Wells Fargo & Company

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 Fourth Quarter Earnings 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 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 John Campbell, Director of Investor Relations, before you may begin the conference.

Thank you, Regina. Good morning, everyone. Thank you for joining our call today where our CEO and President, Charlie Scharf, and our CFO, John Shrewsbury, will discuss fourth quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our fourth quarter earnings release and quarterly supplement are available on our website at wellsfargo.com. 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, including the Form 8K filed today containing our earnings release and quarterly supplements. 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, in the earnings release, and in the quarterly supplement available on our website. I will now turn the call over to Charlie Scharf.

Thank you, John, and good morning, everyone. It's good to be with you on my first earnings call. As I go through my remarks, I'd ask that you remember that I just joined Wells Fargo less than three months ago. It's been a busy time as I've been working to get to know the company, our opportunities and challenges, and I've learned a lot. But as I discuss my observations, please recognize that it is still early days. I don't have all the answers yet, but I will share more as I learn more and as the year progresses. John's going to cover the quarter in detail in a few minutes, and we'll answer your questions. You can see that a series of legacy issues meaningfully impacted our results in the quarter. Even excluding these significant items, our results are not as strong as we aspire to. But the strength of the franchise is still evident. There are certainly some areas of success, but the opportunity to improve our results is significant and attainable. Let me first share some of my observations and thoughts before turning it over to John. First, I was honored to be chosen to lead Wells Fargo because I believe this is an extraordinary company that plays an important role in this country. We came out of the financial crisis as the most valuable and most respected bank in the U.S., but as you know, we made some terrible mistakes and have not effectively addressed our shortcomings. These circumstances have led to financial underperformance, but we have one of the most enviable financial services franchises in the world and employees that want to do what's necessary to, again, be one of the most respected and successful banks in the U.S. To fully capture this opportunity, we must have a strong foundation and move with an extreme sense of urgency to to remediate our historical issues. We still have much more work to do to put these issues behind us, and our future depends on us doing this successfully so we can regain trust with all stakeholders, including our clients, regulators, lawmakers, as well as the broader American population. Ultimately, our actions will dictate when that trust is completely regained, not our words. Given the importance of these issues, I want to say a few more words about our situation particularly about the challenges that stand in the way of our success, and importantly, the different approach we're taking to address these issues. Providing an honest assessment and clear priorities is critical. And I've given a clear message inside the company that we have not yet met our own expectations or the expectations of others. We must do what's necessary to put these issues behind us. Our ability to maximize the value of this great franchise is dependent on us running the company with the highest standards of operational excellence and integrity beyond what we've done to date. We are appropriately a highly regulated institution, and while we need to fulfill regulatory expectations, we recognize that what we want and what regulators want are not different. We are responsible for our actions, and they're responsible for ensuring our actions are consistent with clearly defined standards. It's our job to run the company such that we fulfill their expectations and those of the American public and other countries where we operate. Respect was earned in the past, and we will earn it again. As such, since joining, I've been spending almost all of my time on these issues. I will say this several times, but you should know there is still much work to do. Many have focused on the Fed consent order, but remember we have 12 public enforcement actions that require significant resource commitments. While I certainly wish more of this work was behind us, what's required of us is clear, and we will get it done. It's work that other banks have done already, so there's a clear roadmap for what we need to achieve. We're making significant changes to our management, structure, and processes to accomplish our work, changes that will make us more effective. Like any other problem, recognition of the importance and severity is a necessary first step, but this by itself is inadequate. We will take whatever actions are necessary. Our future success depends on resolving these issues, so we will act accordingly. The management team will be judged and held accountable for resolving these issues. To set us up for success, we will ensure we have the right people in place to both resolve these issues and be the stewards of this great company. Importantly, I want to acknowledge that we have so many wonderful people at Wells Fargo that have done an amazing job serving our clients and customers, in the face of adversity for several years now. They've been through so much and have helped us sustain such a great franchise, so I do want to say thank you to them for all they've done. The warmth and support I've been greeted with as I've discussed our shortcomings and work in front of us tells a great deal about the character of many at the company. They understand our lack of progress makes their jobs far more difficult, and they're looking to management to do more to move the company forward. To get the work done, We must ensure that we have the right team. To that end, we've made some important changes to the senior team to complement the talent that's here at Wells. Scott Powell joined us as chief operating officer. When I arrived at the company, many on the senior management team made clear to me that they believed we needed stronger execution skills. After just several weeks at the company, I came to quickly agree. Scott will lead a transformation across the company where high-quality execution is Clear accountability and operational excellence becomes part of our culture. Bill Daley joined as head of public affairs. He has a strong and experienced voice and brings perspectives from the public sector that we in business do not generally have but are critical for us as we make decisions. Alan Parker, who served both as general counsel and interim CEO, announced he will be leaving Wells in March. We are well into a search for the new general counsel and excited about the quality of the candidates we've met. Avid Moshtabai has announced that she will be retiring after 26 years at Wells Fargo in March. We will be announcing a new organizational structure for these activities shortly. Ray Fisher has also joined us to run our card and merchant services businesses. Our card business is important to our franchise, and we have an opportunity to make it even more significant. Ray is an experienced card and merchant services executive, who brings deep knowledge and a fresh perspective to our business. These changes are in addition to many other senior people who have joined the company over the past few years in important roles such as heads of risk, HR, internal audit, and technology. These new additions complement the strong talent at the company. And I will continue to look at the structure and roles to ensure we are best positioned for success. We need and will have the best talent and strong leadership at the company. We're also introducing a new set of disciplines in how we run the company, which I'm confident will improve our performance. These changes are not only structural and procedural, but also cultural. To that point, parts of our culture are wonderful, and it would take decades to recreate. People who work here love it. It really is like a second family. We focus on teamwork, not on the individual. People want to be successful and do what's right, though we recognize we've fallen short of this goal. but our lack of progress and underperformance point to shortcomings. Going forward, we will operate as one company, not a series of decentralized businesses. We will continue to foster a culture of partnership, but we will move past the need for consensus and have open and direct fact-based discussions where we emerge with decisions. We will have a different level of management discipline than we've had in the past and will value and expect high-quality executions. There will be clear responsibility and accountability. We will judge ourselves based upon our outcomes, not our words. And we will ultimately judge ourselves versus the best, as we believe that we should be the best. As we've begun to implement this new culture, the response has been overwhelmingly supportive. But I understand it's different and is a significant change for many. We will be respectful of our past and of those who have built this great franchise, which includes so many still at the company today, but we must move forward. I'm confident these changes will be highly impactful. And though I understand you would like timeframes around resolution, I cannot provide that today. Our job is to do the work that's necessary. Regulators and other stakeholders will determine when it's done to their satisfaction. My experience is that our regulators are clear, direct, tough, but fair. The work is on us at this point. Let me now turn to our medium and longer term opportunities. Our franchises are world class and are in the sweet spot of providing necessary financial services for consumers, small businesses, and middle market and large corporate companies. And importantly, we play an important role in helping our customers and clients prosper, as well as being an important enabler for U.S. economic growth. While I've spoken at length of our mistakes and our commitments to fix them, The underlying franchise itself is as valuable as ever, and our opportunities are greater than ever. The success of our business model is proven, assuming we run the company with the appropriate controls and work as one company with the goal of delivering for all stakeholders. All of our business segments, community banking, wealth and investment management, and wholesale, have the breadth and scale that gives us significant competitive advantage and allow us to deliver truly differentiated products and experiences to for our customers and clients. Our opportunity to use technology to drive both automation and new solutions will only grow in importance. Our franchises, both individually and collectively, are the envy of many. So while our resources and attention today are appropriately preoccupied with historical issues, as we move forward, we will be in a position to leverage our unique franchise and generate stronger financial results. And just to be clear, We are well aware that our expense levels are significantly too high. Part of this is driven by significant project expense related to historical issues. Part is due to the necessary investments in technology. Part is due to significant inefficiencies that exist across the organization. But there is no reason why we shouldn't have best-in-class efficiency with these businesses at this scale. And that ultimately will be our goal. And though we've had pockets of strong performance, we're also well aware that our rate of customer and revenue growth is too low. Given what we've been through, this isn't surprising. There is certainly an opportunity cost due to the asset cap. Management, time, and resources have not been as focused on growth as they otherwise would have been, and we have an opportunity to think differently with a different level of rigor about how to grow the franchise. All of this points to great opportunity. So again, I know you will want to know timeframes and targets. But please understand that it's too early after less than three months at the company. That said, we have just begun the process to rethink our plans for 2020 and beyond in a different level of detail. While the opportunities for improvement are clear at the macro level, we need business by business plans. Accordingly, we have just begun conducting what are really both budget and broader business reviews, where we look in detail at our plans. We will be reviewing over 10 businesses in detail, as well as all of our enterprise functions. As you can imagine, technology is an important theme. This isn't merely a review of the numbers, but one where we use the facts to form a basis to discuss strategy and potential actions. We are asking each business leader to show us what best-in-class efficiency looks like and what our path to achieve it is. We're reviewing revenue and return performance as well, and what a path to best class looks like here as well. We're discussing our competitors, large and small, and we're thinking through our unique options given our special franchise. These are analytical and strategic discussions that I don't think have occurred consistently across the company in some time given what's occurred. The output of this work will provide us roadmaps to not only improve our performance within each business, but also position us to understand our opportunities across the company and prioritize accordingly. First and foremost, this includes clarity around ensuring we're spending appropriately on historical issues. It's still very early in our process, but I will say that every session thus far has reinforced that our opportunities are meaningful. We intend to be detailed, thoughtful, and complete. To do this properly and given our priorities, it will take time, much of this year, to complete our work. But in the interim, we will devote all necessary resources to risk and control and spend what's necessary. We will be as diligent as ever to drive efficiencies and control expenses. And we will begin to work through the business opportunities we have in front of us. I'm confident in our ability to realize our potential, one that again puts us at the top of the respected financial institutionalist with a far more efficient organization and higher revenue growth than you see today. While there is much to do and I know the path to success will be bumpy, I'm optimistic about our future and excited to be at a place with so many great people and such strong franchises doing incredibly important work. John, over to you.