Q4 2023 Earnings Summary
- Wells Fargo plans to increase share repurchases in 2024, returning significant capital to shareholders.
- The company expects to achieve a sustainable 15% ROTCE over the medium term, driven by continued progress and strategic initiatives.
- Credit card balances are up 40% since the end of 2021, and investments in corporate investment banking and wealth management are expected to drive revenue growth.
- Wells Fargo expects ongoing declines in consumer deposits, which could negatively impact funding and net interest income. They anticipate declines on the consumer side, despite expecting stable deposits in wealth and commercial sectors.
- The bank is facing structural challenges in its commercial real estate (CRE) portfolio, particularly in the office sector. Losses are expected to continue, and lower interest rates have not materially improved the outlook.
- Credit card charge-offs are expected to continue to trend higher as the credit card portfolio matures, indicating potential higher losses in consumer lending.
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Net Interest Income Outlook
Q: When will NII trough and stabilize?
A: Management expects NII to begin inflecting and troughing towards the end of the year and into 2025, though they are not providing specific timing. -
Path to 15% ROTCE
Q: How quickly can ROTCE reach 15%?
A: They believe underlying ROTCE is closer to 13%, adjusting for one-time assessments, and expect continued improvement through capital returns, business repositioning, and growth in the card business, moving towards 15% over time. -
Office CRE Losses Outlook
Q: What's the outlook for office CRE losses?
A: The office CRE situation is expected to be a long process with uneven charge-offs. Reserves will be used more fully over time, reducing the allowance coverage ratio, but the issue will take time to play out. -
Capital Deployment and Buybacks
Q: Will share buybacks accelerate given excess capital?
A: They plan to repurchase more stock in 2024 than in 2023, leveraging excess capital. Exact timing depends on factors like regulatory developments, but they have ample capacity for buybacks. -
Deposit Mix and NII Decline
Q: How does deposit mix affect NII decline?
A: The shift from non-interest-bearing deposits to interest-bearing products is a significant driver of the expected 7% to 9% decline in NII. The mix shift is expected to stabilize at some point. -
Net Interest Margin Compression
Q: How will NIM change throughout the year?
A: NIM is expected to compress as NII declines and the balance sheet remains stable, with tailwinds from securities repricing and headwinds from declining rates on variable loans. -
Card Charge-Offs Outlook
Q: Where are card charge-offs headed in 2024?
A: Charge-offs are expected to trend slightly higher from the current 4%, following the normal maturation and seasoning of new accounts. -
Fee Income Drivers
Q: What are the key fee income drivers this year?
A: Advisory fees in Wealth and Investment Management are the largest component, benefiting from higher market levels. Trading revenues depend on market conditions, and venture capital impairments should diminish. -
Operating Expense Reductions
Q: Can operating losses be reduced further?
A: While some operational losses are part of doing business, management continues investing to reduce fraud and other losses, aiming for downward trends as historical issues are resolved. -
Impact of Falling Rates on CRE Losses
Q: Do falling rates change the outlook for CRE losses?
A: Lower rates haven't significantly changed the outlook yet. While marginally helpful, structural issues in real estate demand need to be addressed first.