- Net Income: $4.9 billion or $1.33 per diluted common share.
- Net Interest Income: Down $1.2 billion or 9% from a year ago; down $304 million or 2% from the first quarter.
- Noninterest Income: Increased 19% from a year ago.
- Noninterest Expense: Increased 2% from a year ago; declined 7% from the first quarter.
- Average Loans: Down from both the first quarter and a year ago.
- Average Deposits: Grew $4.9 billion from the first quarter.
- Net Loan Charge-offs: Increased 7 basis points from the first quarter to 57 basis points of average loans.
- Allowance for Credit Losses: Down modestly from the first quarter.
- CET1 Ratio: 11%, above the current 8.9% regulatory minimum plus buffers.
- Common Stock Repurchase: $6.1 billion in the second quarter.
- Dividend Increase: Expected to increase by 14% to $0.40 per share in the third quarter, subject to Board approval.
- Retail Mortgage Originations: Declined 31% from a year ago.
- Auto Portfolio Balances: Declined 14% from a year ago.
- Credit Card Loans: Continued to grow.
- Commercial Real Estate Revenue: Down 4% from a year ago.
- Investment Banking Revenue: Increased 3% from a year ago.
- Markets Revenue: Grew 16% from a year ago.
- Wealth and Investment Management Revenue: Increased 6% from a year ago.
- 2024 Net Interest Income Outlook: Expected to be in the upper half of the range provided in January, down approximately 9% from full year 2023.
- 2024 Noninterest Expense Outlook: Expected to be approximately $54 billion.
Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wells Fargo & Co (WFC, Financial) reported strong fee-based revenue growth, particularly in investment advisory, trading activities, and investment banking.
- Credit performance was consistent with expectations, with improvements in the consumer auto portfolio and net recoveries in the home lending portfolio.
- The company has launched two new credit cards, contributing to strong credit card spend and new account growth.
- Wells Fargo & Co (WFC) has been methodically growing its corporate investment bank, adding significant talent and seeing strong growth in investment banking fees.
- The company continues to optimize and invest in its branch network, refurbishing branches and enhancing the branch experience with new technology and digital account opening features.
Negative Points
- Net interest income declined by $1.2 billion or 9% from a year ago due to higher funding costs and lower loan balances.
- Losses in the commercial real estate office portfolio increased, and the market fundamentals for institutional-owned office real estate continue to deteriorate.
- Operating losses increased due to higher customer remediation accruals for historical matters.
- The company faces ongoing regulatory scrutiny and remains at risk of further regulatory actions.
- Noninterest expense increased by 2% from a year ago, driven by higher operating losses, revenue-related compensation, and technology and equipment expenses.
Q & A Highlights
Q: Mike, could you provide more detail on the changes in deposit costs and how you expect them to look going forward?
A: Yes, the sweep pricing will be included going forward. We saw about a month's worth of impact in the quarter. Overall, we're not seeing a lot of pressure on deposit pricing. The migration from checking to savings or CDs is slowing. On the wholesale side, pricing remains competitive, but we're pleased with the growth in operational deposits. The positive trend is that deposits grew in every line of business, and migration to higher-yielding alternatives is slowing.
Q: How do you view the sustainability of the trading business's recent performance and market share gains?
A: Trading performance can be volatile quarter-to-quarter, but we've been methodically investing in asset classes like FX and credit. The business is still constrained by the asset cap, limiting our ability to grow assets and client financing. However, we expect continued growth in a prudent manner, driven by client engagement and flow.
Q: What gives you confidence that net interest income (NII) will bottom towards the end of the year?
A: The pace of deposit migration is slowing, and once the Fed starts lowering rates, deposit betas will decline. Asset repricing will also contribute positively. While exact timing is tough to call, we feel confident about NII stabilizing over the coming quarters.
Q: Can you provide more color on the expected moderation in stock buybacks and how long it might persist?
A: We are being conservative on capital return due to uncertainties around SCB and Basel III. We want to maintain a cushion above our regulatory requirements. Once we have more clarity on Basel III, we can be more specific about future capital returns.
Q: Is 11% CET1 ratio the line in the sand as you wait for Basel III clarity?
A: We aim to maintain a CET1 ratio around 11% or slightly higher. The higher-than-expected SCB is influencing our current stance. We will adjust our capital return strategy once we have more clarity on Basel III.
Q: How are you balancing growth in the credit card business with maintaining credit quality?
A: We closely monitor performance by product and vintage. Our underwriting standards remain high, and the credit quality of new originations is consistent with expectations. The increase in loss rates is due to portfolio maturation, not a decline in credit quality.
Q: Can you elaborate on the decision to increase deposit costs in the wealth management business?
A: The increase is specific to a sweep product in advisory accounts and is not a reaction to cash sorting or competitive pressures. It's a small portion of overall deposits in the wealth business.
Q: What are the sustainable incremental margins in the Corporate and Investment Banking (CIB) and Wealth Management segments?
A: In Wealth Management, margin expansion will come from growth in advisory assets and better penetration of banking and lending products. In CIB, we've been making targeted investments and optimizing headcount, which has led to high incremental margins. We expect this to moderate over time but continue to see opportunities for growth.
Q: Can you provide more detail on the increase in expenses and how it impacts core PPNR?
A: The increase in expenses is driven by higher customer remediation costs, FDIC expenses, and revenue-related compensation in wealth management. Core PPNR remains strong, and the expense increase is not indicative of a broader trend.
Q: What are your views on leveraging AI for efficiency and cost savings?
A: We are using AI in various areas like marketing, credit decisioning, and customer service. GenAI offers new opportunities for efficiency, such as automating call center processes and root cause analysis. These initiatives are part of our broader tech investment strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
