Okay, so good morning, everybody. I'm delighted to welcome you to this year's Goldman Sachs Financial Services Conference. As David said, we are close to 1,200 attendees this year, 830 clients, well over 100 companies. So thank you all for joining us. We're delighted to have Charlie Scharf kicking off the conference again this year. This is his fourth year as CEO, and it's actually his fourth year being at this conference. So Charlie, thank you so much-
Of course.
For coming back and joining us. It's great to have you here. So I think let's start with the question we always start with, which is around expectations heading into next year for the economy. Maybe you can touch on expectations for rates, inflation, and just your overall take on the health of the economy as we head into 2024.
Sure, Richard. Well, thanks for having me. It's great to be back. I might echo a lot of the things that, you know, I heard from David, when he was up here, which is certainly we sit here today, with things being, fairly materially stronger than we would have expected, which is always, I think, a reminder, that you need to, be realistic about what you know and what you don't know. And so separate out what we're actually seeing from how the different scenarios could play themselves out. We sit here today, the consumer is still very, very strong. Pockets of weakness, which we can come back and talk about. Businesses are very strong, both because of, the strength with which they came into this environment, but also just the consumer demand that continues out there.
And, you know, the impact of rising rates is going to slowly leaking into the system. And so far, things are, you know, adjusting quite nicely. So as we sit here today, you know, our base case would be something closer to a, you know, a soft landing, as opposed to something far more serious than that. Whether it's that or whether it's, you know, a slight downturn, I don't think really changes a whole lot. It's the tails which ultimately will change a whole lot. But we also recognize that we could be wrong, and there's probably more risk to the downside than the upside, and that's what we're focused on protecting, both in terms of how we run the businesses, but also how we position the company.
Okay. So maybe you can talk a little bit about some of the recent trends in customer engagement, how are spending patterns evolving, and maybe you can talk a little bit, and you touched on this, on consumer and corporate balance sheets, how those are holding up in a higher-
Sure
... rate, higher inflation environment. And again, you know, in the answer, it would be really interesting to hear about any noticeable differences that you're starting to see emerge between the different segment groups, whether it's size of company or income by household.
Sure. So, to that point, we don't see a whole lot of change at all, which is kind of remarkable when we look at it. So what I mean by that is, let's start with the consumer. And, you know, I've heard different people say different things about what they're seeing in terms of spend and consumer balances. But what we're seeing in terms of consumer spend is just an incredible consistency, across both debit and credit spend. Credit spend maybe is down a touch, but, you know, we've been in the low-teens % growth year-over-year, on credit card spend, more than the industry because of, the multiple new products that we've offered. We can come back and talk about that later. Very strong credit quality. We're not reaching, for anything.
But when we look at spend, it's, as I said, very, very consistent week over week in terms of the growth that we're seeing. Same thing on debit card spend. It's been between, you know, 1%-3% growth almost every single week, for, you know, month after month after month. And so we look for slowing patterns. We look for impacts of whether it's, you know, rising or falling fuel prices and how that impacts consumer spend. And what you see is they're just adjustments that are made in the discretionary spend and keeping that overall spend level, consistent. For those that are less affluent, they are struggling more, and so the averages are deceiving.
But that has been the case really going back for over a year now, in terms of, you know, what you see in terms of the overall deposit balances, filtering through in terms of what you're seeing in terms of spend. So, again, just, you know, an overall, you know, a continued strength and consistency, when we would expect to see more slowing at this point in time. So we're not exactly sure when it's going to come. We do expect it to come, but it's not really evident in the data yet. On the business side, as I said earlier, o ur customers went into this environment very, very strong.
They have, you know, financed their balance sheets out at much lower rate environments on those that where we finance inventories and whatnot, have been very, very smart about inventory management. You know, you know, with all the talk of rising rates and potential downturns, they're positioned extremely well. So overall, there's still, you know, a you know, real strength in terms of what we're seeing for middle-market companies all the way up to large corporates, both because of liquidity in the markets and their ability to finance, as well as the, the way they position themselves going into this. So when you do talk to customers, you do get, you know, questions in terms of, you know, they're questioning the confidence of how long the economy will continue to to act this way.
But that just leads them to manage their businesses more conservatively, which we're glad to see.
Okay, great. So let's segue and talk about your broader priorities for the firm heading into next year. Have those changed over the course of the year? And, you know, what are the most important milestones you'd like to achieve over the next two to three years?
Yeah, I would say, you know, we haven't really changed our priorities with, you know, just some, you know, sharpening of focus, given what we're seeing in terms of the environment. So, you know, first and foremost, for those of you that follow us, you know, we still have a significant number of Consent Orders. We still have the Asset Cap, and so, you know, our commitment to continue and finish that work is the highest priority. I've talked about that we feel very good about the progress that we're making, but we need to see it through to the end, and we're not going to be satisfied until that's done. Takes up a significant amount of resources, both financial resources, you know, in addition to management time.
But that is just a, you know, that, that's a pass-fail gate that we have to get through, and we're committed to doing that. And so that was and will remain the top priority, until we've finished the work to the satisfaction of our regulators. At the same time, you know, we have over 230,000 people that come in and serve, you know, our customers of all types, and we're not standing still. We're very focused on our existing businesses, our existing customer set, and so, I think what you've seen over the last couple of years is, you know, a little bit more front foot in terms of making sure that, you know, we're introducing new products and services to serve those customers well. I talked about our credit cards and the success we've had there.
We've introduced new digital capabilities across both our consumer and our business platforms. We're focused on, you know, growing our wealth and investment management business off of the great platform that we have. And so, you know, those priorities I think are still, you know, very much the same. The sharpening of the pencil is very much around, you know, what do we expect for next year? And, you know, what does that mean in terms of how we plan for 2024? We have these different priorities where we are focused on continuing to drive efficiency in the company. We are not efficient. Our returns are still not what they should be, even though we've made substantial progress. So we continue to be very focused on increase the returns across the entire platform.
At the same time, you know, you can get there by reducing expenses, or by focusing on revenues. Our opportunities are, I think, very much are on both of those sides, and the question is, how we calibrate that? And so we're finishing our planning for next year. We're going to spend more time on our fourth quarter call, talking about what our expectations are and how we're thinking about those things. But I would say, you know, we are a little cautious as we go into 2024, about the environment, given the fact of all those things that we don't know, and that we don't know the real path of rates.
But we recognize that, we want to continue to show progress, that that's very much the story, that people are relying on when they look at the company, and we think that opportunity is there.
Okay. So you mentioned the Consent Orders, and obviously, I appreciate you're limited in terms of what you can say about those, but you did say recently that you felt that the control environment is improving.
Mm-hmm.
Can you just expand on what you meant by that and maybe talk a little bit about some of the benefits you think that brings for Wells Fargo?
Sure. You know, when we look at these, at these Consent Orders, you know, appropriately so, everyone is focused on what the end date is, when these things get lifted, especially, the Fed Consent Order that has the Asset Cap. But, you know, I think my, my comment's really related to when you look at the work that we have to do, this is not some... And, and none of these are these, like a big technology conversion, where at the very end, all of a sudden you migrate to a new platform. And so you do all this work, you wait, you wait, you wait, everything's the same, and all of a sudden, things are different. When you look at the work that we have to deliver in these Consent Orders, we are delivering it every single day, every single week.
What we get to see inside the company are all these interim deliverables, that where we're actually changing processes, we're putting in new controls, some permanent controls, some compensating controls inside the company. We see that delivery, and then we track the impact of all this. We track whether it's, you know, operational errors, near misses, poor audit reports, MRAs, our ability to close things on time. All those things that if you were inside the company, you would look to say, "Is your control environment actually improving?" What we see is consistent improvement across all those things. You marry the fact that we see the, the things that are driving it, which the fact that we're implementing the controls, and you see the output, which are the fact that, you know, these, these metrics are getting better.
That supports, you know, our comments about, you know, our confidence that the work that we're doing is getting done, that it matters. And ultimately, you know, we're a stronger company for it. You know, we want to get these things lifted. So even though we're completing all this work on an interim basis, again, we know that, you know, the world is going to look at us and say, "You're a little different until you get, you know, these things removed," including the Asset Cap. So the Asset Cap today is not a material limitation just because of where the trends in deposits and where loan demand is.
It has been, and it will be again, so it is important to get it lifted because it is a limitation, but it's also a statement that we are different than others. And so it's critical that we get our regulators to view the work that we're doing as sufficient to lift that.
Okay, great. So I know you're going to give a more comprehensive outlook in January, but maybe we can talk a little bit about NII. Talk a little bit about some of the factors that drive NII. So deposit growth, betas, mix shift, and how you see those factors changing heading into 2024.
Sure. You know, this is the... You know, it is the big unknown, and I'm never going to stand here and be too definitive because we don't know the path of rates. And in addition to not knowing the path of rates, understanding the competitive dynamics, you just again, you got to be a little bit humble and look at it and say, "You know, we and others have gotten it wrong." Now, we've gotten it wrong to the benefit of the company. So if you look at what we, where we've guided for NII this past year, we've outperformed. You know, part of that is probably, you know, just us wanting to make sure we can deliver on what we say.
We do think when we put something out there, we want to be able to actually hit it and not stand up and apologize for it. But at the same time, you know, we have been surprised by what we've seen in terms of top deposit flows. So you know, we have been a beneficiary of deposit flows, both because of the strength of the company, because of the relationships that we have. And we have been more selective about where we have increased rate, and we've benefited from that more so than we otherwise would have expected. And so on a relative basis, we would expect that to continue because our position is the same.
The other thing you have to remember about us is, you know, our franchise is somewhat different than others because of, because we haven't grown the way others have grown. So when you look at what we've been focused on, you know, going back to, you know, the late teens here, is, you know, we've been focused on, especially in the consumer bank, is actually just making sure that all the right controls are in place. We've not been focused on growth. We've kept share for the most part, but we haven't taken share from other players the way some of the other big banks have. And so, you know, we don't have a lot of rate seekers. You know, we don't have the same amount of people that are, you know, moving for different reasons.
The people who have stayed with us are the people who have decided to stay with us because they want to bank with us. So, you know, you take, you know, that set of facts with the fact that, you know, the strength of our company has made people feel comfortable. People bank with us for lots of reasons, of which rate is just one of them. So, you know, we would expect some of that to continue for sure, but, you know, rates higher for longer continue to, you know, get more people thinking over time about what they're getting paid. And so, you know, we're trying to be very smart about, you know, how to make sure that we pass on rate to those that really care about it.
At the same time, we don't reprice a book that doesn't need to get repriced. So, you know, it's a very long way of saying, you know, we'd expect our competitive advantage to continue, but we would expect, you know, deposits to continue to become more rate sensitive over a period of time, if rates are higher for longer.
Right. So as you said, I mean, look, there's a lot of uncertainty around where rates are going to be at this point next year. Given that uncertainty, how do you manage the balance sheet, you know, from a securities perspective, from a duration perspective? And if you were to take a step back, what do you think would be better, purely from an NII perspective from here? Is it higher rates or lower rates?
Listen, I mean, you know, movement of rates is generally a good thing. And, to go back to your original quote, you know, how do, how do we manage it? It is a daily conversation, right? It is, you know, where are we positioned? You know, what are the, you know, higher versus longer versus when, you know, rates will come down. Obviously, want to be ahead of what the market expects. You know, the market has gotten it wrong, and our guesses will continue to get it wrong here. We're still asset sensitive, but at the same time, we have put on more swaps to protect the downside for rates coming down. There'll be a point at which we'll do more of that and have a different point of view.
We don't think we're there yet, and just think it's a little bit premature to call that decrease in rates.
Okay, so the other ingredient into NII is obviously loan growth. That's obviously weakened over the course of this year ex card. You know, what are you seeing in terms of loan demand, both on the consumer and corporate side? How do you think that will evolve over the course of the next year?
Yeah, again, that also, you know, hard to predict. You know, as we look at it, we would expect on the consumer side to continue to have, you know, some, you know, credit card growth, given the new products that we have introduced. We would expect our home lending balances to continue to decline. It's just we, as we decrease the size of our business, and we do expect to see runoff, both in terms of the portfolio, and the decrease in the servicing book, which is something that we very much do want to have happen. And on the corporate side, we've seen utilization levels level off, after those have, you know, had been a driver of some of the increasing loan balances that we had.
Ultimately, it's going to come down to, you know, you know, the confidence that, you know, the companies have in terms of, you know, their own growth and their own inventory. So, you know, if we were to sit here today, I think, you know, we get different points of view on when that'll turn around. Our guess is... My guess is that, you know, it'll be, you know, not a lot of growth for the next couple of quarters, and then you'd start to see, you know, some more growth across the corporate spectrum.
Okay, so let's talk about some of your growth initiatives, because I, I really do feel that this year a number of the growth initiatives have really started to pay off. So let's start with Card. That's had very, very good momentum this year. You know, the Card market's obviously a very competitive one. So can you talk a little bit about what you think you got right, what you think the growth trajectory looks like, from here? And then maybe expand a little bit on the comments around how you're thinking about growing, you know, the unsecured credit at this point in the economic cycle.
Sure.
from this perspective.
Listen, the Card story for us is really very, very simple, which is, we had a reasonably sized Card business, when I got to the company, but it was not viewed as a real strategic priority, and I don't quite understand why. And so, you know, my approach when we got there was to look at it and say, both the lending part of the Card business as well as the payments part of the Card business, has to be a strategic priority for the company. You know, if, you know, you're in someone's wallet, you're going to be used all the time. You want to be part of the payments flow. We lend to consumers across this country.
And, you know, to think that that is not something incredibly important, you know, for us, is just a strategic mistake, given the broad relationships that we have with, you know, we, you know, we do business with a third of the households in this country, and it's a core product and service. It's also run properly, a very good business with, you know, very good returns. You know, and you kind of compare that to our view on the mortgage business, where we, it was just, we had, you know, the inverse of what we thought about it. Mortgage business, important, but a really tough business. You don't need the size and scale in order to be there for our customers.
And the regulatory environment just makes it really, really hard for large banks to run the business very well with the right risk-adjusted returns over the cycle. So we've de-emphasized the mortgage business, even though it's still an important product for us, and we feel very differently about the card business. And so what we looked at and we said, "Well, you know, what do we do? You know, what do we need to be more successful?" Number one is we need to have an experienced management team that knows what they're doing, and, you know, that is exactly what we have. We've changed the majority of the management team with people that have, you know, done this at other places. It starts with a great product, and so, you know, we had mediocre products in the marketplace.
Our products, our lead products were branded American Express, which I always remind people is, we have a huge amount of respect for American Express, but if you're a consumer and you want an American Express product, you're gonna go to American Express because you get all the great things that they do, customer service, line assignments, and all those things. Just to have an Amex-branded product with the rest of the services that don't aren't comparable to Amex is not attractive to a consumer. So we went out and we negotiated our deals with the networks. We're getting paid very differently, and we've been able to put that back into the customer proposition. So whether it's our Active Cash product, which is 2% cashback, no fee, they're great products, or Autograph or Reflect.
So it starts with a great product, and what you find is when you have a great product, you get positive selection. And so we've not compromised at all on credit. In fact, the credit quality of the accounts that we are booking are better than the credit quality of the accounts that we were booking prior to this. And that's what we're seeing come through. But it's, it's the product, it's improving customer service, it's working on line assignment, it's working on fraud. And when you do that, you know, you get the right results. The majority of the products are going to those which have a broader relationship, which we feel great about because, again, the idea is to support a much broader relationship.
So I think something like 70% of our new accounts have a broader relationship with us, but at the same time, 30% don't, which creates opportunity for us. We'll just continue to, you know, drive high-quality products and make sure that we're focused on, you know, the, you know, the best quality consumers out there. To your question about, you know, where we, you know, how we feel about, you know, where we are in this environment, I would say again, we're very... You know, I think we're cautious and we're careful. So we have been tightening our credit quality really across all of our consumer products consistently for a year and a half at this point.
And, you know, I would say doing it in a way, which is very focused on where we think the riskiest elements are, so very much along, you know, the layers of risk that can occur. And so, you know, whether it is, you know, those with, you know, multi-products out there, those that have, you know, more debt than others, lower credit quality. But at the same time, you know, we are very focused on those where we have more information, where we can actually look at it and say, FICO doesn't, you know, relate to what we actually see in terms of performance because we know these customers better.
So, you know, I think, you know, we'll continue to be very prudent, you know, on the edges to make sure that we're, you know, that we're looking at just overall debt levels and additional risks that are created out there and focused on, you know, making sure that we have the right and risk-adjusted terms over the cycle.
So, the other growth initiative that I think again has really started to show momentum from a revenue perspective is some of your capital market and investment banking initiatives.
Mm-hmm.
So two, two questions. The first is: where do you see the greatest opportunity in terms of growing those businesses from here? But secondly, those businesses do get penalized quite significantly under the Basel III proposal. Does the increase-
Some of them do.
Some of them do.
Right.
So do any of the changes that could happen in Basel III impact your view of the attractiveness of growing those businesses from here?
You know, listen, the short answer is no, in the big picture, and that's because when we look at our overall corporate investment activity, you know, there are trading businesses and then our fee-oriented businesses. When we look at our opportunities, first and foremost, we're looking at where we have opportunities to increase penetration with our customer base. You know, a lot of that stems from the fact that we do business with, you know, a huge amount of whether it's, you know, not just the Fortune 500, but all the way down through middle-market companies. We're one of the biggest lenders in the country, and we're just not getting paid as much as others are getting paid for it. So, you know, we've been in the investment banking business for a long time.
It's been relatively small, it's been under the radar screen, and we focused on things like high-grade debt underwriting, and you see that in terms of the progress that we've made in the league tables. But we have other opportunities to add products that focus on those relationships that we have. And so we're already, you know, consuming the capital. We already have the risk in terms of the lending relationships as well as the treasury management relationships, and what we need to do is just continue to build out our capabilities with the right people in the right industries. So we've been focused in a very disciplined way, so we're not just going and adding resources across the board. We've seen that picture end very badly, where people you know don't do it in a in a disciplined way.
We've gone through our business, we've gone through our customer base. We've said, "What industries do we need to build strength in? Where do we need to have more product capabilities?" And those are the places that we've been hiring, hiring against. And so, we've built up strength in equity capital markets. We've built up strength in financial sponsors, focused on TMT, financial services, and places where we see more significant profit pools as we look forward. And what you find is that, our customers want to do more business with us than they've been doing. I've mentioned this before, when I've gotten to the company, and I still get these calls from people where our, you know, large corporate companies who understand exactly who they're paying what, call, and they talk about how important we are to them.
And the comment very often is, "We know that we're not paying you enough. We know that you're going to look at the relative returns of the business you're doing with us, and it's not going to meet your own hurdle rates. And so we want to do more business with you." And that's kind of an astonishing thing. And so, we're the beneficiary of that, but we also know that we've got to support it with the right people and the right capabilities. And so you're seeing that in terms of some of the success that we're seeing. You're seeing it in terms of our market shares slowly increase, and it's, you know, it's market share that's very profitable because it's fees on top of the risk that we're already taking.
You know, you see that in terms of, you know, whether it's the Broadcom transaction, Worldpay, other transactions that we're involved in. And that will help, you know, just grow, you know, the overall platform as we, you know, have just additional credibility. And on the trading side, you know, we've not been the beneficiary of, you know, a lot of the capital benefits that other people have received. So, you know, the proposed changes in the Basel Endgame don't negatively impact us as they do others. And our business is very much focused on supporting the fee-based businesses that we have and supporting business that we do with institutions.
And so there, too, you see we're focused on electronic trading, we're focused on FX, to be more part of the flows that our existing customer base is involved in. And again, our team has done a really great job, and you see, without, you know, increasing the risk profile, without the ability to finance a bunch of transactions because of the balance sheet constraints that we have, that we're also growing share, just because we're, you know, focused on where we can make a difference in a disciplined way. So I would say, you know, with or without Basel Endgame, we do feel like we're in a great position just to, you know, in a very controlled way, within our existing risk framework, to just add profitability and return to the company.
Basel III will impact us, you know, if there are no changes, certainly in other parts of the business that we've got to focus on.
Okay, great. So let's talk a little bit about the expense outlook. You know, and again, I know you're going to give a more detailed outlook, you know, on the fourth quarter call, but bigger picture, how should we think about the trajectory of some of the broader categories? And how has your thinking about the longer-term efficiency ratio of the firm evolved?
You know, I referred to this a little earlier when I just talked about, you know, the trade-offs that we're working through. Again, we look at the returns of the company, and we said, "You know, there's no reason why our returns should be less than others out there." They're greatly improved from where they were. You know, when we started on this journey, I think we were at 8% return on tangible common equity. We set an interim goal of 10%. We're over 10%. We said that we should be up to 15%, and then we'll have a conversation from there, and that's what we're working towards. And, you know, we're either going to, you know...
Well, we think we should get there both by the revenue opportunities that we have, but also by focusing on expenses. We are down significantly in terms of headcount. I think we peaked at something like 275,000 people, and we're down to 230,000 or less as we sit here today. You know, without, you know, one big massive layoff, it's just been just focused area by area on where we can get more efficient. We internally, it's when we talk about our own efficiency, we say, you know, "Not even close to where we should be." I describe it as peeling an onion back. When you become more efficient, it gives you a chance to look at everything else and say: Okay, what's next? At the same time, we're focused on efficiency.
We're focused on just our processes and how we can eliminate duplication and simplify the company. We are spending a huge amount of money on the regulatory and control work. That's not going to change. That's not an opportunity as we look into 2024 for reduction. At some point, when we're really good at that work, we'll be able to figure out how to make that more efficient and others done, but that's not, you know, a short-term opportunity for us. And we're also, you know, looking to continue to invest. You know, the things that we've done in Card, the things that we've done in our digital platforms, the new products that we've rolled out, on the consumer side, those things cost money, and we want to continue to invest in those things. We are investing in machine learning.
We're investing in AI. So the real question comes out as to how you balance those things. Because we do have levers that we can pull, we can decide to invest more or less, and we get more or less aggressive on the expense side. We have seen turnover come down, and so, you know, because of that, we're likely going to have some more severance than we otherwise would have anticipated, as we, you know, we're still working through this, but, you know, we're looking at something like $750 million to a little less than $1 billion of severance in the fourth quarter that we weren't anticipating, just because we want to, you know, continue to focus on efficiency.
With turnover dropping, unfortunately, we're going to, you know, have to, you know, be more aggressive about our own internal actions. But again, we think that, you know, that's the right thing to do for, you know, for the long term... And so, you know, to your point, you know, we don't- I don't want to get ahead of ourselves and, you know, state the conclusion of where we're going to come out in terms of, you know, those, you know, you know, the need to get more efficient. At the same time, we want to invest. But I would just say again, we're focused on driving higher returns in the company.
A byproduct of that will be the efficiency ratio, and it's either going to be because we're going to control expenses, meaning kind of flattish, and we're going to see revenue growth, or we're going to continue to drive decreases. And so, you know, we'll. You know, that's the way we're thinking about it. We know that, you know, it's—that, that is what. As a management team, that's what we're driving to, and we think that's what our investors deserve to see.
Okay, great. So let's talk about credit quality. And I guess let me ask this as a kind of a three-part question, and then you can decide where to focus the time. You know, the first is, look, are you still? Are there areas of the book that you're tightening underwriting standards or where you think the market isn't appropriately pricing risk today? And then secondly, can you talk a little bit about what you've seen in your commercial real estate book recently? Are you seeing contagion outside of office into other parts, like multifamily? Is that something that you're monitoring more closely now than you were, you know, three or six months ago?
Sure. So, on the first part, I would say, you know, we're tightening on the edges at this point. So, and as I said, you know, we've been doing this consistently for a year and a half, and you see it in terms of the volumes in auto and some of the other products that we have to offer. So again, we feel good about where we are today in terms of the credit availability, because, you know, we're not abandoning markets, we're not abandoning products, but, you know, we also don't want to put people in a position where they're overextended. So, you know, we'll continue to watch that. We see continued slow credit deterioration, which is very consistent with what we otherwise would have expected.
We don't see any inflection points, which is what you would really get concerned about. Vintage curves across most of the, you know, across all of the significant products, look to be on top of pre-pandemic levels. So, you know, we always have this debate in terms of are we getting back to normal or will the deterioration continue beyond normal? We don't know for sure, but what we see today is that, you know, they're looking very much like it looked pre-pandemic. And so we would say, you know, back to normal for sure, and then we'll see. But, you know, again, subprime, you know, certainly worse. We don't have very much of it, so, we see that more through what we see in terms of our deposit platform as opposed to credit.
On the wholesale side, in terms of commercial real estate, you know, the story really is office. We're looking at everything in our commercial real estate portfolio. There still is, you know, you know, a fair amount of liquidity in some parts of the market. There's still transactions getting done, lots of questions in terms of multifamily. That comes up. Supply is, has certainly has been, adjusted in terms of, what will drive that marketplace. Demand over a long period of time will still be there. So we still feel very good about our portfolio away from office. And then within office, we look at it in terms of, owner-occupied, non-owner-occupied. We have real estate portfolios within our commercial bank, of which most of that is owner-occupied, personal guarantees, performing very, very well.
And you know, the big properties in our corporate investment bank, in big cities and strip malls and things like that, are performing very differently. You know, we think we're relatively conservatively reserved. We have over 10% reserves. It's from a size point, very, very manageable, for us. We're decreasing the size and the risk within that portfolio. We do expect to see losses this quarter, in that and continue into next year. You know, it's playing out as we would expect with, you know, asset values significantly below what we would otherwise would have expected, and we'll continue to watch that. So again, we will have losses, but hopefully, we're planning for it appropriately.
Okay, so I, I know we're almost out of time, but I do want to ask you a question on AI, because I think you are—you're on the board of Microsoft, so I think that probably gives you some unique insights into, into what's happening. So let me just ask you just a very big-picture question around this, which is: Do you think in five years' time, AI could materially impact either the revenue-generating capabilities of Wells Fargo or the cost efficiencies of Wells Fargo in a, in a way that could really move the needle?
Yeah. So I don't know whether it's five years or whether it's longer than that. I don't think. It's not shorter than that. But there's no doubt that AI will have a materially positive impact on our company and most companies. And you know, this is one of those things where, again, when you look at who Wells Fargo is, when you look at the size and the scope and the resources that we have, we are a beneficiary of being able to direct a significant amount of resources towards that work. And whether that, you know, means becoming more efficient, whether it's in call centers, whether it's in the investment bank, in production of pitch books, creation of ideas, advice products that we can offer consumers and companies, our ability to invest in that work is significant.
We're going to be very careful, as we have been, because we have a significant amount of non-generative AI and machine learning work that we do to both help ourselves and help our customers today, and that'll continue to be a differentiator. Again, I think we are very, very conscious of the fact that we are responsible for the outcomes of what these models generate. We're going to be very careful to ensure that whatever we roll out is better for our customers, and that, as I said, we understand the impact. Again, I think that, you know, it will probably take longer than people expect, but the work is happening now. And so again, I just from our standpoint, yes, material, yes, a competitive advantage for us. Time period, time will tell.