Good morning, everyone. On behalf of the Board of Directors of the BancAnalysts Association of Boston, we welcome you to the 45th Annual BAB Conference. I'm Gerard Cassidy, the President of the group. We are very pleased with this year's turnout. We had about 160 registrants as of this morning, which is the highest we've had in over 10 years. The turnout has been quite strong, and I thank you all for coming. I also thank all the banks for coming. We never take it as a given that the banks will participate, and we always are very pleased that they want to come back year after year. Following the conference today, Bank of America will have us over at 100 Federal Street.
As you might recall, that's the old Bank of Boston building for the folks that have been around a bit, and it's a short five-minute walk from the hotel. They'll have a formal presentation with Brian Moynihan leading it off, and that will be followed by their dinner and cocktail hour like they've had in years past. If there's any questions about Wi-Fi or any of those types of logistical issues, please check with the guys at the desk. With that, the opening presentation, of course, as Wells Fargo, Matt Reed from Fidelity, who recently joined the Board of Directors, will be hosting that. Similar to years past, we'll have a fireside chat.
Some of the banks will have presentations, but we'll have a fireside chat, and then in the last 10- 15 minutes or so, we'll open it up if there's questions from the audience from what you hear during the fireside chat. Again, thank you for coming. We got great weather. No rain, no thunderstorms. I guess it's going to be kind of rough getting out of here tomorrow. I just care about today. You all showed up. Hopefully we'll get home in pretty good shape tomorrow afternoon. We have 16 companies presenting, and then 17 is Bank of America, which is also a record number of presenters. Once again, thank you all for coming. With that, I'm going to turn it over to Matt to make his introductions and take it away. Thank you.
Great. All right. Thanks, Gerard. All right. We'll kick off here. Pleased to welcome Fernando Rivas, CEO of the Corporate & Investment Banking of Wells Fargo, to the stage here. Fernando, thanks for joining us.
Thank you for having me.
Good to have you in Boston. Maybe just give people a little bit of a background. You have been at Wells two and a half years, almost exactly, as I calculated last night, but spent almost 30 years of your career someplace else. Give us a little bit of your background and what attracted you to Wells and the opportunity at Wells Fargo.
Well, so I just learned, Gerard said that he has been running this group since 1995, so that is exactly the same time that I started on Wall Street 30 years ago. 28 and a half years at JP Morgan, and I basically had two jobs there. Job number one is I was a FIG banker for 30 years, calling on clients, doing transactions. By the way, I owe a huge debt of gratitude to everybody in this room, because especially when I started out, but over the whole course of my career, I did not know anything about banks when I started, and you all taught me. You did not know you were teaching me, but you did for 30 years, so thank you.
It was just a terrific learning experience to work with dozens of banks, both globally and in the U.S., on some of the biggest transactions that have shaped the industry over the last 30 years, so half a trillion of transactions. You learn a lot, and Matt and I were talking about this over breakfast, that you all have been analysts on the outside looking in. I was an analyst both on the outside looking in, but then also on the inside, and you learn from the great banks, you learn from the banks that hit a wall, a lot of crisis deals, and you learn decades of experiences in short bits of time in the crisis. Then, for about 20 years, I have been running businesses. So I ran the bank team, then I ran the FIG team for a decade.
I ran North America Investment Banking, which was my last job at JP Morgan. Again, you learn a lot about building businesses, building teams, culture, risk management, some of the things that you and I talk about, the inputs and the outputs of businesses. I joined Wells two and a half years ago. It was a very intentional decision. I had about six months to think about the decade of where I wanted to spend my 50s, hopefully the last stint of my career, and I had lots of conversations. One of the great fortunes and privileges that I had was I had worked with Charlie for 20 years, both as his banker and also as his colleague. About half a dozen of the folks on the operating committee of Wells Fargo, I had either worked with them on transactions or been their colleague before.
I had advised Wells Fargo on the Wachovia deal back in 2008, so I knew the bank really well. It was a combination of just a terrific group of people who I knew their competence, I knew their commitment to transforming the company. I had confidence in their ability to do it, and I knew I'd have a blast doing it. Then just the scale of the opportunity, right? It's arguably, when you look at our client base, our competitive advantages, the last ability to build a top Corporate & Investment Banking franchise. I had been there for most of the nine innings of the only bank that arguably had done it from kind of the beginning to getting to top one or two in most things, so I felt I had something to add.
No, that's great. I mean, how would you describe the market position today of Wells' CIB? What gave you the conviction or what gives you the conviction that you can attract clients to the platform and actually continue to build something? Because it's a competitive space. How do you keep building?
It's a super competitive space. Again, given the journey that I had been on in my career, I had competed when I was outside of the top five and competed when I was inside of the top five. If you take a step back and you look at our franchise today, what do we bring to the game? First off, the CIB, we earn like $5 billion of revenue roughly a quarter, so call it over $20 billion a year with a ROTCE over 15%. So, to have that amount of revenue and that amount of returns, you've got to be doing a lot of things really well for lots of clients with a real value proposition. So, we start with, in the CIB, we've got a great corporate franchise. So, we're a top four corporate bank.
We've got $1 trillion of credit commitments out to the corporates that we bank in the Corporate & Investment Banking, and also the corporates that we bank out of the commercial bank. We hold $400 billion of their deposits. We're really important and relevant to lots of companies across the country. We've got 37,000 clients, the way we think about it, between the corporate bank, the commercial bank, the institutional clients that we bank. We've got a really good corporate markets franchise. If you think all those companies that we have relationships with, rates, FX, commodities, that's a great part of our markets franchise. We've got a really good traditional investment grade DCM franchise. We have a leading structured products franchise, so we're top three in structured products, and that includes being top three in all things capital markets, ABS, we're number one in CMBS.
You start with, we've got these great relationships, we've got a set of foundational capabilities, we have part of the franchise that we're leading in, and then there's a bunch of the franchise that we're not leading in, that it just makes sense to invest and build when you think of the relationships we have, what we already do for these companies, and what they tell us. One of the most interesting things when I got to Wells Fargo and I started going out and calling on clients, and it's a little bit different if they're corporate clients or private capital clients or institutional clients, is the corporate clients, they just really like Wells Fargo.
We'll talk more about it later, but you've got to put a team in front of them that's competitive, and if you put a team in front of them that's competitive, you'll win business. You and I were talking about some of the teams that I was a part of 20 years ago when we were doing deals at a franchise that wasn't within the top five at the time. Corporate clients, if you have a great platform, which we do, and you have a great team, you'll win. The most interesting thing was the institutional clients and the big private capital managers all said the same thing, which is, as the buy side and the sell side has consolidated, the needs of the buy side have gotten way bigger, and they want more choice, and they want diversification, and they want another scale partner.
They want that person to be somebody who can do more with them. They would like that person, for their own selfish and commercial reasons, which is how you build a business, to be Wells.
No, that's great. Maybe, part of the answer is in there, but it feels like the tide is rising good in capital markets right now. We've had a lot of activity. How do you make sure that what you're building has durable relationship and stickiness? It isn't like we're not just picking up the benefit of the tide, and then when it goes out, we find that we were the last piece of business that then goes with it.
Mm-hmm. There are lots of things that you talk about in business and a lot of things that you talk about in risk management, and I'd say a few things. We can spend a lot of time talking about risk management and culture and how you build a good business. First off, we tell people all the time, maybe in the NFL or in college football, there's a debate about does offense or defense win championships? There's no debate in banking, right? Defense wins championships, number one. We spend a lot of time thinking about how do you build businesses where you're getting positively selected businesses and you're not getting adversely selected?
Yeah.
What matters there goes back to where I started, what's your competitive advantages? What's your value proposition? One of the first things I would do whenever I was a banker advising a client is I would try to dissect their income statement and understand what's the real franchise margin, and then what's the lower quality, just risk-taking business that you're taking? We're always focused on, if we're building something, it's because we have clients, we have a right to win, we have competitive advantages. Then, of course, as you would imagine, there is a very rigorous and detailed process as it relates to any loan that we're making, any financing that we're doing, where you have subject matter experts that are deep in the detail. We're always reminding people, there's no deal we need to do.
You all know this because you have been following banks and management teams for decades. A lot of mistakes are made because people feel under pressure. We are always telling people, "We have got really exciting plans." They are like, "We want to grow. We think we should grow. We do not have to grow." One of our great benefits is, the company makes $80 billion of revenue, about $20 billion after tax a year. We have got a 15% ROTCE. We have got lots of ways to get to a 17%-18% ROTCE, and we have the privilege of not having to do anything. You are always managing that dynamic of raising expectations and folks, making sure we are optimizing the opportunities that are in front of us, but always setting a very clear tone on risk and client selection and the business that we want to do.
That is great. There is actually a lot in the CIB at Wells Fargo. You have got banking, you have got markets, you have got CRE. Why do we jump into a few of the individual segments and talk about banking to start. Maybe just refresh people. You have been there two and a half years.
Yeah.
Where did you focus those two and a half years in terms of adding talent, adding capabilities? What have you been focused on? Looking forward, where do you see the opportunity as greatest?
Yeah. About when I got here two and a half years ago, Charlie and Mike and the leadership team in CIB had already set the plans, and they were really good plans, and again, they made sense. The initial focus of the investment was and has been on banking, but we have also been investing in markets and in CRE as well, which we can talk about. Banking is, first and foremost, a talent business, and it is who is the team that you have got calling on clients, and it is sector by sector, product by product, sub-sector by sub-sector. I was blown away when I got to Wells Fargo with the talent that Tim O'Hara and the banking leadership team had been able to attract. I had been hiring bankers and building banking teams for 20 years, so I know a little bit about it.
Over the last four years, we've hired about 140 managing directors into the banking business, so about 30 a year, and it started at the top with a new head of M&A, two new co-heads of equity capital markets, a new head and one new co-head of leverage finance. It's a new head of tech, new head of healthcare, new head of industrials, new head of sponsors, and then building out the teams underneath them. If you look at our market shares in banking, if you look at our revenues in banking, if you look at the transactions we're a part of, you very clearly see the momentum and the proof points along the way. We're making about $1.5 billion more in investment banking fees today than we did several years ago.
That is kind of $200 million-$400 million in each of the main products, M&A, equity capital markets, leverage finance, investment grade. If you look at the transactions that we're a part of today, just very different than what Wells would have been doing in the past. We were one of the two lead advisors to Union Pacific on the Norfolk Southern deal. We financed Netflix on the acquisition of Warner Bros., which at the time was the largest commitment one bank had made as part of a $60 billion acquisition finance package. We worked on the Charter-Cox deal. We put together the Schroders-Nuveen deal. If you look at our market shares, it used to be low 2s in investment banking wallet share. It's now low 4s. Again, if you look at the underlying products, be it M&A, ECM, leverage finance, we're up 50%-100%.
The strategy in banking is working. We see it with the client engagement, we see it in the talent we're able to attract, and it has a flywheel. It has momentum to it, and there is a J-curve to that business. All of the investments we've been making were early innings and will continue to pay off. We got a long way to go in banking.
Great. I think one of the things that Charlie and Mike have talked about for a long time is these longtime corporate customers. You talked about the corporate relationships that didn't have the Wells investment banking products necessarily. Is there a way to think about how big that opportunity alone is? I don't know if there's a way to frame that at all or not, but
Banking has fairly good market share and Dealogic market share, and if you just look at, and I won't quantify it in numbers, but if you just look at where we are today in Dealogic revenue and you look at where banks, just four and five are, we see a very clear pathway. Again, we don't start off with we want to be number one, number two, or number three. We start off with, who are our clients? What are the needs? What's the business we think we can win? Who do we think we can hire? If you just map out where four and five are, we think we've got pretty clear line of sight to get there over the next several years.
Great.
Right? Then as Charlie says, that's a milestone, not an end point, right? If we get there, then let's see how we do better.
I'm sure people are curious. It's been a volatile, perhaps, year between rates, markets. How are you feeling about pipelines going into the year end?
Yeah. I'm always careful about pipelines, having been, again, running banking business and doing budgets and looking at pipelines for a long time. They're super important, right? Because it's a leading indicator of the traction that you're having with clients and the job that your bankers are doing. As you all know, pipelines change very quickly when markets change and the pull-through changes very quickly. But right now, our pipelines are what you would expect them to be, which is we remain in very supportive markets and we're taking market share. So, our pipelines are at all-time highs when you look at them by product, by sector, pretty much across the board.
Okay, great. Maybe let's pivot to markets real quick. You made a lot of investments there as well. Maybe talk about what you've done, how you feel about the product and the coverage that you've got at this point, and where you're still building.
Yeah. The way we think about the markets franchise is, we've got a really good corporate markets franchise, right? It goes back to the corporate relationships we had, many of which we've had for decades. We've got the trillion of commitments, the 400 billion of deposits. We have those relationships. And we've got really good corporate flow in our rates business, our FX business, our commodities business, also in our equities business because you're doing ASRs and you're doing call spreads. We start with the foundation of a really good corporate franchise, which can be better. All of the investments that we're making in the investment banking franchise will pay dividends in the corporate markets franchise, and we're already seeing that.
Just two weeks ago, we did a swaps restructuring for a big company, where we'll make $20 million, where we had a good corporate banker, we had good rates people, but we didn't have CEO and CFO connectivity, and we do today.
Yeah.
We then have, as I said before, a leading structured products franchise, and that goes back to Wells, for decades, was one of the leading banks and lenders to non-bank financials and securitizers. We're top three in structured products, and that is on the lending side, which is attractive risk-return business, as well as on the capital markets side, on the primary and on the secondary trading business. We're meaningfully underweight on the institutional side. And what we're looking to do is grow the corporate markets franchise, extend the leadership in structured products, and build an institutional business that complements the corporate franchise that we have today. How do you do that? Because it is competitive and it's hard. And we start with the needs of these clients are really big, right? The TAM in markets is bigger than the TAM in banking.
What is it that institutional clients care about? We talked earlier about the fact that there is a very clear need when you talk to them, and you even hear our peers talk about it, on their earnings calls, talking about the demand for financing and counterparties in many of these markets is greater than the supply. Thing number one we are doing is, by investing in our banking business, we are going to grow the number one thing that institutions care about the most, which is primary allocations. Institutions disproportionately trade with the bank that brought the primary issue, and it makes sense because they know the issue and they know who the investors are, so they are going to be the best liquidity providers in that issue, like number one.
Number two, as we grow the corporate markets franchise, what do you want in a trading business? You want positively differentiated flow, which you can then use to interact with institutional flow. Again, at that point, you can internalize more, you can be a better and more consistent liquidity provider, and institutions want to trade with people who they know have that positively selected flow. So we are growing primary, we are growing the positively selected flow we have. We are investing in our research franchise, which I am sure this group here will appreciate. Last year we were number nine in the Extel rankings. This year, we are number five. I know that is an imperfect ranking for lots of reasons. We now have 30 teams that are in the top five. Mike Mayo, who I see in the room, is no longer our only top-ranked analyst.
We love Mike, he does a great job for us, but we want many Mikes in our research franchise. With that comes corporate access. Then, we are growing our financing business, and you all have been following this. We have grown over $100 billion in the financing that we are providing institutions. We are only doing that where we can do a lot more with those clients. So, in its own right, we like the institutional financing business. On the fixed side in particular, on the reverse repo side, a lot of that, while it is very low spread business and we know it has a net interest margin impact, is really good return on capital business because it is low RWA density, it is low risk content. So low spread, but really good returns and valued by the clients that you provide it to.
When you provide clients financing, again, back to positively selected flow, the more that you are meaningful to somebody and the more you are doing with them and the more you are financing with them, the better flow you are going to get from them. Then we are building a prime business, and we are early innings in building a prime business, even though we have been in it for a very long time from a company that we bought many years ago. Again, the prime business starts with we are investing in all parts of the ecosystem, financing as part of the planks.
Unlike fixed financing, in prime financing, it is lower returns when you start because there is a J-curve to it, given the fixed cost in that business. Also, it is higher capital intensity when you start in particular because you just have less positions that you can net off against each other. The view is that as we grow the financing businesses, that is good business in its own right, and it has a flywheel effect on the trading businesses that we are building. Then we are investing in all things electronic trading, portfolio trading, program trading, algorithmic trading, so that we can trade and provide liquidity with our clients in the ways that they want to interact with us.
That is great. I mean, one of the most obvious from the outside is the balance sheet investment you have made in the business. Maybe just talk quickly about, is there more? Are we finding efficiencies in the balance sheet from here? Do we need to extend more balance sheet? How do you expect to see the realization of that through the income statement over time? How long does it take to ramp the kind of full return profile of that?
Mike has talked about some of this. Part of it is there was an initial ramp that was faster than we would normally grow it, because we had an asset cap for a really long period of time. The part of the business that was hurt the most by the asset cap was the institutional liquid markets financing business. The reason for that is, pretty much every good loan we wanted to make, we could make, and you could get good returns on the loan side. It is low spread business on the institutional financing side, so in an asset cap world where notional balance sheet is your constraint, you just could not do it.
Coming out of it, we actually, we had a lot of clients who we had shrunk meaningfully with, that we were just kind of getting back to where we were before. So that is number one. Number two, I will go back to the point I made that we are only going to be doing the business where we like the returns. Some of it will be longer dated, but in its own right, we like the returns of the financing business and that we can be doing more with them.
It is, and I was just looking at this yesterday because I knew the question was going to come up. If you look at the RWA intensity and the on-balance sheet intensity of the business, going into next year and beyond, we will be able to grow gross financing balances at a faster rate than net financing balances, so what is on the balance sheet. Because to your point, it becomes a more efficient business because you can net and offset as you get bigger and you have got a bigger portfolio. Then, we are going to centrally clear Treasury repo, so that is also going to have an impact as well. That should happen in 2027.
Great. Why do I pause there for a second and open up to the room to see, we have covered a lot, to see if there are any questions from the room. Yeah, I think we need a mic. Oh, here we go. It is on its way to you. Right in the front here. Thank you.
You mentioned early on, you have to avoid adverse selection. That is a key way to win. Can you maybe just elaborate on that? It has been an incredibly benign environment for a while. So what areas are you a bit more cautious on? Thank you.
I talk about it all the time in all areas in a risk-taking business. You can get adversely selected in many things that you do. Again, it goes back to who are your clients? Do we have a right to win this business? There are all these questions that you ask all the time, right? Who are the clients? Do we have a right to win this business? You're benchmarking out to what are the terms and conditions that other people are doing? How do our terms and conditions compare? The way we underwrite, of course, is deal by deal, and we spend a lot of time having a priori views on things. I love checklists, by the way. I'm a big believer in heat maps and checklists as a management tool. The teams do a lot more detailed work than that on things that are riskier.
If we're doing a bridge book for a financial sponsor, if we're doing a block equity deal, if we're doing a big data center financing, on all of those, we've put in the disciplines of having very clear checklists and heat maps for what we like and what we don't like before the transaction comes in. Then you underwrite everything to stresses, right? We have lots of stress scenarios that we run either when we're doing credit underwriting or in the markets business, and you're always looking at your stress exposures, and you're trying to think about, where are we correlated? Where are we concentrated? Where are we exposed? I'm not sure that answered your question, but
Can I get a follow-up just on AI in particular? You look at the 10-Qs, exposures are remarkably low, whether you look at loans outstanding or commitments. Can you talk about how much exposure you have broadly to kind of AI data centers, how you think about risk management there? What are the risks for you in just—
I don't think we've disclosed publicly an AI cut or an AI view, but look, it was very clear a while ago that this was going to be really big. What we did a while ago is we set up a cross-functional team across all of CIB that we have long-dated, long-tenured experts in all things data centers, just given our leadership in commercial real estate. We've got a great infrastructure and project finance practice. We've got a great energy practice. We have a great structured products practice, and we brought all of those folks together to come up with a very intentional strategy as you look across the hyperscalers, the neoclouds, the semi complexes, the LLM companies. And we had projections going out multiple years for what do we think the demand is going to be?
Where are the places that we're going to want to play? What are the limits that we want to put in place? What are the underwriting criteria that we want to have? As you would imagine, given the size and the scale of the demands of what's coming in, it's top three topic at Wells Fargo. Mike and I were talking yesterday about a transaction, and we're looking at it on a weekly basis, doing deep dives all the time, and just thinking about, to your point, sizing really matters. Because at the end of the day, this is a really big opportunity. It's an attractive opportunity. At some horizon, the future is unknowable, and your number one protection against that is your limits and just how big you are.
All right. I think we got one in the back there with the mic.
Hi. Brent Erensel. Could you please address the M&A window as it relates to the election results?
This is more as like back in my days as an M&A banker. Look, I think there very clearly was, when this administration came in, something that there hadn't been in my 30-year career. People talked about capital markets windows, but there was very clearly a view of, it may be now or never. Because if you go back to an FTC and a DOJ the way it was under the Biden administration, which could very easily come back in 2028, and then that could be there for four years, could be for eight years, could be for 12 years. There is an opportunity to get something done now that you may never have the opportunity to do. That was different than in most of my career, and that still exists because the agencies remain under executive control.
I think given what just happened in the midterms, that is going to come back to the forefront of the conversation. For folks who are thinking that way, just given how long approval timelines can be, which is very industry and regulatory specific, I think you are going to see transactions this year and in 2027, but that will be driven by folks thinking there is a real regulatory window. It is a reality.
Manan, we got right up here. Sorry.
Hi, yeah. Manan Gosalia, Morgan Stanley. As we think about IB productivity, and you have made a fair few hires in the last four years, as you mentioned. How many of those MDs are fully ramped? How much more room is there still to go? What would that mean for operating leverage in the business going forward?
Sure. When we look at our plans, there is a lot of operating leverage we think we are going to be able to achieve. I think that is kind of foundational plank number one. When we look at AI and we think about our pyramids, I think everybody believes that you are going to have a different pyramid than you had before. The tools that we now have, and as you all know, because you use them, I mean, it is like every two months, they are meaningfully better. The tools are getting better, and our ability to service clients with less people is going to be real. Unclear at the senior banker level how much that will be. I think to your point on the senior banker hires, there is a J-curve, and I always used to talk about the banking business as in we are in the business of growing trees.
You hire people, and there is a flywheel to their business and to their franchise, and also just to the brand, and transactions beget transactions. If you look at our plans, we have a I've thought, and we've got lots of benchmarks for what you think the right level of revenue is per managing director and how much M&A and ECM and leverage finance business they can be winning, which will vary by industry and what's available to win in that industry. But we think we've got real upside there. We are going to continue to hire. We are not done on the hiring.
Great. Got one right up here.
Hi. Scott Siefers, TD Cowen. Can you talk, when you talk about growing your banking share to get to that scaled top five player, maybe just, I think there's broad agreement that you've got just a ton of white space given how undersized you are in banking. But there's, I think, a perception of a challenge that to really get to that next leg of fully scaled, it could be pretty tough given just how much market share those guys have. Maybe just if you could elaborate a little on the path to get there, plausibility, whether it can all come organically, et cetera.
Yeah. I was part of a place that did it before. In banking, you want to have a big platform that is credible, where you have capital. Our clients look at Wells Fargo, and it's a really important company to them. What we need to do is put teams in place that can win relative to the best competition out there, and we can do it. We just need to do it in more places. That is just talent, culture, routines, discipline, quality compounding over time. The proof points are and the trajectory is there that we can do it. If I look at the folks, you have had a concentration at the top that has been fairly sticky for a while, and then a next level down that hasn't been able to crack it.
When I look at that, I think there is lots of reasons why, and I think we are going to do it differently.
All right. Maybe we will. You have commercial real estate under your purview as well.
You are busy. You say, "We spent the last couple of years, it feels like, kind of de-risking that portfolio.
Yeah.
From the rate shock that we had and everything else." Maybe just talk about where that is from your perspective, from a risk perspective, as rates are moving higher. Then also from, have we reached a point where that portfolio is likely to grow again? Do you see opportunity there, or is this just a tough market given what is going on with the rate backdrop?
Yeah. We're growing in commercial real estate again, which we weren't in for the last few years, post-office, post-COVID. We very intentionally slowed down originations. We're now again originating at a pace where we're growing the portfolio on a net basis. Commercial real estate is one of those businesses where you talk all the time about what are the terms and conditions in the market, what's available, do we want to be bigger, right, at this point in time. And right now, we're growing it because we like it. But again, we don't feel like we need to be bigger in that space. If we don't like it, we won't do it. To your point, the loss content as we model it and as we see it has been going down, right, as we've worked through the office portfolio.
Right now, when we talk about commercial real estate, it's less about credit. It's just more about spreads and where pricing is, and spreads and pricing are there because it is an attractive asset class, and there is competition for those assets right now. Given what rates have done, it is a rate-sensitive asset class. As you would imagine, we run all sorts of stresses on our portfolio. We did recently do a deep dive, right, on a rate shock, as you would expect.
Yeah.
The outcome of that analysis is, right now with what we see, is that you would see some credit migrations, but not really a meaningful increase in loss content.
Okay.
As you know, the way that, again, a post-CECL world, the way that you do your CECL reserves is based on a weighted average of a set of scenarios. So we already have some stress scenarios built into our reserving.
Great. We talked about office. Office has been a topic for a while, especially kind of downtown office. Any other areas that you see potential stress in or anything that looks overbuilt or any areas of concern?
I mean, there's like sub things that we talk about and we do. Like, we had a conversation a few months ago about hotels in the portfolio that were built 10 years ago that people didn't invest in during COVID, and you see a little bit of stress there.
Yep.
Right? You're always looking through, like, what are you learning? What are you seeing in the portfolio? But nothing that would rise to a big trend at this point.
Okay. More idiosyncratic. All right. Next, maybe we'll go to deposits.
You've had a lot of success after the asset cap, bringing deposits on. It's harder to tell, given where your starting point was, you've brought a bunch on. How aggressively do you feel like you have to price to bring those deposits on? How does the deposit market feel to you competitively?
We have had a lot of success in growing deposits, and it's a combination of, like, we were sub-optimized in deposits just like we were sub-optimized in investment banking. A lot of it is basic blocking and tackling of, we had a corporate bank and an investment bank that was together. We separated the two so that you could have a laser focus and a group of people that were clearly accountable in corporate banking. Just like we've hired talent into investment banking, we started hiring talent into corporate banking. We've got two great leaders of our corporate banking business, one of whom is longtime legacy Wells Fargo, one of whom is somebody who was my long-term partner for years, who's just terrific and has brought a level of just a different way of thinking about things, playbooks.
We've upped our game in terms of the client targeting that we do with much richer data sets of clearly understanding the business that clients have that's away from us that we can win. We've increased the expectation of the sales force in terms of having very granular targets that we're expecting them to hit for deposits. We've increased the discipline and the routines around our capital allocation. Like most places do, we've got a capital allocation committee. Every loan that comes in, that goes through a process, and what are the returns and what's the wallet? It's not just do you meet whatever return threshold you have. It's, what is the optimal amount of business that we aspirationally should be winning here, and do we have plans to win it? What you're seeing is, all of those things, they just multiply, right?
Better leadership, better routines, better targeting, higher aspirations, better tracking, and just going at it. We look at it every week, every month, and the teams do it at a much more detailed level, and it works.
Does that include bringing in some of the lower-cost deposits as well? Is there an opportunity still with your customer base to—
Yeah.
Attract more of those?
It is clearly easier to do it, right, with the interest-bearing deposits.
Yep.
Bringing in lower-cost deposits is all about selling more payments business and more fee business, which has a longer lead time. Our sales pipelines are growing, and that business is, you all know Mike Mayo really well, who is unbelievably competent. One of the happier days for me is when Charlie asked Mike to run that business for us, and he has got a whole bunch of investments that he is making in that business that we are going to have the benefit of getting those products enabled.
Great. We've got a minute left. Fernando, maybe just to leave you with an opportunity. What do you want people to take away from the conversation about the opportunity for your business at Wells and Wells broadly?
Look, we're excited about the business that we're building. We spend a lot of time. All of the questions that you all ask are good and reasonable questions, and questions that we ask ourselves all the time, which is, let's make sure we're building the right business the right way with our clients, based on our competitive advantages, in a very disciplined way, in a very risk-mindful way, pace the right way. And we're building this for the next five and 10 and 20 years, and we're looking to quality compound, which doesn't mean that we don't have a sense of urgency and accountability. But it's a long-term mindset, which is the way I think you would want us to think about it.
Great. All right. Appreciate you being here and having you on stage. Thanks for the time.
Great. And again, thanks to all of you.