the

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<v Speaker 2>guidance is still about the same. So most of what

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<v Speaker 2>was in there actually, you know, was very similar to

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<v Speaker 2>what we expected to happen. You know, Loan growth has

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<v Speaker 2>definitely been a little bit weaker than we thought as

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<v Speaker 2>we looked, you know, at the beginning of the year,

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<v Speaker 2>and I think that's generally the case in a lot

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<v Speaker 2>of other places as well. And I think we've been

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<v Speaker 2>very very consistent about our underwriting standards and the way

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<v Speaker 2>we're approaching it. So we're not out there chasing growth

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<v Speaker 2>by taking more risk. We're actually very much just being

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<v Speaker 2>very consistent over a long period of time. But underneath

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<v Speaker 2>the ni trends, you're actually seeing some positive trends. You know,

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<v Speaker 2>Deposits are up, you know, in all of our lines

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<v Speaker 2>of business versus the first quarter. That's the first time

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<v Speaker 2>in a couple of years that that's happened. And so

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<v Speaker 2>there's actually some positive trends that are happening underneath there

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<v Speaker 2>as well.

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<v Speaker 3>I mean, I hear you, but the stock is still

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<v Speaker 3>down six percent and it's even off its lows versus

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<v Speaker 3>your peers, Like, there's clearly something that is worrying investors

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<v Speaker 3>in those costasures as well as net interest income. Were

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<v Speaker 3>those two worries. What do you think happens to loan

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<v Speaker 3>growth and net interest income as the FED make cut rates?

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<v Speaker 2>Yeah, well, you know, as the Fed starts to cut rates,

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<v Speaker 2>our deposits will begin to reprice downward as well, particularly

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<v Speaker 2>on the wholesale side. So that'll be a positive as

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<v Speaker 2>you start to see you know that that happen. And

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<v Speaker 2>I think rates are one part of the equation for

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<v Speaker 2>what we hear from our clients.

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<v Speaker 3>Right.

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<v Speaker 2>So there's you have the election coming up, you have

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<v Speaker 2>rates still being high, you have some uncertainty still out

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<v Speaker 2>there in the economy to make sure this soft landing

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<v Speaker 2>is really going to materialize in the way people think.

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<v Speaker 2>And so I think as we get through the year,

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<v Speaker 2>you'll start to see, you know, clients do more from

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<v Speaker 2>a lending perspective as well as you know consumers. You know, well,

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<v Speaker 2>if you know, the stronger the consumer stays, I think

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<v Speaker 2>you'll start to see some more growth there as well.

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<v Speaker 1>Mike, I have to ask you about some of the

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<v Speaker 1>efforts that Charlie Sharf has made to kind of broaden

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<v Speaker 1>out this business obviously well as much more known for

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<v Speaker 1>the consumer side of that business, the mortgage side of

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<v Speaker 1>that business. But you've made some decent strides so far

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<v Speaker 1>in the trading space and of course another some of

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<v Speaker 1>the more traditional all Wall Street types of businesses here.

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<v Speaker 1>How do you accelerate that though in a way that

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<v Speaker 1>is going to satisfy investors.

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<v Speaker 2>Well, I think it's not about acceleration, it's about being

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<v Speaker 2>very consistent in our execution there. And I think you know,

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<v Speaker 2>we've been talking now for a number of years about

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<v Speaker 2>a few areas of investment versus the credit card business,

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<v Speaker 2>and I think you see that come through, you know,

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<v Speaker 2>the new accounts and the growth and balances there. Second

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<v Speaker 2>is the wealth business, where we've again seen growth in

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<v Speaker 2>the advisory fees. We've seen you know, our attrition and

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<v Speaker 2>advisors slow, and I think that, you know, we think

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<v Speaker 2>there's opportunity to continue.

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<v Speaker 3>To grow there.

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<v Speaker 2>And then it's then it's in the corporate investment bank

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<v Speaker 2>and the commercial bank, and I think you know we've

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<v Speaker 2>been we've been hiring and investing in people and capabilities

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<v Speaker 2>there for the last few years and I think you're

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<v Speaker 2>starting to see that really come through, both in the

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<v Speaker 2>trading line and the investment banking fee line, and I

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<v Speaker 2>think that'll that's something that will kind of build, uh,

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<v Speaker 2>you know, methodically over time. There is no this, you know,

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<v Speaker 2>trying to accelerate by taking risks. We have to be

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<v Speaker 2>very consistent about how we go about it, and I

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<v Speaker 2>think we're starting to see the benefits of that come through.

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<v Speaker 3>Mike, we really appreciate it. You know, it's a busy day.

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<v Speaker 3>Thank you for taking the time while Spargo CFO Mike

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<v Speaker 3>Senta me Asimo