Great. Good morning. I'm Jason Goldberg, and I cover the U.S. large-cap bank stocks here at Barclays, and welcome to day two of our Global Financial Services Conference. Similar to yesterday, we have of you. It's always great to have at a financial services conference, Wells Fargo, that plays in many, many aspects of the financial services industry. From the company, very pleased to have Michael Santomassimo, the Chief Financial Officer. Before we, well, as I kind of ask Mike the first question, you know, why don't we put up the first ARS question similar to what we did yesterday? And, you know, we'll tabulate these results and probably publish them tomorrow. Mike, good morning. Thanks for coming.
Thank you. Thanks for having me. I assume this empty seat is for the lost Jets quarterback last night, so we'll keep it there just in case.
I guess maybe the best place to start is, you know, Wells services, you know, a broad swath of consumers, and commercial customers. Just maybe talk through kind of what you're seeing, hearing, you know, as the customers kind of contend with the higher rate, higher inflation environment.
Yeah. You know, look, I think you first have to, you know, reflect on sort of where we are from a macro standpoint. And I think, you know, I think we said this last year, too, like, it's certainly much better than, you know, people would have expected at this point. You know, you still have resilient—a resilient employment picture. You know, you've got people continuing to sort of push out what could be sort of negative GDP growth at some point. You know, our economists still have a couple quarters of negative growth in their forecast for next year, but, you know, who knows if that, you know, plays out exactly that way.
And so I think things are quite resilient, I think, overall, and I think you can see that in the underlying performance. You know, on the consumer side, you know, activity is still really good. You know, people are out spending money. You see debit card spend up 2%, you know, from what it was a year ago through the quarter. You see strong growth in credit card spend, double-digit growth. Now, some of that's driven by some of the new products and things we've done in our business, but you're seeing good strong growth in credit card spend, and so people are out there living. Now, some of that is also starting...
You know, some of the environment is starting to impact or has been impacting, you know, some of the consumers on, on kind of the lower wage levels or lower income levels. And so you're seeing that come through a little bit in, in both, you know, where liquidity is down in those lower cohorts. You're seeing a little bit of, you know, deterioration in credit in those cohorts, and so you are seeing some of that come through. But overall, I think the consumer side is quite, been quite resilient. You know, same on the commercial side. You know, the commercial bank clients, you know, and our, and our CIB clients, Corporate Investment Bank clients, are doing well. You still see some margin compression.
You see, you know, some demand, you know, fluctuations across different sectors. You see, you know, supply chain, you know, supply chains getting better, you know, inventory builds happening. You know, I don't think you're going to see many customers or many industries build inventory levels to the where, where they were before COVID, but you're seeing, you're seeing a lot of that sort of normalize a little bit. And so overall, I think it's been quite good in terms of what, what we're seeing so far.
M aybe get a kind of a bit more ground in terms of kind of what you're seeing, both on the loan and deposit side. You know, I guess from an industry as a whole, deposits have shown some signs of, you know, stabilization and kind of mix, mixes, change maybe slowing. Just talk to in terms of what you're seeing from that front.
Sure. Yeah, I'll start on loans. You know, most of what we've been seeing this year, or at least our activity, has been tracking with the industry, and you can see that come through the H.8 data from the Fed. And so right now, loans quarter to date are down slightly, you know, down a little bit, and so we're tracking in line with what the broader industry is seeing. Now, some of that's demand driven, you know, particularly on the commercial side and large corporate side, and some of that is things we're doing on some of the smaller portfolios. So when you look at the consumer side, you know, mortgage just is what it is, given where rates are. There's not a lot happening in the mortgage business.
So you see those balances just, you know, pay down, you know, gradually. With card, we're seeing growth in credit card spend, as I mentioned, so that is something that continues to grow. And then in some of the smaller portfolios, like auto, you know, we've said this now for a number of quarters, you know, we've definitely stepped back a little bit in originations in the auto business. Some of that is spread compression that we've seen over the last, you know, 18 months or 2 years now, and some of that is some credit tightening as we, you know, came into a pretty, you know, what could have been a pretty challenging environment. And then on the commercial side, a lot of it's just demand driven.
You know, we haven't really seen a lot of, you know, credit tightening, necessarily there, and so I think you're seeing that. And then the commercial real estate, which I'm sure we'll talk about in more depth later, is just a bit of a different, a bit different dynamic, particularly for office. You're just not seeing a lot of activity, you know, in that space at this point. A little bit more, maybe over the last few months than you've seen recently, but not a lot of activity, there, at all. On the deposit side, really more of the same of what we've been talking about now for the last, you know, two or three, you know, quarters.
You know, on the, you know, our commercial deposits have been pretty stable now for a bit. You know, you do have. They're priced competitively, you know, with our peers, but those deposits have been pretty stable. We're not seeing, you know, trends in pricing that are driving pricing up in that space in any meaningful way. They've just been consistently competitive now, for a while. On the wealth management side, you know, up until very recently, we've seen a lot of movement into cash alternatives. Some of that has abated over the last couple of months, and so you still see a little bit of it, but that trend has abated some.
And then on the consumer side, you know, as we said at earnings, you know, we still expect those deposits to come down a little as we go through the year. And really most of that's driven by spending. You have a little bit of on the consumer side, people looking for higher rates. You know, we have some alternatives for them if that's the case. But a lot of that, the primary driver there is really really spending that's driving those deposits down. And so it's again, a little bit more of the same. We're not seeing big shifts in behavior at this point.
I guess one of the things on the deposit front, you know, that's striking is, you know, I think your cumulative deposit beta to date is 32%, so the lowest in our coverage. Just any thoughts in terms of, you know, I guess, first off, kind of what's driving that, and then secondly, you know, do you have to think you have to play some catch up?
Yeah, I mean, look, first and foremost, it's business mix, right? And so, you know, our-- and, and, and so when you look, it's really hard to compare aggregate betas across firms, right? So if you have a bigger, you know, commercial, treasury management business in one bank versus another, then your beta is going to be higher, right? And so, so I do think that you have to be really careful about, trying to, to compare banks on that, on, on that, that high-level number, because I think it just reflects, you know, the business mix. You know, as you look at what we're seeing, though, you know, as I said on the commercial side, you know, it's been pretty competitive now for a while. And so I-- and that's not changing.
It's not getting worse, it's not getting more competitive. It's been pretty consistent there. So if rates continue to go up more, we'll see, you know, we'll see that happen. If, you know, pricing go up a little bit, if rates start to come back down at some point, we'll see, we'll see it, you know, conversely, you know, those betas come down correspondingly. On the consumer side, you know, we really haven't changed standard pricing in a while. And we've got outlets for people that need or want higher rates. And when you look at our consumer deposit base, the vast majority of those, you know, deposits are in accounts with less than $250,000.
And so you're not seeing this huge movement in that consumer deposit base. It's really the spending that's driving it. And so it's been pretty consistent now for a while in terms of what we're seeing.
Got it. And maybe, I guess, tying that together, when we last talked in July, you're thinking kind of 14% NII growth, for the year. Kind of given where we sit today, have updated thoughts around that?
Yeah, look, we're very comfortable with that, with that guide. You know, as we said at earnings, you know, it's the same set of facts that we're sort of looking at as we go throughout the year. You know, we still expect some consumer deposits to come down a little. We still expect a little bit of migration from non-interest bearing to interest bearing, and we expect betas to continue to come up just as you know, as time goes by. And that's all embedded in there. You know, as I said at earnings, you know, we did expect in that guide that we would see some loan growth. We're not seeing that, but that's okay.
We didn't expect everything to go right as we sort of, you know, guided 14%. And, you know, we'll give you a finer point on where we think the year will end up at earnings, but at this point, we're really comfortable with where that is.
Got it. And then kind of just maybe working our way down the income statement. You know, on the fee side, it's, you know, kind of been kind of a mixed bag of performance, you know, some business lines doing better than others. I don't know, kind of walk us through maybe some general trends in terms of kind of what you're seeing.
Yeah. You know, I'll kind of bring you through the fee lines and we can talk about what we're seeing in some of the businesses. You know, the investment advisory fee line is one of the bigger lines, the biggest line. Really, in the short run, the market's gonna sort of drive, you know, where that goes, you know, sequentially. And just as a reminder, you know, most of that fee line is priced in advance of the quarter. So for the third quarter, it would have been priced as of July 1st. And so sometimes you get a little, you know, strange outcomes depending on where the market is at any given point.
And so what you saw in the second quarter is you saw the S&P up, I think it was like 8%. So that's, you know, one of the bigger drivers of, of, you know, that fee line. Not the only one, but one of the bigger ones. And so, you know, you see that—you'll see that come through in the, in the third quarter, fee line. It's sort of flattish, the S&P now, I think, you know, quarter to date. And so, you know, depending on where we end up the quarter, that'll drive, you know, how to think about, the fourth quarter.
You know, broadly, though, in the wealth business, you know, we are, you know, continuing to just invest in making sure that we're doing everything we can to continue to, you know, keep the momentum that we've built over the last few quarters on our advisor count and our advisor force. You know, we've... if you go back a few years, we were seeing a lot of attrition in the advisory in the advisors there. We've stemmed a lot of that as we've come through the last, you know, year or two. And so we're just looking to continue to build that momentum.
And so over a longer period of time, there's a lot of opportunity to continue to grow that line, not only based on what happens in the market, but also, you know, the net flows and the advisor count as that goes. When you look at, you know, mortgage, you know, it's down to a pretty small amount on the fee side, and given where rates are and what's happening in the market and the things that we've done in that business, I don't expect that to change at any point. You know, we've had a couple good quarters in the trading business, in the market side, and I think that's a, you know, a little bit of a function of what we're seeing in the market.
You know, we had some good volatility in the market that helped drive those numbers, but it's also, you know, we're starting to see some of the benefits of some investments we've been making methodically over the last, you know, few years in some of the products like FX and Rates and other, which we think are very much, like, in our wheelhouse and to support our client base there. And so we're starting to see some of those come through. And we're seeing, you know, really good performance without a lot of risk-weighted asset growth in the market space. And so we've got good revenue performance, we're sweating the balance sheet more in that business.
And so, you know, 2 quarters doesn't make a trend, but I do think that it's a good sign that we're starting to see, you know, some of that, some of that come through. You know, deposit fees, you know, all the changes we made over the last, I guess 18 months now are in the run rate, you know, around, you know, non-sufficient fund fees, overdraft fees. So all that's in there already, and so for a couple of quarters now. And so I think you're just seeing sort of the organic activity levels within that business. And then as we look at, you know, places like the, the private equity, and venture space, you know, we'll see how that goes over the next couple of quarters.
We've had, you know, some impairments in the venture space for the last couple of quarters. You know, it could be, it could be a little bit more of that to come as we go, but not super, not super significant when you look at the overall revenue line.
Got it. And then, I guess maybe working our way down the expense side, I think on earnings call, you were talking about $51 billion for the year, ex operating losses. I think that included some severance. Just maybe give some more color in terms of what you're doing on expenses. I know you've kind of, headcount's been coming down for, seems like, a while now.
Third quarter of 2020.
Just kind of maybe where you are on that journey.
Yeah, look, you know, as we've said now, Charlie and I have said this now, I guess, for a while, but, you know, we continue to, you know, believe we've got a lot more to do to make the company as efficient as it should be. As you said, we've brought headcount down, you know, close to 40,000 heads over the last, you know, couple of years. I think it's been down every quarter since the third quarter of 2020. Now, I'm not suggesting it's going to be down every quarter forever, right? Like, but, but I do think that there's more to do, and you'll see that through, you know, the headcount number.
And it really just, it is, you know, business by business, group by group, making sure, you know, we come in every day, every quarter, and have a plan to continue to incrementally get better, better and better. You know, some of that is, you know, and it affects the headcount and the people that we have, and some of it, you know, is, are things like real estate, where we had too much, you know, real estate, before, you know, COVID. And so we've been methodically sort of working through that, portfolio over the last, few years, and we still have more to do, more to do there.
You know, I think the thing that, you know, we talked about at earnings that was a little different over the last few quarters is that, you know, attrition really slowed. And so that really happened probably October, November of last year, where we really saw a noticeable change in attrition rates. It was. It's really across the board. There really isn't any area that got impacted more than others. So that's why you see us having to use severance more than what we've had to do over the last, you know, couple of years. I think it, you know, it's just, you know, how do we continually get the run rate down and to a place that we're more comfortable?
I think we've got a lot more to do across most of the company. What's most important is that we embed this discipline and mindset and process in sort of how we just manage the place every day, right? It's, it shouldn't be a program, it shouldn't be, you know, a one-time thing. It needs just to be how we sort of how we manage at all levels of the company, and I think we've been doing a good job pushing that down into the organization, but still some more to do there as well.
I guess $51 billion is still a good number for the year?
Yeah. No update at this point on that.
Then, I guess maybe delve into that, because you had this kind of $10 billion expense saved you wanted to get by the end of the year. All that's not going to the bottom line, so you're reinvesting some of that. Maybe just talk to kind of some of the key areas you are focusing on with those reinvestments and kind of, you know, where's that money going? And maybe what are some of the fruits of that, and just how you think about that looking out.
Yeah. Well, some of it's been going, a lot of it's been going into the risk and regulatory work that we've been doing. So that continues to be the place that's our—it's our high, our highest priority, and we're going to continue to spend whatever we've got to do to, you know, put that stuff behind us. And if there are things that we can do to move that work faster and it costs more money, we're going to do it, and those are decisions we make all the time. You know, aside for that, we've been investing, you know, now consistently for a few years in digital capabilities, marketing, people, sales, like, all of the things that, you know, cross each of the businesses.
When you start to, you know, unpick it, you know, the card business is a really good example. You know, the management team's now been there since the latter, you know, right at the end of 2019. We've refreshed, you know, 4 or 5 of our, you know, main products in the card space. We've got a couple more to do over the next year. Plus, we've improved service, we've improved the operations, we've improved how we do line assignment. And I think you're seeing that come through in some of the results in our card business. And by the way, it's just starting to come through the P&L because, you know, a lot of these new products have intro APRs and other things that burn off over a period of time.
So hopefully, you'll start to see that come more meaningfully through, but you can see that in the underlying spend data. That's there. Yeah, if you look at our investment banking business, you know, we've been hiring into that business, you know, in some key positions and coverage and products, you know, over the last, you know, couple of years. And I think that'll—that momentum will continue to build on itself. Doing the same thing in the commercial bank. Some of that's technology. You know, we've launched a new portal for our commercial bank clients at the end of last year called Vantage. That's part of it. You know, part of it is making sure we got the right coverage and people in all the markets to go after the opportunity.
We're doing the same thing in the wealth business, and each of, you know, each of the underlying areas. And so I think we've got to continue to just do that in a methodical way. It is also not lost on us that we've got to manage long-term, short-term, medium-term targets, and so, you know, for ourselves, and so we try to make sure that we balance all that, but we've got to, you know, continually sort of make those investments. And I think when you start to look underneath the covers, you can see some green shoots starting to come from some of those things, but it'll take some time, I think, to more meaningfully come through the fee line and the P&L.
Now, you mentioned risk and regulatory work. So I wouldn't go there, but I guess one of the things, you know, operating losses year to date have been kind of very tame. You know, is that maybe a signal that we're kind of getting nearing the end of some of the, some of this?
Well, look, you know, they weren't so tame last year.
Right.
And so what we said at the end of last year is that, you know, we were working hard to put a, you know, a bunch of stuff behind us. And I think that you can see that in our reasonably possible loss estimate coming down quite meaningfully as we came out of last year. And we've seen now a couple quarters, you know, where it's been a more reasonable number. You know, look, we still have more to do to put, you know, the stuff behind us. So there, you know, that could be a. There could be some volatility in that number. But, you know, we're working hard to continue to do that.
I think, you know, Charlie has said it, you know, a number of times, we feel really good about the progress we're making. We still have more to do, and we're going to stay at it until we're done.
I know you get asked this question a lot, but, as an outsider looking in, you know, you've made progress. You're going to be at it until you're done.
Mm-hmm.
Any line of sight, any guidepost, any hints you think provide to us in terms of those multiple consent orders? Obviously, the asset cap is of much most interest, but I know people provide.
Yeah, look, I mean, it's hard, and I can understand the question, and I understand, you know, the wanting to get more, but it's really hard for us to provide that. You know, it's up to the regulators when we're done with this stuff. I think if you saw the discipline inside the company, you would be—you would know that, you know, we are making the progress we say we're making. But it's really hard for you to see that until we start to close some of these things down externally.
You know, it's the single collection of things that, you know, we all spend the most amount of time on to make sure that we're delivering on the way we want to deliver it. And then, ultimately, you'll see that come through the closure of these things, but it does take time to do that, and it is hard to see from the outside, for sure.
Got it. And maybe, you know, turning to, you know, credit quality, let me start with commercial real estate. You know, you know, it, you know, office is, I think, 3%-3.5% of loans. You've been building some reserves there. Can we talk to in terms of kind of how you see that playing out, kind of your comfort around that you did add kind of last quarter?
Yeah. Well, you know, I'll go through commercial real estate, and we can talk about some of the other portfolios too. But when if you look at everything other than office, it's all actually doing quite well. Performance has been pretty consistent now. I mean, there's always some story of some, you know, idiosyncratic thing somewhere, but overall, portfolios are doing okay. You're not seeing that systematic stress you're seeing in the office space, really in any of the other portfolios. And any blips that you may see in different parts of the country, in certain areas are, you know, feel very temporary and not systematic.
And that includes places like, you know, any exposure we have to hotel and retail, and it, it all feels actually quite, you know, quite good overall, you know, given the performance we're, we're seeing. So really, that systemic weakness that we're seeing is really office, an office story. And if you go back, you know, a year, 18 months ago, I think, you know, most people would say, "Okay, it, it feels kind of isolated in a couple different cities, maybe a few, 3, 4, 5 cities." It does feel more, more widespread now in terms of you, you seeing the stresses across, other, other parts of the country. You know, and it's going to be a very, very much a story of, like, the individual building, what's happening there.
Is it a new building? Is it renovated? You know, what's the story of the, you know, that individual property? So we spend a lot of time—I personally spend a lot of time, you know, going through property by property about, you know, where we are, how are we managing it? Where are the risks? How are we getting ahead of it? So we feel quite good about like what the team's doing in terms of managing through that. We did put up some additional allowance last quarter, as you noted.
And we tried in our, in our disclosures last quarter to continue to, you know, isolate that portfolio, you know, that's in the Corporate Investment Bank, which is about, I think, $22 billion at the end of last quarter, you know, where, where we think most, most of that stress will be. And so, you know, are we done building? You know, you know, we're not, we don't expect to have anywhere, you know, there might be a little bit of a build in this quarter, but we don't expect anything like what we saw last quarter to continue to go. And we'll start to see, you know, some losses come through in the second half of the year.
But a lot of that ends up being very. It's very hard to predict until you get really towards the end of the quarter. And we've tried to make sure that we're thinking about those near-term potential issues as we look at the allowance. So I'd say not a lot of new, you know, as of since the end of the quarter, but just a continuation of what we've seen now in the office space. And keep in mind, there's not a lot of properties trading, right? So there's not a lot of activity. So it's hard to get a really good sense of where exactly it's going to shake out over the near term, as you look at it.
When you look at the other portfolios, you know, you continue to. In the consumer side, you continue to see, you know, again, more of the same that we've seen over the last couple of quarters. You know, you look at each of the portfolios, there's no, you know, the home lending portfolio is performing well. You know, card, you're seeing gradual deterioration that you would expect, you know, as we go through this environment. No sort of non-linear changes at this point in terms of behavior, performance. You know, the auto bounces around a little bit quarter to quarter, but relatively small in the scheme of things. And on the commercial, on the C&I commercial side, still, you know, it's performing pretty well.
Got it. And maybe shifting to capital, we could put up the next ARS question, which I'll be asking for everyone. But you know, we have the Basel III Endgame proposals. I'm sure you spent all summer reading it. You know, I guess when we think about Wells, obviously, operational risk comes to mind as a, you know, I guess, a new component of a standardized risk RWA. I guess, first off, maybe help us kind of size kind of the RWA inflation we're expecting, and just maybe talk about, you know, what, what are you going to do about it?
Yeah. I mean, look, so I think I got to 1,088, and I think at the 1,089th page yet, but I'm close. And so it is, it is a complicated set of, you know, rules, and so you couple that with what's happening with the G-SIB score and, you know, TLAC and other things, right? There's a bunch of factors that go into sort of the overall package of things that were put out. And so, so at, at this point, you know, the, the industry average, I think, is about 20%. Like, we're, we're right around there, maybe slightly under, slightly about 20%. And so that's, you know, that's what we'd expect if nothing changed, in, in the rules.
So, you know, I think the good part is we come into this with a lot of flexibility, given our capital position, right? So if you took our second quarter standardized RWAs, you know, up 20%, we're already there in terms of minimum plus buffers. We're slightly above that, right? So the question just is, you know, for us, you know, nothing changed. The question just is, you know, how much of a buffer do we want to have? And when do we want to build that? And then what mitigation actions do we want to take to offset, you know, where it is? So, you know, so every, when you look at it, you know, we feel great about our ability to manage, you know, the changes.
It's just now you got to sort of dig in and say, "Okay, how do you, how do you feel about, like, what's each of the underlying components, and how does that ultimately change, you know, your, your plan for, portfolios or, or some of the sub-businesses?" And so we've been, you know, very methodically going through each of them and have a really good sense of impacts, and then we'll decide how we want to handle it. You know, on op risk, you know, certainly, you know, it feels, you know, like that there's some, you know, there's some duplication of operational risk capital as you sort of look across, you know, whether it's how the stress capital buffer is calculated, plus this, new, new formula.
So we're hopeful that there'll be some, you know, calibration that happens, you know, to account for some of that as you go through. There's plenty of ways to do that, and dials to turn, and so we'll see how that plays out. There's also a number of things as you sort of look at the underlying, you know, details of it, that, you know, we're hopeful as people go through it, that there's just some common sense changes that get made, right? And so I know others have talked about some of these as well. You look at the way, you know, investments that people make into renewables is treated, you know, a 400% risk weight just doesn't seem like it's calibrated to the risk that's there and the priorities that are there.
You can look at, you know, how private investment grade like companies that are private is treated relative to public companies. And so there are a number of things that I think we'll engage with the agencies on to help show the impact these things might have in terms of the incentives they might have as you look at each of the portfolios. But as you would expect, there'll be a number of things that we can do and others can do to offset some of the increase that'll be there. But we're hopeful that, you know, some of the. There'll be some changes that get made that offset a little bit of the increase that it seems like it's embedded.
So I guess given your kind of current capital position and the fact this is looking at ways out, and there's stuff you could do, and you bought back $4 billion worth of stock in Q1, you did $4 billion in Q2, you know, how should we think about the pace of buyback going forward?
Yeah, look, we've and Charlie and I have been clear, like, you know, the pace is, you know, we'll, we'll decide the pace as we go based on, you know, not just capital and Basel III, but also everything else happening around us. And we have been buying back stock this quarter. It's at a slower pace than what we saw in the first half. And as we go, we'll, you know, given what I've said in terms of where our position is, and what we would expect coming from the changes, you know, we should, you know, we will continue to have the ability to buy back stock, and we'll make, we'll make decisions on exact pacing as we go, each quarter.
But we feel really good about our ability to continue to distribute capital back through buybacks, and we'll decide how fast based on all the other factors that go into that each quarter.
You mentioned buffers earlier, and I think you talked in the past like 50 - 100 + 25 type buffer. I guess in the new world, do you need maybe less buffers because the quality of your capital is actually better?
Yeah, look, I think that's certainly a conversation probably everyone's having around, you know, exactly what you want your buffer to be as you go through this. And I think that's something we'll, you know, we'll—we continue to discuss internally as well. And as we get better clarity of exactly how this is going to play out, we'll set some expectations around that. But I think that's certainly a valid sort of point to consider.
I guess, you know, pre-Basel III Endgame, you know, we used to talk about a 15%, I think, normalized ROTCE. I guess, is that still the right number? And just maybe talk about, you know, what is normalized, what's the puts and takes of kind of getting to that mid-teen sustainable figure.
Yeah, look, you know, as you sort of look at where we are today, obviously, you're going to have to take into account higher capital levels. But, you know, it's the same drivers that we've sort of talked about now, you know, for a while, right? We've got to continue to deliver on the efficiency side. We've got to get some return on the investments we're making, and that comes through the fee line in a lot of cases. Not all cases, but a lot of cases. You know, whether it's wealth, investment banking, card, you know, a number of those areas that we've talked about now for a while. And we've got to continue to manage capital really efficiently as we go through. There's no secret sauce there, right?
When you look at the environment we're in today, we've been clear. NII, we're overearning in NII, and I think a lot of others have said that, too. I think you're starting to see more normalization of credit, and so that's becoming less of sort of a driver. And so I think you'll see, you know, you'll see some normalization in NII. You'll see, you know, credit sort of stabilize at some point, in terms of a normal run rate. You'll see some growth in fees, and you'll see us continue to manage the efficiency side, and that should, that's what's going to lead us to sort of a, you know, more reasonable return.
For us, you know, the focus is making sure that we get kind of best-in-class returns for each of the underlying businesses. That's the path we're on. You know, as we looked at the path that we've seen over the last few years, starting at 8%-10%, you know, 15, 15%, those are just markers along the way, as we go, as we make more progress. But the goal really is to have, you know, great returns across each of the underlying businesses, and there's no reason why any of those returns shouldn't be, you know, comparable to our best-in-class peers.
I guess, how much is a deterrent or headwind of kind of still operating under this asset cap now, like 5, 6 years in?
Yeah, look, you know, as we've talked about a number of times, you know, the asset cap, you know, we had to take a lot of actions a couple of years, few years ago, on the asset cap, and, you saw us manage away a lot of, a lot of deposits from our most interest rate-sensitive deposits. So that kind of set us up well, you know, as we came into this environment, rising rate environment. And it also we managed the capital markets balance sheet down, significantly.
And so, you know, you know, it's certainly less of a, you know, size is sort of less of a pressure point at the moment, but I do think we've got to continue to make sure that we put ourselves in a position to manage through the asset cap while it's there.
Let's say a hypothetical world we leave here, Fed puts out a press release as well as asset cap lifted. Now, what do you do?
Yeah, you know, you probably know, and my team does, the what-ifs are my favorite part of this. And, you know, I... Look, I think, I think it depends on what the environment looks like when we get there. And I think, you know, there are plenty of different scenarios that you can come up with, you know, to look at different areas of growth. But again, if you go back to some of the things that we did, you know, to manage the asset cap, we reduced our capital markets balance sheet, we reduced some of the deposits we took in across the commercial businesses. So I think there'll be... You know, the good news is there's going to be a number of opportunities for us to, to grow the balance sheet as we go.
You know, I think the demand will be there from clients, and when we get there, we'll manage that. I just caution everybody, it's not a light switch kind of moment, right? You don't have asset cap on Monday and Tuesday, all of a sudden, like, you see this huge amount of growth, right? If it did work like that, you should be concerned. So I do think it'll be. It'll take some time to do that, and we'll be thoughtful based on the environment we're in when we get there.
Right. Well, I'll pull up there and open up maybe up to the audience for questions. Yes, Mike, as the audience kind of thinks of some stuff, you know, you mentioned kind of going through the Basel III proposal, kind of business by business, and kind of deciding, I guess maybe kind of maybe just early leads in terms of are there any kind of businesses you may be, you know, less apt to get in of, shying away from, maybe other stuff you want to lean into, portfolios you sell? Just kind of maybe some initial thoughts in terms of what do you think, you know, could be done to mitigate that 20% number?
Yeah. Yeah, look, I think, you know, it's going to be really a very granular exercise, and I would be careful to predict, you know, yet until we see the final rules. But I think you certainly want to look at, you know, each of the loan portfolios to make sure that you're getting the return you want to get as you look at it. And I think there'll be a number of areas where you're gonna have, like, some very, very granular sub-portfolios, where you're gonna have to do some repricing, as an example. So you may not exit, but you may reprice. And so in today's world, you know, a 364-day, you know, facility gets, you know, beneficial capital treatment. Tomorrow's world, that, that's not the case, right?
So if you've got a 364-day revolver in place, you're likely gonna have to reprice those to get the return that you want. That impacts, like, lending, you know, facilities for 40 Act mutual funds and other corporate borrowers. So there'll be a number of things that get to a very granular exercise. If the renewables risk weights don't change, that's probably something people are gonna do less of, which is probably not a good thing in general, right? In terms of meeting, you know, broader set of priorities, but at a 400% risk weight, it's hard to see good returns there. So, you know, I think there'll be, and I think in the mortgage space, same thing. You know, I think as you look at...
You'll likely see, you know, even less higher LTV, you know, loans, which have some social purpose too. Like, as you sort of look at, you know, those loans on bank balance sheets. And so, you know, I think there'll be a number of things that you'll calibrate as you go through based on where they ultimately end up.
Okay. Any questions? Like, the 2-minute warning.
That's the benefit of doing 7:30, right? No questions.
I guess, you know, Mike, maybe finally, just, you know, you're kind of about to enter the 2024 budget season. Obviously, the macroeconomic environment still has a fair amount of questions. Just, you know, how do you kind of go approaching that?
Yeah, I mean, look, I think as you look at the budget, it's no different than, you know, how we sort of manage day-to-day, right? You really have to be thinking about a whole range of different scenarios that you're comfortable with. Like, as I said today, like, you know, our economists in the investment banks don't think there's some negative growth next year gonna happen. So is it gonna happen? Is it not gonna happen? Who knows, right? But you sort of have to... you know, you have to do a lot of sensitivities around stressing interest rates, both higher and lower. You have to sort of look at, you know, what's gonna happen if you start to see, you know, big changes in credit deterioration, and how you're gonna manage through that.
You know, what are the levers you can pull to sort of calibrate your expenses? So it's, so it's no different than, you know, how we sort of manage, you know, quarter to quarter. And, you know, efficiency is very much on our mind as we sort of go through that, making sure that, you know, we're being disciplined with each of the businesses to look at it. And, and so we'll, and as we do normally, we'll give some more updates in January on it.
As the clock hits zero, please join me in thanking Mike for his time this morning.