Investor update

Dec 16, 2016

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. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number 1 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 your 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 November and answer some questions regarding these trends for a total of approximately 30 minutes. This call is being recorded. Before we get started, I'd 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 our CFO, John Shrewsberry. Thank you, Jim. Good morning, and thanks everybody for joining us today. As you know, we're committed to maintaining increased transparency, and as part of that effort, we provided November trends in retail banking customer activity in our news release today. We will provide December updates in mid-January. Mary Mack will walk through trends in detail, but generally, November trends stabilized or improved modestly compared with October. Compared with a year ago, we're still experiencing lower levels of customer interactions, new checking account openings, and credit card applications. But the year-over-year decline was less than we had in October, and the drivers of near-term revenue, including deposit and credit card balances and transaction volumes for debit and credit cards, were all higher than a year ago. Mary will now highlight some of the retail banking trends in more detail. Thanks, John. I'm going to start by providing some additional color on the monthly trends. While it's important for us to be transparent regarding our short-term results, I'm really focused on getting things right for the long term. I'll conclude my comments with what I've been working on over the last 30 days to make sure our service focus delivers consistency and growth across the franchise. Looking at the numbers we disclosed today, you can see by the trends that our customers are coming into our branches, but still at a lower level than they were a year ago and a month ago. It's important to note that November is a seasonally slower month due to the holidays, so the decline from October was expected, and we're pleased that decline from a year ago in branch interactions improved. Down 3% year over year in November, compared with an 11% year over year decline in October. In total digital sessions, which includes online and mobile, were up 10% compared to a year ago. Customers still opened more checking accounts than they closed, and while customer-initiated closures were down 13% from October, checking account openings also continued to decline, but at a slower pace than in October. We also continue to have deposit growth with average consumer and small business deposits up 8% from a year ago. While final numbers were not available in time for the table in the release, this morning they were finalized, and we had 23.6 million primary consumer checking customers, our most active customers, in November, in line with October and up 3.5% from a year ago. We will update the table on our site to reflect these numbers. We would expect this growth rate to continue to decline in the near term, reflecting lower checking account openings. Debit and consumer credit card usage remains strong, with debit card transactions up 7% from a year ago and credit card purchase volume up 11%. We are also encouraged by the positive trends in active consumer credit card accounts, balances, and purchase volume. Active accounts were up 8% from a year ago, and these customers are spending and transacting more on their Wells Fargo accounts. However, new credit card applications were down 45% from a year ago, from approximately 400,000 a month to 200,000. We have also seen an improvement in customer experience scores from the lows experienced in early October, which continued during the first half of December. Customer service has been our primary focus since the sales practices settlement announcement, and the improvement we have experienced in these scores gives me confidence we are effectively driving change across the business. I want to conclude my comments by sharing with you what I have been focused on since our call last month and provide you with a few updates on the steps we are taking to improve these trends that we reported today. My number one priority remains rebuilding trust. I have continued to meet with team members throughout the country who are excited about the direction we are taking towards a service culture. I am hearing this in every market I visit. As our team members continue to take great care of customers, we are making progress in rebuilding trust. I have also been spending a lot of time on the development of our new compensation plan for retail banking team members, who will roll out the new plan in January, and the primary focus will be on customer service and growth. We are ensuring that the plan is aligned with customer outcomes, aligned throughout the organization, and aligned across our partner groups from team members in branches to senior management. Rolling out the new plan is just the first step. It will take time to communicate the plan and train thousands of team members so they understand the changes they need to make to successfully achieve new objectives. We will be closely monitoring results after the plan is in place to ensure behaviors are appropriate and we are achieving the results we expect. We are beginning to slowly reintroduce marketing, and in select markets throughout the country, we have reintroduced some product offers. We're being thoughtful in our approach, testing our offerings, and closely monitoring customer feedback. As I mentioned earlier, we're in a seasonally slower period due to the holiday season, and we expect to further expand these efforts during the first quarter of next year. In summary, I'm pleased with the improvements we had in some of our metrics in November, including our customer service scores. The progress we've made in our compensation plan and the renewed marketing efforts should help us strengthen these trends over time. But in the near term, we still have a lot of work to do to rebuild trust. It'll take time for the benefits of the changes we're making to get reflected in our results. John and I will now answer questions regarding the November customer activity in retail banking. 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. 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. Good morning. Good morning, John. I just want to confirm that this is the trend that we're seeing develop. It looks like the checking account openings, the decline looks like it's slowed from linked month and the customer-initiated closures also declined nicely. Is that more of a trend or is there any seasonality there that helped that? Well, we've compared it, as you see on the chart, we've compared it both to the month-over-month as well as what we saw this time last year. There is certainly typical seasonality. November and December have seasonally been slower account opening months, but that wouldn't have been reflected in the improvement. Right. Okay, good. That's worth noting. Then separately, if I could go off the reservation here a little bit, just want to see if you can comment on the Prudential issue. If that only involves products sold via the retail locations, or are your agent fees impacted at all? What other underwriters do you also sell insurance for that could be involved? Thanks. To your point, recently we've had concerns raised on the referrals of the simplified life product. We're reviewing the referrals of insurance products from the Community Banking as part of the process. We suspended referrals of the products until further review. For Community Banking, as a reminder, we eliminated product sales goals as of October, and these referrals would have been included in those product sales goals. To the extent that there are any issues, we'll address those. John, anything you could add? Yeah, I guess right now I'd say that there are two programs that are referral programs. I think we've mentioned that this simplified life product was one and a renters insurance program was the other. So that's the extent of this product type where our Community Banking channel refers to outside underwriters. Got it. And these outside underwriters, it's Pru and then Assurant on the- Correct. Okay, got it. Then separately, you take this ongoing sales practices issue, and then you got the living will objection or failure, whatever that came out as well. I know it's difficult, but can you kind of talk about what your thoughts are around CCAR? We're getting a ton of questions now because this points to a qualitative failure. I know you don't have a crystal ball, and it's hard for you to talk about, but can you just talk about how you're thinking about it and what your initial take will be on how this could impact it? Sure. Well, so on the qualitative side of CCAR, there's no perfect roadmap because it's designed to pick up whatever the regulatory supervisors are feeling or understanding or experiencing at that time. I think it's important in our CCAR submission that we demonstrate an awareness of the an identification of the risks that are posed. So for example, in the sales practices instance, about what the revenue trends might be, what the expense trends might be, what sort of possible outcomes that might include in a stress situation and what it means ultimately for our capital. It's earnings generation, I think, more than anything else. If we do a very thorough job at that and demonstrate that whatever the outcome is, we withstand it, then I think that we would have achieved the objective there. I think, frankly, the relationship between the resolution planning status and CCAR is a little bit more indirect. I think, frankly, it has more to do with the estimation and quantification of things that are revenue or expense items that have a capital impact in the future. Okay. Got it. Thanks, John. Yep. Once again, for any questions, please press star one on your telephone keypad. So, We have no further questions at this time. I will turn the conference back over to Mr. Shrewsberry for any further remarks. Thank you very much. Thanks, everybody, for dialing in and for taking a careful look at the information. We will do this again next month, probably in connection with our earnings on January 13. At that time, we will update you on trends and more of the things that are on your mind. Thanks again. Ladies and gentlemen, this concludes today's conference. Thank you all for joining, and you may now disconnect.