Good morning, everybody, and welcome to day two of our 35th Annual Financial Services Conference. It's a pleasure to see you all here, and thank you for joining us. I'm delighted to have Charlie Scharf up next, who is President and CEO of Wells Fargo. Charlie has been CEO of Wells Fargo since 2019, and I think he has well over 30 years of leadership experience in the financial services industry at a range of different firms. So thank you very, very much for being with us. So maybe we can just start off with a broad discussion around the economic outlook for 2025. I appreciate there's a lot of moving pieces here, but maybe you can talk about what you're seeing across your platforms in terms of spending trends heading into the year-end across both consumers and corporates, and how you're thinking broadly about the economic outlook for 2025.
Sure. Thanks for having me, Richard. It's great to be here. Let me start with just what we're seeing, which is we've been very, very consistent now for many, many quarters about we're seeing just continued strength across both consumers and businesses without a lot of change. And that's actually we've felt very good about that. And as you remind people of, we're sitting here nine months ago, and everyone's talking about just soft landing, hard landing, how bad things can get. And so all things considered, given where we are, it's a pretty good place to be. The consumer has been very, very resilient through all of this. What we see in terms of spending patterns is basically the same. I know everyone comes in here and everyone says it's up a little bit or it's down a little bit.
You got to make the scale really large to see any real meaningful change in terms of what we're seeing today. Debit card spend is consistently up kind of a couple of points year over year, depending on the week. Credit card spend, if you adjust for new products, is still, depending on the month, 5, 6, 7, 8%. And maybe it swings a half a point, maybe it swings a point here and there, but it's very consistent, very different across affluence levels, so the lower-end consumer is struggling a lot more, which is not new, but you don't see that bleeding into the other products. Consumer credit continues to be extremely strong. What we'd always talked about was a normalizing of credit off of remarkable lows, and that's exactly what we've seen. When we look at deposit balances, we see more stability.
When we look at outflows, we do see payment rates going up towards credit products, which is a good thing because people have the money in their accounts to deal with that. The consumer overall is very, very much the same in terms of where they were a quarter ago. Businesses are also doing well. The only weaknesses that we continue to see are in the large office CRE portfolio. Nothing new there. Things aren't getting worse than we anticipated. They're playing out as we anticipated. Everything else is pretty consistent. Companies are waiting to see what happens with rates. They're waiting to see what actually happens post-election. The talk track is certainly much, much stronger today in terms of how they're thinking about their businesses than it was pre-election.
So you mentioned the election. That was obviously just over a month ago. Does that have any bearing on how you're thinking about the economic trajectory over the next couple of years?
Yeah. I mean, I think, listen, I think the incoming administration let me back up for a second. We are predominantly U.S. bank, right? When you look at who we are, 95% of the revenues or so, plus or minus, are from the U.S. So we do well when the U.S. does well. And so we can argue about different policies and whatnot, but when you have an administration that's extremely focused on the U.S. economy, that is something that, as we look forward, is good for us because it's good for our clients. And that's the way they're thinking about it.
There's going to be volatility, for sure, in terms of as the administration starts to move forward with the policies they've talked about, people are going to have different points of views on whether it's better or worse in the long term and what it means for inflation in the long term. But again, the fact that they're very, very focused on ensuring that a broad group of Americans, both individuals and companies, are successful paints a very, very good picture for our clients and then ultimately for us.
Okay, so let's segue and talk about your strategic priorities. I know they haven't changed a lot over the years, right, since you've been coming here, but can you just remind us of what you're most focused on and maybe talk a little bit about whether they've evolved over the course of the year?
Sure. Well, they have been consistent, which is, I think, a good thing. It starts with making sure that we do all the work that's necessary on our risk and control work, which is just we describe it as a gating factor in terms of what we have to do to take advantage of the great franchise that we have. I feel very, very strong that we're making extremely good progress. The company is very, very different from a controls perspective today than it was when we got there. But we've got to let the regulators make their judgments on all those things. And so we still remain deeply committed to getting all of those things over the finish line. But we have a very high degree of confidence that we're going to get there in a reasonable period of time. And I've talked about this.
We have a very open dialogue with our regulators about what their expectations are, what the requirements are, what we're doing, how we're doing to fulfill that, and they've been very, very factual and very, very clear, and we've really appreciated that, and I think that'll continue. At the same time, looking across the franchise, we've simplified the company, so we've exited businesses that aren't strategic, that don't make sense to all be under what we talk about as the customer base that we have at Wells Fargo, and so every business that we have, with the exception of the mortgage business, is one that we feel have great growth prospects today, and we're at different stages of development of investing in that growth, and so some businesses, which were less impacted by the work that we have to do on the controls, started years ago.
We see that in our credit card business in that category. We put our corporate investment bank in that category. And you're starting to see the results of that coming through when you look at just the amount of spend we have in our cards, our receivables balances. The quality is still quite good. We haven't done anything to compromise that. And you see the growth coming through in the card business. We're picking up share in our corporate investment bank by just making sure we've got the right coverage, leveraging the right relationships, leveraging the credit relationships and the treasury management relations we have. We've added about 50 managing directors over the past five years without making some big announcement on how much we're going to spend and how much it's going to cost. We've done it while driving efficiencies inside the company to offset a lot of that.
And so we've got an agenda across every one of our businesses to invest for growth in a very smart and controlled way. And we just feel like we're at the beginning of seeing that. So for us, it's continue to make sure that we get everything over the finish line and create the right kind of culture from a risk and control framework and create the kind of growth trajectory across all these businesses with the right returns that the quality of the franchise deserves.
Okay. So we're going to get into, I think, a few of those. But let's start with risk and controls. And I think you've said several times, including today, that you've made significant progress. So maybe you can expand on how you're assessing that. And then as an add-on, maybe you can talk a little bit about the operating benefits you've started to see as you've strengthened the control side of the firm.
Sure. Yeah, listen, I wish I could put a slide up that shows you all the things that we look at, but most of the work that we do with our regulators is confidential, and I can't share it by law. But for every one of our consent orders that we have, for every one of our regulatory deliverables, we have extremely detailed plans in place that the regulators have reviewed, and we track our progress at the Operating Committee every single week. We go through every deliverable. We go through anything that's slipped, ensure everything's on target, make sure we manage it piece by piece, so we actually see, as I always describe, the work that we're doing, it's not like a big technology conversion where you just do a lot of work for four years and flip a switch, and then you assess it.
We're adding controls all along the way. We're building out compliance. We're building out operational risk. We're changing things to ensure that our board is more effective. And so we see these things, not just interim deliverables, what we see us completing the things that need to get done. And then we've got very detailed review processes inside to validate that work before we give it to our regulators for validation. So when I talk with a greater degree of confidence that we're getting things done, we're getting things over the finish line, it's because we see all those internal metrics. What that does is that translates to just better management of operational risk and compliance in the company. And so there, what we see are we're identifying issues ourselves. We're solving them like normal companies do before they become bigger issues that are specific to us.
You see it in terms of just our operational errors that run through the income statement coming down over time, but most importantly, it creates the right kind of framework inside to have confidence to grow, and so that's ultimately where the benefits come.
Okay, great. So I know you're going to give a more comprehensive outlook on NII in January. So maybe we can just talk about some of the different moving pieces. So let's start with deposits. We've had a few rate cuts. Maybe we get another one in December. What have you seen in terms of deposit behavior around those rate cuts? And how is repricing of deposits relative to your expectations coming into this rate cutting cycle?
So I think for us, everything's playing out the way we thought it would. And it's very consistent with what we talked about in the third quarter earnings call. On the wholesale side, we've been very, very active in ensuring that our relationship managers have been talking with their customers all along about what our intentions are with rates as rates start to come down. And so very high betas, which is exactly what we would expect to see. And that's actually coming through. And they totally understand that with very little pushback. And again, that's not just waiting to see. It's an active dialogue that you have along the way. And consumers are certainly less rate sensitive. We've got to be less competitive on promotional CDs and things like that. So these aren't new things. This is exactly what we talked about in the third quarter.
That's what we're seeing. There is more deposit stability across both the commercial side and on the consumer side. As we've said, we've actually had some growth in deposits, which allow us to bring down our non-customer-related deposits as well across the entire balance sheet.
On the loan side of the equation, what are you seeing there?
Yeah, not a lot of change, and there too, you hear different things. When you look at utilization rates, when you look at just new requests of loans, we have not seen an actual pickup in loan demand. It's pretty consistent with what it's been. We get questions about, do you see inventories being built up because of potential tariffs and whatnot, and we've not seen that in any meaningful way, although always looking for it, and it could show up tomorrow in the data, but we don't see it as of now, but there is a lot more conversation with clients about the way they're thinking about investing as they go into next year, which is different from what they had said.
So as we just think about business activity, the talk, as I said earlier, the talk track of what they're thinking of doing next year in terms of investing in the business as well as just deal activity does seem. People, there's a different degree of confidence that they're planning for.
Okay. So let's talk about some of the growth initiatives. And I think you've touched on some of these in terms of strategic priorities. But let's talk specifically about the capital markets business that has performed very well over the last few years. Can you talk a little bit about the opportunity set from here, where you think you can get to from either a market share or size perspective? And has the outlook for that business changed heading into next year after the election?
Yeah. I mean, I'm incredibly proud of the work that our team has done on the corporate investment bank. I've talked about this in the past that people have not thought about us traditionally as a strong corporate investment banking franchise. And I think that started to change when we actually started breaking the segment out separately and people just saw and understood the size of the business. Our corporate investment bank today is about the same size as our consumer business when you look at just in terms of profit levels. And that things go up and down depending on the different segments, but it's meaningful and significant. We have lent and we've had treasury management relationships with middle market companies and the largest companies in this country for a long time.
And over a period of time, we had started to build out capital markets capabilities to help them access the public markets and provide advice. And so when I got there, it was something that you look at and you say, it's an incredibly important part of the company and we shouldn't be afraid to talk about it. And the fact is there's a huge opportunity to grow leveraging those relationships, leveraging the risk we already take because of just the amount that we lend and what we do with these folks. So we've been very, very disciplined about having a multi-year plan that looks across where do we have strong relationships, where are there big fee-paying industries and clients, look at what we've been paid relative to what others have been paid for the risk they take.
And you just see this huge opportunity if you make sure that you've got highly qualified people in front of them with a strong set of product capabilities that sit behind them. People want to do business with us. And so we've gone from, I think, number nine in the U.S. investment banking to number six or so. When you look at just fees paid, we're building the equity business. We're building our advisory business. And we're building our trading capabilities focused on the relationships that we have in customer order flow. So it's one of those things where it's pretty straightforward. You've got the relationships. You've got to make sure you've got credible people in front of them on a consistent discipline basis. And we see our trading flows higher than they've ever been. And so that's translating to higher trading profits. You're seeing our advisory revenues up.
And that's because we're involved in much larger transactions where people trust the capabilities that we have. And there's still a long way to go in terms of what the opportunity is.
Just as a follow-on on the capital markets business, in a world where you're not bound by the asset cap, that does free up a lot of leverage-based capital. Would that change the growth trajectory of that business in a meaningful way?
For sure. For sure. But I would say not in an exponential way. So we've talked about this as we've had to manage the asset cap. We've actually taken balance sheet over the years away from our trading businesses, predominantly in terms of what they're able to finance. And so when you're able to finance customers' positions, they'll trade with you more. And so they suffered. We've started to give some of that back to them. And so we'll continue to build that part of the business, which will benefit them. And the asset cap itself is something which, in a short-term environment, like sitting here today, is there a long list of things that we're not doing that we want to do that will change tomorrow? No.
But in an environment where there's stronger loan growth, where you start to be able to compete more on deposits, we get some expansion out of the consumer bank, not having the asset cap will be a huge advantage for us that we just don't have today and haven't had over the last six or seven years.
So let's talk about the credit card growth initiative because that's obviously also worked very well. I think you said you added two million clients in the card business over so far this year. So maybe you can talk about the growth profile of that business from here. But I'd also be interested in hearing how the credit and return profile of that business is shaking up relative to the expectations that you had when you started building out that business three years ago.
Yeah. So the view here was, again, I think it was very straightforward, which as a company, first of all, we looked at the businesses we were in. We looked at where we had our resources. And we were way too invested in the mortgage business and underinvested in the card business. That was kind of when you look back and just look at the dynamics of the company. And mortgage is important, really tough business in a large bank to make consistent material profits through the cycles. Card business we viewed as just incredibly important to be in the payment stream as well as having it as a lending product for consumers broadly. And so we de-emphasized the home lending business. And we said, we're going to invest in the card business.
And our investments in the card business have been supported by the broad client relationships that we have, the brand recognition that we have. But first and foremost, it's having just a great product proposition in the marketplace. So when I got to the company, our lead products were American Express branded products, which didn't seem to make a whole lot of sense. If you want an American Express product, presumably you want all the benefits that you get from being an American Express customer, which is not just the brand that sits on the front. And we weren't able to provide those because Amex does those things for their own customers. So we went to the networks. We renegotiated our deals with Visa and Mastercard. Much, much more beneficial for us economically. And we were able to put those into the product proposition.
And so whether it's our Active Cash product, which is our 2% cash back product, or our ability to invest in fraud, to invest in line assignments, to spend more money on marketing, that's what's driving the growth. It literally is having a great product in the marketplace supported by the underlying dynamics that all of us around here look for when we look for a card. We haven't compromised on credit quality at all. In fact, when you look at depending on the product, it's equal or slightly better in terms of credit quality because when you have a great product out there, you get positively selected. We're not competing on price, on basis points or anything like that. It's very competitive what's in the marketplace. And in terms of how it's playing out, it's playing out exactly overall relative to the assumptions that we would expect.
And just as a reminder, Richard, I know you know this, but it's very expensive for us to do in the short term. So when you go build the card business, you don't make any money for the first two or three years. But as long as your assumptions are playing out in terms of spend levels, balance levels, delinquencies, ultimately how that translates to credit, you're building in a level of profit that's fairly certain. And so we feel really great about the way we've executed, the fact that it's playing out the way we would expect and what that means for the future profitability of the company.
Great. So on the consumer bank, maybe you can talk about the opportunity you see from both an expansion and an efficiency standpoint from here. But this was obviously an important year for you in that the OCC did lift the sales practice consent order. Has that had much of an impact on the consumer business so far?
It's huge for us. It really is. I mean, when we think about the problems that we've had, that was the most visible across people in this country. It forced us to undo a lot of the things which really related to how the consumer and small business bank was run. So we eliminated compensation plans. We eliminated branch P&Ls. We eliminated reporting that would potentially incent people to sell things because there was this big question mark around where did we have the right controls in place. And the most important thing to do was to get that consent order lifted. And what that meant is, first of all, being confident in what you were doing wasn't creating a problem, but then building all of the right controls.
So when you add those things back, both you and your regulators can feel good about your ability to run the company properly. So the OCC lifting the asset cap is incredibly important. Number one, I think it's incredibly important because we get questions all the time, are the regulators actually going to let you out of these things? Right? That's one of the overall questions we get. And I can say yes all I want based on that my opinion is yes based on conversations. But you take something like that, which is so incredibly important and so sensitive, the fact that they did it is an incredibly important statement about how objectively they're looking at us and our ability to complete the work and then how they're going to judge us. But it also says that we do have the controls in place.
And we can now start adding things back in a reasonably controlled way, which will put us in a position to grow differently than we've been able to grow. And so here too, when you go back and look at just what's happened to our share, we've been fighting to keep the same share that we've had because we've taken all of these things away. And you look at the benefits that we have and you look at the couple of other really large national banks out there, they've been taking share from the smaller players. And so that's the opportunity that we have. And as we now start to put in a lot of the disciplines which can create a different growth trajectory, we're just starting to see the impact of that. So you see it in terms of just our net checking account growth.
It's small, but it's a turn that we're seeing. We look at our debit point of sale volume, and so we know when we add back and send the plans that make sense that are well controlled, when we are able to implement a series of new account opening procedures that are based digitally inside the company, when we're able to introduce the wealth management products and reintroduce the credit card products in a different way, we know the benefits to our customers are there because we compete with a lot of really strong people, but there are really only a couple out there that have the depth and breadth of what we have to offer, and so we're, again, very bullish about the opportunities, and you're just starting to see the benefits of that.
But the lifting of the cap does allow us to manage the business differently than it had been able to be managed for years before that.
Okay. So from an expense standpoint, you've done a very good job keeping a cap on expense growth despite the inflationary environment and the investments that you've made in the business. So can you talk about your ability to continue to self-fund investments from here? And where do you see the greatest efficiency improvements across the firm today? And I think within the answer, if you can just talk a little bit about AI and automation and whether or not that's accelerated over the last few years or where we are in that process, that would be helpful too.
Sure. So listen, I think when we talk about expenses, we don't talk about we have to cut expenses so we can fund all the things we want to fund and report flatter down expenses. That's not the talk track we have. The talk track that we have inside the company is we're extremely inefficient. We look around at different things that we see. And we say it's our responsibility to go make the company more efficient to find those things. And yes, by doing that, that will allow us to spend more money and invest, whether it's in products, whether it's in technology, whether it's in salespeople in different parts of the company. And we're very, very conscious as we make those decisions on how much we want to invest that our shareholders do care about the overall level of expenses.
We have to prove over a period of time that if we're going to be making investments in the company, that we're going to actually show you that it's paying off. And so that's just a little bit about how we think about it. And on the expense side, and I describe it's like peeling an onion back. It is the more you do, the clearer the next set of opportunities become. And so if we have 275,000 people or so when I got there, if I told you we were going to go to 250,000, and people would have said, "Oh, that's a lot. Can you really do that?" Well, we're 220,000 today. And it's going piece by piece, looking at all the things we do. Do we have to do it? Can we do it more efficiently?
Can we combine things across the platforms and not have every business run independently? And so you sort that out, and we still feel very confident that there is a lot of efficiencies, opportunities inside the company that should be able to fund almost all of the investments that we want to make. And then just as a reminder, when you look at our overall expense base, we do have commissions in our Wealth and Investment Management business, which will go up or down based upon the revenue base there. So exclude that. So we feel very good that we'll continue to manage the expense base consistently with what we've talked about because those efficiency opportunities are still there.
Okay. So let's talk a bit about credit. I know you said the credit picture is pretty strong. But are there any lending categories that you're focusing on more closely, other areas that you're tightening underwriting standards because you think the market is mispricing the risk? And then outside of credit, what's top of mind for you from a risk perspective at the moment?
Sure. Yeah. I think, listen, from a credit perspective, we've done a lot of lots of the wrong word. Over a two-year period, we have taken tightening actions on the consumer side to make sure that we were being really smart in an environment where the consumer could potentially weaken. And so we're not tightening anymore in terms of where we are on the consumer. And in fact, when you look at just what we're doing across businesses, we're looking at opportunities to make sure that we're lending to all of those intelligently that we can. So we're getting better and better at using our own information. We're getting better at testing in different parts of our lending businesses to understand as we build our models. And so if anything, we'll probably be a little bit looser in terms of standards, but in a very targeted way.
And not something which is going to change the risk profile of the company, but will just allow us to do a little bit more volume that we think has all of the right returns across the different products that we see. In terms of on the wholesale side, not a whole lot of change in terms of just the underwriting standards. And we don't see a lot of underwriting standards being changed across the industry, with the exception of what's happening in the private credit space, which is a whole separate conversation. You do see some banks becoming more aggressive in terms of hold size, in terms of pricing, but not really on credit at this point. So we're remaining very disciplined in terms of what we're doing on pricing and hold size and risk levels and things like that. So not a whole lot of change.
What was the second part?
Outside of credit, what risks?
Oh, the risks. Listen, first, cyber is by far the biggest risk that we all face. We all are spending a huge amount of money on it. It's one that industries work together on, governments work together on, but it's something that we just always ask the question, are we doing everything we possibly can? And beyond that, for us, again, as I said earlier, we will do well if the economy does well. And so a positive outlook to the economy makes us feel pretty good about the environment from a risk perspective that we're in, knowing that there are always pockets of places that have had a little bit too much growth and want to make sure that we're just always searching for those potential problems.
Okay. So let's shift to the regulatory and the capital side. So what are your thoughts on what happens to the Basel III Endgame proposal? Do you think it will be finalized? Do you think it's something that should be finalized to remove the uncertainty? And then in the interim, maybe you can talk a little bit about how you're going to manage the capital base of the firm just given that uncertainty.
Yeah. I mean, we absolutely want it to be finalized. I mean, it's just a strange position to be in, to have some of the most significant companies in this country unsure of what their capital requirements are going to be. I mean, it's a crazy way to run a system. So we absolutely would love to see closure in terms of what this all means, obviously in a thoughtful way that makes sense based upon analysis of if things need to change to get to a final answer, what should that be? I'm very hopeful that we're going to get that, and so I have no idea what the timing looks like. It's obviously the Federal Reserve, but it's the broader set of regulators, and there are changes coming there.
So hopefully, as these positions get filled out, we will get to a finalized Basel III, which ultimately makes sense. And for us, hopefully, that'll be something which is not all that different from either where we are or what the expectations are based upon the other things that I've discussed, someplace in that range. So if we're at that, so you kind of translate that through our CET1, we've been running it 11%, a little bit more than 11%. We'll probably continue to do that until we get more clarity. And then once we get clarity in terms of what the endgame looks like, then we'll figure out what the right capital levels are. So we're able to continue to return substantial amounts of capital because we're limited in terms of what we can invest because of the asset cap.
And so dividend buybacks and things like that are still very much part of the conversation. And we'll be able to talk with more certainty about exactly where we'll run the balance sheet and where we'll run capital levels when it's finalized.
Okay. So I think we've got a couple of minutes left. So maybe we can just talk about ROTCE and trajectory of ROTCE. I think when you took over as CEO back in 2019, the return on tangible common equity was about 8%. It's now, I think, closer to 13%. Is 15% still the right ROTCE target? And which business lines do you think have got the greatest potential to drive higher returns from here?
Yeah, so we've always described 15% ROTCE as a step to get to, and once we get there, we should sit and evaluate what's next, and so we'd still say that's the case. What we do is we look at every one of our businesses. We look at what our ROTCE and growth looks like versus the best people we compete with and say, is there any structural reason why we shouldn't be close to the best out there? None of the business leaders in our organization say the answer to that question is yes. The answer is, I'm sorry, I said that right. We should be able to produce industry-leading ROTCE across each one of our businesses, and then when you weight that to the business mix, that'll produce what it produces.
And so now, having said that, we also have said that we want to be able to show you over a period of time that we can get there. And 15% was meant to do that. So where our mindset is today is we're close. We're 13%-14% depending on the quarter. We said it's going to be over a cycle. And so we want to consistently get to that 15% and then step back. And we're going to evaluate exactly what I said based upon what the business mix is. What do we think is achievable with the right level of investment inside the company? And so when you add all that together, what that means is 15% shouldn't be the endgame. At some point, the number should be higher. But we also have to invest to get there.
And so we're going to be able to just make sure we're thoughtful about what that timing looks like before we come out and put a new number and then start answering questions about where we're going to get to. But what I think is important is that we feel really, I mean, couldn't be any more confident about our ability to not just get to the 15%, but to invest to build a faster-growing company than we have today.
Okay. I think with that, we're out of time. So Charlie, thank you for joining us.
All right. Thank you.
Thank you.
Yeah.