Investor update

Feb 17, 2017

Press release

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wells Fargo conference call. All lines have been placed on mute to prevent any background noise. Wells Fargo conference call. All lines have been placed on mute. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to Jim Rowe, Director of Investor Relations. Mr. Rowe, you may begin the conference. Thank you, Regina, and good morning, everyone. Thank you for joining our call today where our CFO, John Shrewsberry, and our Head of Community Banking, Mary Mack, will discuss customer activity in retail banking for January and answer questions regarding these metrics and trends for a total of approximately 30 minutes. This call is being recorded. Before we get started, I would also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings. I will now turn the call over to John Shrewsberry. Thank you, Jim. Good morning, and thank you all for joining us this morning. As you know, we are very committed to maintaining transparency, and as part of that effort, we have been reporting monthly trends on customer activity in retail banking, including the January results we shared today. Our goal has been to give you a regular sense of what has been happening with our customers across a number of areas, including customer interactions and account openings. We have now provided six months of this activity, and we are pleased that trends have stabilized and some metrics have shown improvement from the lows we reported in October, which was the first full month after the sales practices settlements. Compared with a year ago, we are still experiencing lower levels of customer interactions, new checking account opens, and credit card applications. But the year-over-year declines were less than we had in October. Importantly, the drivers of our near-term revenue, deposit and credit card balances, and transaction volumes from debit and credit cards all remain higher than a year ago. Mary will now highlight the retail banking trends in more detail, and then we will have time to take your questions. Thanks, John. I want to start by highlighting the progress we're making in rebuilding trust with our customers and our team members and getting things right for the long term. Our team members remain focused on providing outstanding customer service, and this commitment is measured in part through our customer experience scores, which have improved now for 3 consecutive months. Our branch customer experience scores are almost back to pre-settlement levels, reflecting the outstanding customer service that our team members are providing. Customer loyalty scores have steadily improved from the lows in October, but we still have work to do to return to our pre-settlement highs, which is not unexpected since these scores reflect a longer-term and more holistic view of our customers' perception of Wells Fargo. As many of you know, we launched our new retail banking incentive compensation plan in mid-January. It's a significant step in reinforcing to our retail banking team members that delivering a great customer experience is our highest priority. The plan does not include any product sales goals, which we eliminated in October, and rewards performance based on customer service, branch primary customer growth, household relationship balance growth, and risk management. We'll share more details on these and other metrics during our Investor Day in May. We've been busy communicating the plan to team members, answering questions, and processing feedback. Getting the new plan right does not happen overnight, of course, and we'll spend time throughout the year coaching the team to ensure we successfully achieve the objectives of the plan. We'll be measuring success based on customer outcomes and team member feedback. So far, I'm really pleased with how the team has responded, and I'm optimistic that the plan will help us build a better Wells Fargo. Looking at the numbers we disclosed today, the decline in branch interactions from December reflected normal seasonality, as December typically has higher levels of teller activity. The 4% decline in January compared with a year ago was less than the 6% year-over-year decline in December. While still below historical levels, we had a slight improvement in banker account open interactions in early 2017, which is encouraging. Customers still opened more checking accounts than they closed, but checking account openings continue to be lower than a year ago. However, we opened more new checking accounts in January than we had opened in any month since September. We also continued to have deposit balance growth, with average consumer and small business deposits up 7% from a year ago. We had 23.4 million primary consumer checking customers, our most active customers in January, up 2.6% from a year ago. We would expect this growth rate to continue to decline in the near term, driven by the year-over-year decline in checking account openings. Debit and consumer credit card usage remains strong, with debit card transactions up 5% from a year ago and consumer credit card purchase volume up 7%, and balances up 7% from a year ago, with the declines from December reflecting normal seasonality. New credit card applications have not improved since stabilizing in October and were down 185,000 from a year ago. However, we had 7.7 million active consumer credit card accounts, up 6% from a year ago. In summary, I'm pleased with the progress we've made to make things better for our customers and our team members. But we still have more work ahead of us. We've been steadily ramping up our marketing across our channels, products, and regions, including digital, print, and direct-to-consumer marketing. While it'll take some time for these marketing efforts to be reflected in our results, we're encouraged by initial customer reaction, including the successful launch of our new standalone mobile app, Daily Change, which assists customers in building their savings habit. It is a great example of how we're using technology to help our customers succeed financially. John and I'll answer some questions regarding the consumer activity that we've provided for you all. At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. Again, that is star 1 for any questions. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of John Piscitelli with Evercore ISI. Please go ahead. Morning, everybody. This is actually Sam Ross on for John Piscitelli this morning. Hi, Sam. I just had a couple of quick questions, actually. The first one relating to the cost associated with the sales practice issues. I know recently you guys updated your assessment for the quarterly third-party professional fees of $50 million-$60 million. Just wanted to see if you had any updates for that number and then possibly to see if you have any updates of expenses or costs outside of those third-party professional fees. Sam, I would stick with the number from that last disclosure. If and as we develop more information when we do our next sort of broader public disclosure, probably with the quarter, we'll talk more about it. But for right now, I would stick with what we've already said. Great. That's very helpful. Yep. Separately, is there any update perhaps you guys have on the timeline of the resolution for the various government investigations into the sales practice? I know that you guys, the DOJ, the DOL, the SEC, to various respects, were investigating the matter. Just wanted to get your thoughts if there's any updates on those. Similarly, I would stick with our last full disclosure. To the extent that there's more to know, we'll talk about it at the quarter. Today is really more just about the sales trends for January. Great. Got it. Yeah. The last question I had, if I could squeeze one more in, it's probably going to be a similar answer, but I just wanted to get your updated thoughts on potentially how the sales practice investigations could impact the qualitative aspects of your upcoming CCAR. If you have any thoughts on that'd be really helpful. Yeah. So actually, I think I got some questions about that at our last webcast conference. You could probably look there, but the people who are dialing into this call are for the sales practice statistics for January. So we're trying to limit the discussion to that so that we don't under-disclose or over-disclose to the group that we're talking to. We can talk more about that at the quarter also for the broader audience. Understood. That is all I have for today. Thank you for taking the question. Thank you. Again, that is star 1 for any questions, and your next question will come from the line of Mike Mayo with CLSA. Hi. As it relates to the, it sounds like the trends are less bad except for the credit cards. I am going to postulate an idea that maybe the negative reputation from the cross-selling issues is waning some, and that is helping a lot of your metrics. But when it comes to the credit card cross-selling, could that be more due to the change in your internal sales practices that maybe the credit card sales do not come back for some time? What do you think about that thought? John, you want me to take that? Sure. You start and I'll add on. Mike, here's the way we're thinking about credit cards. There are a couple of dynamics to this in that we've just recently begun reintroducing offers. We had begun even before the settlement announcement, thinking about digital to make sure that the credit card opportunity was out there for customers using our phone channels to support that. I also think we have an opportunity, we've just rolled out our compensation program to our team members in the branches, and we're doing a lot of education and understanding for them. As we open credit cards that customers need and want and use, those balances will be reflected in the growth at the branch level. I think we've got more education and opportunity for our branches as well, as they think about the way to be successful under this new performance management reward system. John, what else would you add? Well, nothing, just that we had already begun supplementing our approach to origination of credit cards with activities outside the branch, so direct mail, digital, et cetera, like most large credit card firms, which was a departure from the historical approach of really focusing on the branches. I think we'll begin to see the influence of that or the impact of that throughout 2017 as well. But it's an area of focus. Are you still primarily or is it exclusively targeting existing Wells Fargo customers for credit cards, or are you branching out from that? We are branching out from that. There are a variety of pilots going on with digital, with direct mail, with other channels as well to supplement what's been going on in the branches. That's been true since before the sales practices issues cropped up at the end of last year. But as we roll into 2017, those pilots mature, we see where they go, they could become more impactful. That's interesting. Last follow-up. Your credit card solicitation to non-customers, just an order of magnitude, is that 1%, 5%, 20%, 40%? And where was it before? What do you think it will be? Yeah. I'm going to say it's been less than 10%, and it'll continue to grow depending on its success with how we do in terms of reaching people, the quality of the apps that we get, et cetera. It's relatively small today, but it's designed to mature over time. That was true before the branch selling issues revealed themselves. But now, as I said, it could be more of a part of the story as we roll forward. Great. Thank you. Welcome. Thank you. At this time, there are no further questions. I'll turn the conference back over to John for any further remarks. Great. Well, thank you very much for listening in. I think we intend to continue to do this, and we look forward to talking to you next month. Ladies and gentlemen, this concludes today's conference. Thank you all for joining, and you may now disconnect.