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    Wells Fargo & Co (WFC)

    Q3 2024 Earnings Summary

    Reported on Jan 6, 2025 (Before Market Open)
    Pre-Earnings Price$57.75Last close (Oct 10, 2024)
    Post-Earnings Price$59.96Open (Oct 11, 2024)
    Price Change
    $2.21(+3.83%)

    What went well

    • Management is confident in lifting the asset cap, focusing on completing the required work, which could unlock growth opportunities, particularly in wholesale deposits and markets business.
    • Stable deposit trends and prudent credit underwriting have led to good stabilization of deposits across businesses, with less migration to higher-yielding alternatives, positioning Wells Fargo well in the current environment.
    • Investments in trading capabilities and technology have resulted in seven consecutive quarters of strong trading performance, enhancing noninterest income and demonstrating successful execution of strategic priorities.

    What went wrong

    • Wells Fargo continues to face regulatory constraints, including an asset cap and consent orders, with uncertain timing for their removal, limiting growth potential.
    • Management indicates that even with the removal of the asset cap, significant growth opportunities may not materialize immediately, suggesting limited upside from regulatory relief.
    • The company is dealing with ongoing regulatory issues, such as the recent formal agreement with the OCC regarding anti-money laundering and KYC compliance, which could lead to increased expenses and regulatory risks.

    Q&A Summary

    1. Asset Cap Removal Process
      Q: What happens next after submitting the third-party review?
      A: Charles Scharf explained that after submitting their detailed plan to regulators, the regulators review it and follow formal processes to decide if the work meets their satisfaction. Once completed, they inform the company and the public.

    2. NII Outlook and Drivers
      Q: Why is NII flat despite rate cuts?
      A: Michael Santomassimo said NII remains flat due to factors like their unique deposit mix, pricing actions across the deposit base, and assets continuing to reprice upward. Repositioning the portfolio added 130 basis points on $16 billion of securities, contributing to NII stability.

    3. Expenses and Efficiency
      Q: Will expenses remain flat despite investments?
      A: Charles Scharf stated they continue finding efficiencies while investing in risk and regulatory areas and future growth. They've balanced this historically and will discuss 2025 expenses next quarter. Headcount has come down, showing efficiency efforts.

    4. Capital Returns (Share Buybacks)
      Q: Is the buyback pace sustainable?
      A: Michael Santomassimo noted they repurchased $3.5 billion in the quarter and $15.5 billion year-to-date. With capital levels 150 basis points above minimum requirements, they have excess capital to return but will decide exact pacing quarterly.

    5. Loan Demand Outlook
      Q: Any update on loan demand rebound?
      A: Michael Santomassimo observed clients remain prudent about borrowing despite a 50 basis point rate reduction. Uncertainties like the election and macro outlook affect confidence. As rates decrease further and uncertainties clear, demand may increase.

    6. Commercial Real Estate Exposure
      Q: Is office real estate stabilizing?
      A: Charles Scharf said conditions aren't improving, with more properties affected and significant revaluation due to supply and demand. Michael Santomassimo added that new or renovated buildings perform well, but older offices face challenges. They feel confident in their allowance coverage ratio.

    7. Regulatory Issues (AML/KYC)
      Q: Any impact from the AML/KYC investigation?
      A: Charles Scharf acknowledged the formal agreement with the OCC and emphasized they take such issues seriously. They don't foresee significant expense impact beyond their $54 billion expense base and have been working on required improvements.

    8. Impact of Asset Cap Removal
      Q: Where will you grow when asset cap lifts?
      A: Charles Scharf indicated they would focus on wholesale deposits and markets business—areas previously constrained by the asset cap. This would allow them to better serve clients and pursue normal growth opportunities across the company.

    9. Trading Gains Volatility
      Q: What drives trading gains fluctuations?
      A: Michael Santomassimo explained that market volatility and seasonality affect trading gains. They've focused on improving capabilities and have delivered over seven quarters of strong performance by enhancing technology and client service.

    10. Fee Income Drivers
      Q: Outlook for fee income lines?
      A: Michael Santomassimo noted that investment management fees depend on market levels, with about two-thirds from equities. Card fees grow with economic activity and business success. Investment banking is market-dependent but aims to increase market share over time.

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