Q4 2024 Earnings Summary
- Wells Fargo is on track to achieve its medium-term Return on Tangible Common Equity (ROTCE) target of 15%, driven by improving profitability in the credit card and home lending businesses. The company has already improved ROTCE to nearly 13.5% in 2024 and expects further enhancements as these businesses mature. ,
- The credit card business is entering a phase of increased profitability as earlier vintages mature. With credit performance behaving as expected and continued growth in new accounts, profitability from the credit card portfolio is anticipated to positively impact earnings over the next year or two.
- Focused on organic growth opportunities across its businesses, Wells Fargo is driving growth in areas such as card services, wealth management, investment banking, and capital markets. The strategic emphasis on executing across these priorities is expected to generate future revenue growth and enhanced profitability.
- Wells Fargo's trading revenues decreased year-over-year, while peers experienced increases of 15%-20%, indicating potential underperformance in their trading business.
- Ongoing regulatory constraints and consent orders continue to limit Wells Fargo's operations and profitability, as they have not yet resolved all outstanding orders that constrain them.
- Reduced sensitivity to interest rate changes may limit net interest income growth if rates rise, as the bank's balance sheet has become less asset-sensitive over the last number of quarters.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | ~0.5% decline (Q4 2024: $20,378M vs. Q4 2023: $20,478M) | The slight decline indicates minimal revenue volatility, likely reflecting ongoing pressures on net interest income and modest shifts in noninterest income seen in previous periods. This stability suggests that, despite a challenging funding environment, revenue streams remained controlled, building on trends observed in Q4 2023. |
Net Income | +175% increase (Q4 2024: $9,498M vs. Q4 2023: $3,446M) | The dramatic surge in net income reflects a significant turnaround, likely driven by enhanced revenue generation, improved cost efficiencies, and possibly favorable discrete tax or nonrecurring items. This robust performance contrasts with the more modest improvements noted in prior quarters and underlines effective operational adjustments made since Q4 2023. |
Interest Expense | -8.4% decrease (Q4 2024: $9,219M vs. Q4 2023: $10,068M) | The reduction in interest expense suggests effective management of funding costs—possibly through a shift toward lower-cost deposit products or changes in deposit mix—that builds on ongoing efforts seen in previous periods to mitigate a higher interest rate environment. |
Earnings Per Share (Basic) | +61.8% increase (from 0.89 to 1.44) | The marked improvement in EPS is primarily driven by the surge in net income and likely further boosted by share repurchases lowering outstanding shares. This combination has amplified per-share profitability, demonstrating a significant turnaround from Q4 2023. |
Net Change in Cash | Positive net change of $17,774M in Q4 2024 | The robust net change in cash underscores a strong liquidity position, likely resulting from effective operating and financing cash flow management. This improvement reflects underlying progress in controlling cash outflows and enhancing inflows compared to previous periods, aligning with the company’s ongoing initiatives to strengthen its cash profile. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Interest Income (NII) | FY 2025 | no prior guidance | Full-year 2025 NII expected to be approx 1% to 3% higher than FY 2024, or 3% to 5% higher than annualized Q4 2024 NII | no prior guidance |
Noninterest Expense | FY 2025 | no prior guidance | ~$54.2 billion for 2025 | no prior guidance |
Operating Losses | FY 2025 | no prior guidance | ~$1.1 billion, ~$700 million lower than in 2024 | no prior guidance |
Severance Expense | FY 2025 | no prior guidance | ~$500 million lower than in 2024 | no prior guidance |
Wealth and Investment Management Revenue-Related Expenses | FY 2025 | no prior guidance | Expected to increase by ~$600 million | no prior guidance |
Efficiency Initiatives | FY 2025 | no prior guidance | ~$2.4 billion of gross expense reductions in 2025 | no prior guidance |
Incremental Technology Expense | FY 2025 | no prior guidance | ~$900 million | no prior guidance |
Incremental Other Investments | FY 2025 | no prior guidance | ~$900 million | no prior guidance |
Other Expenses | FY 2025 | no prior guidance | Expected to increase by ~$800 million | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Return on Tangible Common Equity (ROTCE) | Q3: Reached 13.9% ROTCE, improving from prior quarters. Q2/Q1: Reiterated 15% goal, seeing efficiency as key driver. | Achieved 13.4% ROTCE, emphasizing continuous progress since 2020 and reaffirming confidence in the 15% target. | Stable improvement; nearing long-term target. |
Credit card business profitability | Q3/Q2/Q1: Ongoing growth in spend, new products, and portfolio expansion, with profitability framework expected to ramp up as portfolio matures. | Still in early stages of profitability; new vintages just maturing and expected to contribute more significantly over the next 1-2 years. Credit performance remains as modeled. | Consistent progress; remains a key future growth driver. |
Organic growth in card, WM, IB, capital mkts | Q3/Q2/Q1: Implementing strategic hires, new card products, and expanded advisory capabilities; all segments contributing to fee-based revenue growth. | Emphasized ongoing opportunities in card, wealth management, investment banking, and capital markets; wealth revenue up 8% year-over-year. | Continued expansion; a strategic priority. |
Trading revenue performance | Q3: Reported gains year-over-year; Q2/Q1: Noted strong year-over-year growth, supported by investments in technology and talent. | Trading revenue declined year-over-year due to seasonal factors and a smaller, more risk-conservative trading profile. | Softer in Q4; remains cyclical but strategic. |
Regulatory constraints and consent orders | Q3/Q2/Q1: Continued remediation efforts and monitoring; acknowledged multiple remaining orders, focus on operational risk and compliance. | Announced termination of a 2016 OCC consent order (the sixth terminated since 2019); highlighted progress but acknowledged ongoing work. | Improved; major overhang gradually resolving. |
Interest rate sensitivity & NII trajectory | Q3: Believed NII near trough; Q2: Declines driven by deposit mix; Q1: Initially guided NII to fall 7–9% for 2024. | Described as marginally asset-sensitive; NII expected to stay stable in 1H 2025 and grow in 2H; full-year 2025 NII forecasted 1–3% higher than 2024. | Outlook has brightened compared to earlier declines. |
Deposit migration, stabilization, pricing | Q3: Slower migration to high-yield products; Q2: Migration continuing but decelerating; Q1: Noted ongoing shifts from checking to savings. | Observed stabilization in noninterest-bearing vs. interest-bearing mix, reduced promotional rates, and an 18 bps decline in average deposit costs from Q3. | Stabilizing; lower funding cost pressures. |
Commercial real estate office portfolio | Q3/Q2/Q1: Consistent caution around office exposure, coverage ratio around 11%, losses considered manageable but uneven over time. | Fundamentals remain weak, with lumpy losses expected; reported a $390 million decline in office nonaccruals. | Ongoing caution; risks persist without improvement. |
Loan growth expectations | Q3: Overall loan demand stayed weak; Q2: Expected slight declines; Q1: Projected growth in 2H pending improved economic conditions. | Anticipates modest loan growth (low- to mid-single digits) in 2025, driven by credit card, auto, and certain corporate lending. | Gradual recovery; cautious optimism. |
Expense management (risk & regulatory) | Q3: Maintained $54B full-year guidance; Q2: Revised upward from $52.6B to $54B due to higher remediation costs; Q1: Initially guided $52.6B. | Guides ~$54.2B for 2025, including $2.4B in additional efficiency savings, invests in risk/compliance, and expects a ~$700M drop in operating losses. | Slight improvement in 2025; still supporting risk and regulatory. |
Capital requirements, share buybacks, SCB | Q3: CET1 at 11.3%, actively repurchasing shares; Q2/Q1: Acknowledged the SCB increase and ongoing Basel III uncertainty, continuing buybacks. | CET1 at 11.1%, repurchased $4B in shares in Q4 and ~$20B for the year, no specific mention of SCB changes. | Continues robust buybacks; SCB not newly addressed. |
Wealth & Investment Management revenue | Q3: +5% year-over-year; Q2: Growth in fee-based businesses; Q1: +2% on higher valuations. | Up 8% year-over-year, driven by higher asset-based fees and favorable market valuations. | Accelerating revenue growth year-over-year. |
Investment Banking & Trading initiatives | Q3: Strong trading and IB fees; Q2: Continued expansion in coverage and product capabilities; Q1: Investing in talent/technology, aiming for profitable market share increases. | Demonstrating market share gains in capital markets and advisory, continuing selective hires, focusing on balance-sheet-friendly trading. | Sustained build-out with disciplined risk approach. |
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ROE Potential Beyond Remediation
Q: What is Wells Fargo's natural return beyond 15% ROE?
A: Management acknowledges the potential for returns beyond the medium-term 15% ROE target but emphasizes the need to achieve that target first. They prefer to proceed step by step and will address future return goals after resolving remaining regulatory constraints. -
Drivers to Achieve 15% ROE Target
Q: What's driving the last mile to 15% ROE?
A: Management believes reaching the 15% ROE can be achieved through multiple paths, including profitability improvements in the credit card and home lending businesses, as well as growth in investment banking, capital markets, and wealth management. They continue to focus on expense management while investing in technology and growth opportunities. -
Expense Management Opportunities
Q: Are there still meaningful cost-cutting opportunities?
A: Management sees significant opportunity to drive efficiency and continues to find areas for expense reduction through better technology and automation. They do not believe they have exhausted the low-hanging fruit and remain focused on ongoing efficiency improvements. -
Loan Growth Expectations
Q: What are your loan growth expectations for 2025?
A: They expect low to mid-single-digit loan growth, with more meaningful increases in the second half of the year. Growth is anticipated in consumer segments like credit cards and auto loans, and in commercial lending through new clients and investments in bankers. -
Impact of Lifting Consent Order
Q: How is lifting the consent order affecting ROE trajectory?
A: With the lifting of the sales practices consent order, the bank has reinstated incentive frameworks in branches, expected to drive better performance in new checking growth and credit card accounts. These actions are anticipated to contribute to improved profitability in 2025 and beyond. -
Capital Allocation and Buybacks
Q: What's your appetite for share buybacks in 2025?
A: Management intends to continue returning capital to shareholders through buybacks, similar to previous years. They believe they do not need to hold more than the current 11.1% CET1 ratio and will balance buybacks with opportunities for organic growth and other risks. -
Credit Card Profitability
Q: Is credit card profitability improving?
A: As newer credit card vintages mature, profitability is beginning to improve. Early vintages from 3.5 years ago are becoming more profitable, and this is expected to contribute more meaningfully to the P&L over the next year or two. -
Acquisition Strategy Post-Regulatory Issues
Q: Will you consider acquisitions after resolving regulatory issues?
A: Management is focused on organic growth opportunities across businesses and executing the existing plan. They do not currently have plans for acquisitions and believe there is tremendous opportunity to build on existing positions organically. -
Key Risks Outside Geopolitics
Q: What are key risks outside geopolitical factors?
A: Cyber risk is identified as the biggest concern, with significant investment and resources dedicated to it. Management emphasizes that the strength of the U.S. economy is crucial, and anything that risks it is a concern. -
Operational and Cultural Constraints
Q: Are there constraints hindering growth post asset cap removal?
A: Management focuses on disciplined and controlled business expansion, ensuring appropriate controls are in place. They believe significant changes have been made and will proceed in a controlled way, without seeing constraints as hindrances to growth. -
Rate Sensitivity of NII
Q: How sensitive is NII to rate changes?
A: The bank remains marginally asset-sensitive, but the balance sheet has become less sensitive over recent quarters. A decline in rates poses a slight headwind to net interest income, while rates holding higher than forecasts would be a slight positive. -
Trading Revenues and Risk Appetite
Q: Why was trading revenue down compared to peers?
A: The decline is attributed to a strong prior-year quarter rather than weakness in the current quarter. Management notes their trading business is smaller and less complex than peers, with a disciplined risk appetite focused on balance sheet-friendly areas like FX. -
Credit Card Leadership Changes
Q: What's behind the credit card leadership changes?
A: Ray Fisher is retiring after leading the credit card business, and a new leader has been recruited. The strategy remains the same, and management is excited about continuing to execute existing plans. -
Investment Securities Repositioning
Q: How do you decide on securities portfolio adjustments?
A: Management has acted twice to reposition the investment securities portfolio, being disciplined about payback periods, aiming for roughly a 2 to 2.5-year payback. They will continue to evaluate opportunities based on market conditions. -
Auto Lending Growth
Q: Why increase appetite for auto lending growth?
A: Opportunities for profitable growth are seen in auto lending, with better spreads and improved capabilities. Though growth is small, originations are increasing slightly after previous tightening actions and spread compression. -
NII Guidance Excluding Markets
Q: Can you provide NII guidance excluding markets?
A: Management does not disaggregate NII guidance to exclude markets, citing the sensitivity of trading-related NII to short rates and the size of their markets business.