WEBVTT - Wells Fargo CFO Mike Santomassimo Talks Quarterly Results

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<v Speaker 1>Bloomberg Audio Studios, podcasts.

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<v Speaker 2>Radio news. The CFO of Wells Fargo joins us now

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<v Speaker 2>on Bloomberg. Mike Senamassimo. Great to see you once again here.

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<v Speaker 2>A relatively upbeat quarter, at least based on the reaction

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<v Speaker 2>that we've seen out of investors and also by some

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<v Speaker 2>of the comments that you and Charlie Sharf made on

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<v Speaker 2>that conference call about the resiliency of the consumer. Can

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<v Speaker 2>you expand on that a little bit more, Mike, what

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<v Speaker 2>exactly are you seeing?

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<v Speaker 1>Yeah, well, first thanks thanks for having me again.

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<v Speaker 3>And you know, as you saw on the results, so

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<v Speaker 3>the quarter, you know, the consumer has been quite resilient

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<v Speaker 3>actually now for the last number of quarters. And I

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<v Speaker 3>think you can see that in the activity levels. You

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<v Speaker 3>can see that in the credit performance in the quarter,

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<v Speaker 3>and you can see that in the underlying deposit franchise

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<v Speaker 3>as well as you were just mentioning. And so when

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<v Speaker 3>you look just more broadly at the results, it's not

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<v Speaker 3>just the consumer side, it's the commercial side as well.

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<v Speaker 1>You know, we saw good growth across most of.

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<v Speaker 3>The businesses, and the FEA side we saw it and

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<v Speaker 3>expected decline in an interesting income. But you know, we

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<v Speaker 3>feel like we're likely at the trough of the NII

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<v Speaker 3>trend at this point. So there's a lot of good

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<v Speaker 3>things underneath that underpin the what you saw in the quarter.

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<v Speaker 2>Is there a sense I mean when you talk about

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<v Speaker 2>the trough potentially that we are, is that largely a

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<v Speaker 2>function of the move that we've seen in FED rates

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<v Speaker 2>or is there something more to that?

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<v Speaker 3>Well, I think the reduction in rates does help, right,

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<v Speaker 3>because we've been able to adjust client pricing as a

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<v Speaker 3>result of that. But you're also still seeing you know,

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<v Speaker 3>rates are still quite high on a releative basis over

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<v Speaker 3>from the last few years, have the last few years,

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<v Speaker 3>and so you are still seeing repricing happen on the

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<v Speaker 3>asset side. But in the near term, what really drive,

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<v Speaker 3>what really drive where we end up over the next

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<v Speaker 3>couple of quarters, is the deposit side, and we've seen

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<v Speaker 3>some good trends there or now over the last couple

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<v Speaker 3>of quarters where you've seen this this cash sorting and

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<v Speaker 3>the mixed different mix changes really moderate. It was the

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<v Speaker 3>slowest quarter where you know, so far since over the

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<v Speaker 3>last couple of years, you know, for that in the portfolio,

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<v Speaker 3>and we've been able to adjust pricing as just as

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<v Speaker 3>we thought we would as the rates came down, So

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<v Speaker 3>that'll be the that'll be the factor that really drives

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<v Speaker 3>near term performance.

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<v Speaker 4>So Mike, it's good to chat with you.

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<v Speaker 1>To that point.

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<v Speaker 4>Then, does that mean that the move into higher yielding

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<v Speaker 4>say CDs or money market funds, et cetera, like that's

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<v Speaker 4>definitely done as rates cuts tunk come down.

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<v Speaker 3>Well, I wouldn't say it's it's necessarily done, but I

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<v Speaker 3>think we saw the lowest migrate, lowest pace of migration

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<v Speaker 3>since rates started increasing, Alex And so I think, you know,

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<v Speaker 3>that's a good trend. And I think eventually what you do,

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<v Speaker 3>what you see generally or expect to see generally, is

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<v Speaker 3>that you know, what's left in checking accounts ends up

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<v Speaker 3>being operating cash for a lot of people. So a

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<v Speaker 3>lot of that shifting into other other alternatives has happened already.

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<v Speaker 4>Yeah, my highield savings account already coming down there. All right,

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<v Speaker 4>let's get to the loan part of your portfolio. When

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<v Speaker 4>do you think you see a really big uptake in

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<v Speaker 4>loan growth? What's going to be that?

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<v Speaker 3>Yeah, it's really hard to say exactly right, And I

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<v Speaker 3>think when you look at what's what we're hearing from

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<v Speaker 3>clients and what you're seeing, you know, rates coming down helpful,

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<v Speaker 3>right because borrowing costs come down. I think there's still

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<v Speaker 3>some uncertainty related to the election that's coming up, and

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<v Speaker 3>then I think people want to see this space case

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<v Speaker 3>kind of soft landing economic scenario play out a little

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<v Speaker 3>bit longer, and then I think a combination of those

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<v Speaker 3>things will start to build confidence. And then I think

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<v Speaker 3>you may start to see people either build inventories or

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<v Speaker 3>make additional capital expenditures that they've been holding off on

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<v Speaker 3>now for a little bit.

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<v Speaker 1>But I don't think it's just one thing.

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<v Speaker 3>I think you really need to see a confluence of

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<v Speaker 3>these things come together. And so it could take a

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<v Speaker 3>little bit of time for that to really materialize in borrowing.

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<v Speaker 2>With regards to that client activity, Mike and the election

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<v Speaker 2>and the idea that once we get past that maybe

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<v Speaker 2>we see more activity, is that irrespective of who wins

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<v Speaker 2>or are they trying to hedge their bets.

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<v Speaker 3>Well, you know, I think you know, what people don't

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<v Speaker 3>like is uncertainty romain and and so I think once

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<v Speaker 3>there's some certainty of the path and you you know,

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<v Speaker 3>you feel like that economic you know, outlook is going

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<v Speaker 3>to play out the way they think. I think those

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<v Speaker 3>things are going to what really matter, and then assuming

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<v Speaker 3>rates continue to come down and reduce barring costs. So

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<v Speaker 3>I really do think it's going to be a combination

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<v Speaker 3>of all those things. But it's the it's the it's

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<v Speaker 3>the uncertainty part that I think causes people to hold off.

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<v Speaker 2>I do want to ask you about some of the

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<v Speaker 2>regulatory issues that continue to hang over Wells Fargo. Last month,

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<v Speaker 2>Bloomberg did report that you had actually entered a new

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<v Speaker 2>phase here to get out from under that fed's asset cap.

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<v Speaker 2>I am curious as to the progress that you've made

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<v Speaker 2>in moving in that direction and whether you are anticipating

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<v Speaker 2>that cap to be removed soon.

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<v Speaker 1>Yeah.

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<v Speaker 3>I mean, as always, my answer might be a little

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<v Speaker 3>unfulfilling remain but but I think, you know, we we

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<v Speaker 3>continue to very much focus on getting the work done

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<v Speaker 3>that we have there, and ultimately it's going to be

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<v Speaker 3>up to FED to decide, you know, when they're ready.

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<v Speaker 1>To do that.

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<v Speaker 3>But you know, we we continue to feel like we're

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<v Speaker 3>making really good progress. We're confident we're going to get

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<v Speaker 3>through it, but ultimately it's going to be up to

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<v Speaker 3>the FED to decide the ultimate outcome there.

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<v Speaker 4>It definitely has be Mike's favorite question, I think when

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<v Speaker 4>it comes to our earnings and interviews. But what kind

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<v Speaker 4>of spend profile do you think you're going to have

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<v Speaker 4>one ad as a cap is removed, Like, are we

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<v Speaker 4>going to be like, all right, let's invest a bunch

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<v Speaker 4>of money, or how's the plan sorting itself out?

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<v Speaker 3>No, it doesn't change the strategy that we've been you know,

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<v Speaker 3>executing on now for the.

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<v Speaker 1>Last number of years.

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<v Speaker 3>We are already making the investments we need to make

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<v Speaker 3>into the businesses that grow them over a long period

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<v Speaker 3>of time, and we're paying for that through the efficiency

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<v Speaker 3>program that that we've executed now for the last you know,

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<v Speaker 3>four or five years.

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<v Speaker 1>And I think we still very much.

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<v Speaker 3>Feel and I think Charlie talked about it on the

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<v Speaker 3>call this morning, we very much feel like there's a

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<v Speaker 3>lot more opportunity for us to drive more efficiency and

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<v Speaker 3>that'll that'll allow us to continue to make.

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<v Speaker 1>The investments we need to make in each of the

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<v Speaker 1>businesses and we're going to keep doing what we've been

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<v Speaker 1>doing now for the last four or five years.

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<v Speaker 4>We talked about the election in terms of the demand profile,

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<v Speaker 4>What about your client activity in training, for example, like

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<v Speaker 4>how are your client's positioned, how are they thinking about

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<v Speaker 4>the next few weeks.

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<v Speaker 3>Well, I think, you know, most people are probably hedging

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<v Speaker 3>their bets a little bit right and making sure they're

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<v Speaker 3>not taking too much risk going into what can be

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<v Speaker 3>an uncertain environment. But you know, volatility, as you know,

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<v Speaker 3>can sometimes create opportunity for folks, and I think that

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<v Speaker 3>certainly creates opportunity in a trading business like ours and others.

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<v Speaker 1>And so we'll see how it plays out.

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<v Speaker 3>But I think going in, you know, we're going into

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<v Speaker 3>this next month or so pretty cautiously as we sort

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<v Speaker 3>of think about the risk we have in the trading side.

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<v Speaker 2>We haven't had a chance to really ask you about

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<v Speaker 2>the state of the commercial real estate market, at least

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<v Speaker 2>as it relates here to the business the Wells Fargo.

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<v Speaker 2>Does you clearly have some insights into that, Mic, and

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<v Speaker 2>I am curious as to whether you've seen or seen

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<v Speaker 2>anything resembling a troth in what has been ailing that space,

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<v Speaker 2>particularly in the office space.

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<v Speaker 3>Yeah, well, I think, you know, broadly, commercial real estate's

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<v Speaker 3>doing quite well. It's really an office story, you know,

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<v Speaker 3>where you see the most stress, and so I think

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<v Speaker 3>in the other asset classes, you continue to see a

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<v Speaker 3>lot of activity. You can see the CNBS market, h

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<v Speaker 3>you know, securitization market, pretty pretty active in other asset

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<v Speaker 3>classes like multifamily.

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<v Speaker 1>So really that stress is.

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<v Speaker 3>In the office space and I can and it's really

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<v Speaker 3>going to take some time to play out, you know,

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<v Speaker 3>you know, we're not quite done working through you know,

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<v Speaker 3>those issues, and it's hard to call whether it's at

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<v Speaker 3>a trough or a bottom you know, in that market

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<v Speaker 3>at this point.

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<v Speaker 1>And it's still the same trends though that we're seeing.

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<v Speaker 3>You know, Newer buildings in the right places are doing

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<v Speaker 3>just fine. Older buildings are are not doing fine. It's

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<v Speaker 3>pretty consistent across the US, and it's going to take

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<v Speaker 3>a while to play out. I don't it's not going

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<v Speaker 3>to be done in the next quarter or two. And

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<v Speaker 3>for us, you know, we've got you know, we've got

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<v Speaker 3>a high allowance for coverage you know, coverage ratio in

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<v Speaker 3>the credit book there in the in those institutions office properties,

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<v Speaker 3>so we're really prepared for it. And it's for the

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<v Speaker 3>most part, i'd say, kind of within the expectations that

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<v Speaker 3>we had for it, but it's still it's still not

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<v Speaker 3>quite turning yet in terms of getting better for the

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<v Speaker 3>properties that are most stressed.

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<v Speaker 4>And Mike, we really appreciate it. It was fun to

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<v Speaker 4>get your time today. Thank you so much. We'll get

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<v Speaker 4>you on the next quarter on Mike. Santa Messimo, a

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<v Speaker 4>CFO over at Wells Fargo,