WEBVTT - Wells Fargo CFO Michael Santomassimo Talks Risks, Tariffs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>So let's turn now to the banks and kick things

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<v Speaker 2>off on the Big Show with Mike. Mike Santo Massimo.

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<v Speaker 1>He is the.

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<v Speaker 2>CFO over at Wells Fargo and he joins us now

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<v Speaker 2>from their trading floor. Mike is always good to speak

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<v Speaker 2>with you. A pleasure to have you on on your

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<v Speaker 2>earnings day. The big question here is not so much

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<v Speaker 2>about what happened in the first quarter, but the path

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<v Speaker 2>moving forward. And I want to start there with what

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<v Speaker 2>you're hearing from your customers, whether they are individuals or companies.

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<v Speaker 3>Yeah, thanks, thanks Matt and Nascarl for having me again.

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<v Speaker 3>You know, like I think, first, you got to you

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<v Speaker 3>know that as we come into this environment, you know,

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<v Speaker 3>the consumer is in good shape. You know, consumer can

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<v Speaker 3>continues to spend. Most of our commercial customers are in

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<v Speaker 3>good shape as well.

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<v Speaker 1>We're not seeing any kind.

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<v Speaker 3>Of big deterioration across the portfolio. So we come in

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<v Speaker 3>with a pretty good strong foundation. And as you said,

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<v Speaker 3>now look forward. What's happened is you've got some uncertainty, right,

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<v Speaker 3>And what uncertainty does is cause people to take a

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<v Speaker 3>step back and say, you know, how's it going to

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<v Speaker 3>impact me, how's it going to impact the demand I

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<v Speaker 3>might have for my products, or how's.

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<v Speaker 1>It going to impact the cost of my goods?

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<v Speaker 3>Soul? And they're going to take a pause and see

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<v Speaker 3>how that may change their their perspective looking forward.

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<v Speaker 1>And that's pretty you know, natural, I think for folks.

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<v Speaker 3>And that's what we're hearing overwhelming for clients is they're

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<v Speaker 3>taking a step back on the commercial side saying okay,

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<v Speaker 3>I got to really understand this a little bit better.

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<v Speaker 1>But again, on the on.

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<v Speaker 3>The consumer side, what we're seeing is just good consistent performance.

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<v Speaker 1>Like you know, people are still spending.

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<v Speaker 3>People are still out there, you know, using their debit

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<v Speaker 3>and credit cards and so still you know, quite robust

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<v Speaker 3>in terms of the overall activity.

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<v Speaker 1>But I think you know, most most commercial customers are

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<v Speaker 1>taking a step back and trying to evaluate the situation.

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<v Speaker 2>Understood. So, Mike, you left or fool your guidance unchanged.

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<v Speaker 2>What would it take to actually update that and provide

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<v Speaker 2>more details to investors?

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<v Speaker 1>Well, I think you know.

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<v Speaker 3>The good news is we left it kind of you know,

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<v Speaker 3>they guidance unchanged, as you said, and you know, as

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<v Speaker 3>you look at you know, what's happening, right now there's

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<v Speaker 3>a whole bunch of factors that go into where it's

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<v Speaker 3>going to go for the rest of the year versus

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<v Speaker 3>just overall deposit levels and mix that's stabilized and looking

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<v Speaker 3>pretty good overall. You know, we've seen some deposit growth

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<v Speaker 3>in our consumer business. We saw the stabilization you know

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<v Speaker 3>in terms of people looking for higher rates continue, So.

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<v Speaker 1>All all positives as we sort of look forward.

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<v Speaker 3>We saw a little bit of loan growth in the

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<v Speaker 3>first quarter, unclear sort of how that progresses throughout the year.

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<v Speaker 3>We are expecting to see a little bit more as

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<v Speaker 3>we go. That'll be a factor of sort of how

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<v Speaker 3>how you know, how people feel about you know, the

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<v Speaker 3>certainty of where things are going. And then I think

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<v Speaker 3>it's just the macro view on rates, and I think

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<v Speaker 3>the you know, you can see over the last just

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<v Speaker 3>a couple of days or a couple you know, a

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<v Speaker 3>week or two, you know, the expectations for rates, both

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<v Speaker 3>long term and sort of short term rates have been changing,

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<v Speaker 3>you know, quite a bit, and so we need to

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<v Speaker 3>see that stabilize, and I think that'll all be a

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<v Speaker 3>fund Then those those are all the key inputs into

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<v Speaker 3>kind of what an interesting income will look.

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<v Speaker 1>Like for the rest of the year.

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<v Speaker 3>But as of now, from where we sit today, we

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<v Speaker 3>still think the range we gave in January still is reasonable.

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<v Speaker 4>You're not likely to see a lot of things stabilize

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<v Speaker 4>in this administration, Mike, and I wonder how you hedge

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<v Speaker 4>against that. You know, Charlie Sharp earlier or in the statement,

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<v Speaker 4>I think, said that he applauds the administration's willingness to

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<v Speaker 4>look at barriers to fair trade, But there are certain

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<v Speaker 4>risks associated with such significant actions, and how do you

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<v Speaker 4>hedge against those potential outcomes as broad as they are.

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<v Speaker 1>Well, I think you have to look back, and I

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<v Speaker 1>think we tried to cover.

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<v Speaker 3>A little bit of this on the call and look

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<v Speaker 3>at the full universe of stuff happening.

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<v Speaker 1>There's a lot of good things happening on.

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<v Speaker 3>The regulatory side, you know, both for banks and more broadly,

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<v Speaker 3>and we're hopeful that some of those changes will get

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<v Speaker 3>implemented and that'll be helpful for banks like us to

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<v Speaker 3>sort of help support you know, the broader economy, the markets,

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<v Speaker 3>our clients, and so we're hopeful of that will continue

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<v Speaker 3>and unobated from sort of what's happening, you know, with

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<v Speaker 3>with trade policy. And then I think it's it's a

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<v Speaker 3>matter of just getting a little bit more certainty in

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<v Speaker 3>terms of what the guardrails are and the timeline is

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<v Speaker 3>on the trade policy.

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<v Speaker 1>It doesn't have to all be locked and loaded and done.

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<v Speaker 3>It just needs to have a little bit of guardrails

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<v Speaker 3>around it, and then I think people will very quickly

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<v Speaker 3>sort of adapt from there. And you have to continue

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<v Speaker 3>to kind of look beyond sort of what you read,

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<v Speaker 3>you know, in the headlines every day and just look

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<v Speaker 3>at see what you know fact first, you know, versus

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<v Speaker 3>what may be presented to you and so.

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<v Speaker 1>And you know, like I'll you know, go back to

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<v Speaker 1>where I started.

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<v Speaker 3>Like the good news is, like the economy is still

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<v Speaker 3>pretty active and pretty strong, and most customers come you know,

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<v Speaker 3>into this environment in a pretty good place. So that's

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<v Speaker 3>all sort of supportive for you know, things continuing to

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<v Speaker 3>be you.

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<v Speaker 1>Know, pretty pretty constructive for the rest of the year.

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<v Speaker 3>But the risks have definitely gone up, you know, there's

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<v Speaker 3>no doubt about it over the last couple of weeks,

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<v Speaker 3>and so we have to we have to try to

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<v Speaker 3>find ways to you know, continue to support clients and

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<v Speaker 3>then make sure that we're thinking about all those risks appropriately.

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<v Speaker 4>I think, you know, going back to your earn this morning, Mike,

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<v Speaker 4>a lot of people on the street were surprised by

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<v Speaker 4>lower loss loan loss provisions than they expected. Saul Martinez

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<v Speaker 4>from HSBC notes that that, as well as the positive

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<v Speaker 4>tax expense, helped out. Gerard Cassid RBC also said that

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<v Speaker 4>your performance relative to their estimate was driven by a

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<v Speaker 4>lower than expected effective tax rate and lower than expected

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<v Speaker 4>provision for credit losses. Why keep that so low when

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<v Speaker 4>you're staring so much uncertainty in the face.

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<v Speaker 3>Here, Well, you know it is. We talked about this

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<v Speaker 3>on our call a little bit. You first start with

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<v Speaker 3>just the performance of the portfolio, which has done very well.

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<v Speaker 3>You know, we had we had a couple of years ago,

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<v Speaker 3>now two or three years ago at this point, you know,

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<v Speaker 3>had done a bunch of tightening actions, credit tightening actions

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<v Speaker 3>on the consumer side, and that's serving us well as

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<v Speaker 3>we come into this environment.

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<v Speaker 1>And so you can see the performance.

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<v Speaker 3>Continue to get, you know, better and better across many

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<v Speaker 3>of those portfolios. And then when you look at the

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<v Speaker 3>commercial side again, same thing. It's been performing quite well.

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<v Speaker 3>And I think as you look at the assumptions that

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<v Speaker 3>go into the allowance.

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<v Speaker 1>We're already assuming that.

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<v Speaker 3>You know, unemployment ticks up quite a bit, and we

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<v Speaker 3>noted on the call that we did increase the allowance

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<v Speaker 3>a bit more, you know, as it relates to some

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<v Speaker 3>of the uncertainty that we've seen as we came into

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<v Speaker 3>the end of the quarter. So if we hadn't done that,

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<v Speaker 3>we would have seen a bigger release there, you know,

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<v Speaker 3>given how well the portfolio is performing and slightly lower

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<v Speaker 3>balances across some of the portfolio.

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<v Speaker 2>Mike, can you give us an update on the acid

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<v Speaker 2>cap that's now seven years old at well Is it

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<v Speaker 2>limits your balance sheet to the size it was at

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<v Speaker 2>the end of twenty seventeen. I know that the bank

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<v Speaker 2>has made a lot of progress this year, resolving five

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<v Speaker 2>consent orders in the first quarter alone. Is there anything

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<v Speaker 2>more to resolve on Wells Fargo's end?

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<v Speaker 3>Well, I think you know, in the in the release

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<v Speaker 3>and in sort of this, you know, the call comments

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<v Speaker 3>that we had, you can see, you know, as you

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<v Speaker 3>pointed out that we've made a ton of progress not

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<v Speaker 3>only closing the consent orders, but we also noted that

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<v Speaker 3>we completed much of the work that's common across the

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<v Speaker 3>orders that got closed and some of the other orders

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<v Speaker 3>and so so you know, we're just going to keep

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<v Speaker 3>continuing focusing our energy and the things we can control,

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<v Speaker 3>which is making sure that the work's done at the

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<v Speaker 3>highest quality. And you know, we'll let the FED ultimately

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<v Speaker 3>determine sort of the timing and the asset cap. But

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<v Speaker 3>we feel good about the progress we've made and that's

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<v Speaker 3>thanks to the thousands of people across the company that

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<v Speaker 3>have done that.

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<v Speaker 2>So, if the FED removes the cap sometime this year,

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<v Speaker 2>what are the initiatives, what are the things that Wells

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<v Speaker 2>is going to start working on right away to look

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<v Speaker 2>for new streams of revenue growth.

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<v Speaker 3>Well, most of the strategies that we have in place

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<v Speaker 3>are going to be the same ones. So we've been

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<v Speaker 3>investing our wealth management business, our credit card business, our

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<v Speaker 3>corporate investment bank, our commercial bank.

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<v Speaker 1>None of that changes. You know.

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<v Speaker 3>What happens, you know in a time when we have

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<v Speaker 3>more flexibility on the size of the balance sheet, is

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<v Speaker 3>we'll be able to deploy more balance sheet to our

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<v Speaker 3>market's business, you know, in terms of financing trades that

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<v Speaker 3>we can sort of help our clients with, and then

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<v Speaker 3>maybe more broadly in certain types of deposits that we

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<v Speaker 3>can take, but a lot.

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<v Speaker 1>Of the core ategies don't change.

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<v Speaker 3>We're going to continue to execute those and those will

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<v Speaker 3>drive growth in the balance sheet and the revenue and

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<v Speaker 3>the company over a long period of time. But we'll

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<v Speaker 3>have a little bit more flexibility to do some do

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<v Speaker 3>some more activity in our markets business.

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<v Speaker 4>Mike, I saw that's interest income was down due to

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<v Speaker 4>the impact of lower rates, but partially offset by lower

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<v Speaker 4>deposit pricing and higher deposit balances, and I wanted to

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<v Speaker 4>ask about that specifically. You know, a lot of families,

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<v Speaker 4>when when they're facing uncertainty, will make sure that the

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<v Speaker 4>rainy day fund is stocked up.

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<v Speaker 1>Are you seeing that?

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<v Speaker 3>No, A lot of what we've seen now is just

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<v Speaker 3>consistent sort of activity and growth over the last you know,

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<v Speaker 3>four quarters, you know, and what you're seeing in the

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<v Speaker 3>first quarter is just you know, the cumulative impact of that.

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<v Speaker 3>We're not seeing big shifts and behavior at this point,

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<v Speaker 3>you know, across either the consumer or the or the

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<v Speaker 3>corporate client base. And so maybe that'll happen in the future,

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<v Speaker 3>but we're not seeing that.

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<v Speaker 1>At this point.

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<v Speaker 3>It's just it's just normal activity plus some growth that

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<v Speaker 3>we've seen as we've been able to grow a little

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<v Speaker 3>bit more in all the businesses on the consumer side,

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<v Speaker 3>but we're happy to see some of that growth come

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<v Speaker 3>across the client base.

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<v Speaker 4>Mike, great to get so much intel from you. Really

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<v Speaker 4>appreciate you sticking with us here on the close. Mike

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<v Speaker 4>Santamassimo there the CFO, chief financial officer over at Wells Fargo.