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spk11: potential recoveries, which were highlighted in their disclosure. The ultimate amount of our special assessment may continue to change as the FDIC determines the actual losses and recoveries to the deposit insurance funds. Turning to slide four, net interest income declined $1.1 billion, or 8% from a year ago, due to the impact of higher interest rates on funding costs, including the impact of customers migrating to higher yielding deposit products, as well as lower loan balances, partially offset by higher yields on earning assets. First quarter results were largely as expected, with loan balances a little lower and deposit balances in the businesses a little higher than our expectations. Our full year net interest income guidance has not changed from last quarter, and we still expect 2024 net interest income to be approximately 7 to 9 percent lower than 2023. We also continue to expect that interest income will trough towards the end of this year. It is still early in the year, and ultimately, the amount of net interest income we earn will depend on a variety of factors, many of which are uncertain, including deposit balances, mix, and pricing, the absolute level of interest rates, and the shape of the yield curve and loan demand. On slide five, we highlight loans and deposits. Average loans were down from both the fourth quarter and a year ago. Credit card loans continue to grow, while most other categories declined. I'll highlight specific drivers when discussing our operating segment results. Average loan yields increased 69 basis points from a year ago to over 6%, reflecting the higher interest rate environment. Average deposits declined 1% from a year ago, reflecting lower deposits in our consumer businesses, as customers continued spending and reallocating cash into higher-yielding alternatives. While growth in average deposits from the fourth quarter was modest, we have grown deposits in our commercial businesses for two consecutive quarters, which reflected our success in attracting clients' operational deposits. Period-end deposits included in the chart on the bottom of the page were up 2% from the fourth quarter, but some of this growth reflected a temporary increase driven by a quarter end that was on a payday and a holiday. While the pace of growth slowed, our average deposit costs continued to increase as expected, rising 16 basis points from the fourth quarter to 174 basis points with higher deposit costs across most operating segments. Our mix of deposits continued to shift with our percentage of non-interest bearing deposits declining to 26%. Turning to non-interest income on slide six. We were pleased with the growth in non-interest income across all of our business segments. Growth in non-interest income more than offset lower net interest income, reflecting in revenue growth from both the fourth quarter and a year ago. Non-interest income was up 17 percent from a year ago, with strong growth in investment advisory fees and brokerage commissions, deposit and lending fees, related fees, trading and investment banking fees. As Charlie highlighted, we benefited from market conditions as well as the investments we've been making in our businesses. I will highlight the specific drivers of this growth when discussing the segment results. Turning to expenses on slide seven. First quarter non-interest expense increased 5% from a year ago, driven by higher operating losses, the FDIC special assessment, an increase in revenue-related compensation, predominantly due to higher investment advisory fees in our wealth and investment management business, and higher technology and equipment expense. These increases were partially offset by the impact of efficiency initiatives, including lower professional and outside services expense, which declined 10% from a year ago. The higher operating losses were driven by customer remediation rules for a small number of historical matters that we are working hard to get behind us. The increase in personnel expense from the fourth quarter was driven by approximately $650 million of seasonally higher expenses in the first quarter, including payroll taxes, restricted stock expense for retirement eligible employees, and 401 matching contributions. Not including expense for the FDIC special assessment in the first quarter, our full year 2024 non-interest expense guidance is unchanged and is still expected to be approximately $52.6 billion. However, we continue to watch a couple of items. Our guidance included $1.3 billion of operating losses for the year, which we still believe is a reasonable estimate, even with the higher level of operating losses in the first quarter. However, we have outstanding litigation, regulatory, and customer remediation matters that could impact operating losses during the remainder of the year. Also, if market valuations remain at current levels or move higher, that would increase investment and advisory fees, and revenue-related compensation could be higher than we assumed in our expense guidance for this year, which would be a good thing. We'll continue to update you as the year progresses. Turning to credit quality on slide eight. Net loan charge-offs declined three basis points from the fourth quarter to 50 basis points of average loans. Credit performance trends were consistent with what we saw last quarter. The decline reflected lower commercial net loan charge-offs, which were down 131 million from the fourth quarter to 25 basis points of average loans. The reduction was driven by lower losses in our commercial real estate office portfolio. We did not see further deterioration in the performance of our CRE office portfolio versus the fourth quarter, and therefore, our expectations have not changed. We continue to expect additional losses in the coming quarters. However, the amounts will likely be uneven and episodic. Consumer net loan charge-offs continue to increase as expected, and we're up $28 million from the fourth quarter to 84 basis points of average loans. While auto losses continue to decline, Benefiting from the tightening actions we implemented starting in late 2021, credit card losses increased in line with our expectations. Non-performing assets declined 2% from the fourth quarter, driven by the lower CRE office non-accruals, reflecting the realization of losses and paydowns in the quarter. Moving to slide nine. Based on the consistent credit trends I noted before, our allowance for credit losses was down modestly, driven by declines for commercial real estate and auto loans, partially offset by higher allowance for credit card loans. The table on the page shows the allowance for credit losses coverage ratio for commercial real estate, including the breakdown of the office portfolio. We didn't increase our allowance for this portfolio in the first quarter, and the coverage ratio in our CIV commercial real estate office portfolio of 11% was stable compared with the fourth quarter. Turning to capital and liquidity on slide 10. Our capital position remains strong, and our CET1 ratio of 11.2% continue to be well above our 8.9% regulatory minimum plus buffers. We repurchased 6.1 billion of common stock in the first quarter. While the amount of stock we repurchase each quarter will vary, we continue to expect to repurchase more common stock this year than we did in 2023. Turning to our operating segments, starting with consumer banking and lending on slide 11. Consumer small and business banking revenue declined 4% from a year ago, driven by our lower deposit balances. We continue to invest in talent, technology, and branches to improve the customer experience. Our branches are becoming more advice-focused, with teller transactions declining while banker visits have increased. We are modernizing and optimizing the branch network. The number of branches declined 6% from a year ago, while at the same time we are accelerating the refurbishment of our branch network. In addition, the enhancements we are making to our mobile app continue to drive momentum in mobile adoption, and we surpassed 30 million active mobile customers in the first quarter, up 6% from a year ago. Mobile logins also reached a milestone, surpassing 2 billion logins for the first time in the first quarter, up 18% from a year ago. Home lending revenue was stable from a year ago as higher mortgage banking income was offset by lower net interest income as loan balances continued to decline. Credit card revenue increased 6% from a year ago driven by the higher loan balances. Payment rates remained relatively stable compared to the fourth quarter and were above pre-pandemic levels. Auto revenue declined 23% from a year ago driven by continued loans by compression and lower loan balances. Personal lending revenue was up 7% from a year ago and included the impact of higher loan balances. Turning to some key business drivers in slide 12. Retail mortgage originations declined 38% from a year ago, reflecting the progress we made on our strategic objective to simplify the business as well as the decline in the mortgage market. We also made significant progress in reducing the amount of third-party mortgage loans we serviced, down 21% from a year ago. We also continued to reduce the headcount in home lending, which was down 33% from a year ago. Balances in our auto portfolio were down 12% compared to last year. Origination volume declined 18% from a year ago, reflecting credit tightening actions, but increased 24% from a slow fourth quarter. Debit card spend increased 4% from a year ago, with growth in most categories except for fuel and travel. Credit card spending remained strong. It was up 14% from a year ago. All categories grew with stronger growth in non-discretionary spend. New account growth continued to be strong, up 12% from last year. Turning to commercial banking results in slide 13. Middle market banking revenue was down 4% from a year ago, driven by lower net interest income due to higher deposit costs, partially offset by higher deposit-related fees, Asset-based lending and leasing revenue decreased 7% year-over-year and included lower revenue from equity investments. Average loan balances were stable compared to a year ago as growth in asset-based lending and leasing was offset by declines in middle market banking. Weaker loan demand reflected the impact of clients being cautious given the higher rate environment and the anticipation of lower rates this year as well as some potential uncertainty in an election year. Turning to corporate investment banking on slide 14. Banking revenue increased 5% from a year ago, driven by higher investment banking revenue due to increased activity across all products. Our results benefited from the areas where we have had strength for some time, such as investment grade debt capital markets and from the talent we've been attracting into the business. While it is still early, we are encouraged by the green shoots we are seeing. Commercial real estate revenue was down 7% from a year ago and included the impact of lower loan balances. Markets revenue increased 2% from a year ago, driven by continued strong performance in structured products, credit products, and foreign exchange. Our trading results continue to benefit from market conditions and the investments we've made in technology and talent to round up the business have enabled us to produce strong results, even as market dynamics have changed. Average loans declined 4% from a year ago. Banking clients have taken advantage of strong capital markets to pay off loans. In addition to weak load demand in commercial real estate given market conditions, balances also declined due to credit tightening actions we implemented last year, along with our efforts to actively reduce certain property types in the portfolio. On slide 15, wealth and investment management revenue increased 2% compared to a year ago. Lower net interest income driven by lower deposit balances as customers reallocated cash into higher-yielding alternatives was more than offset by higher asset base fees due to increased market valuations. While cash alternatives as a percentage of total client assets was higher than a year ago, it has declined the past two quarters as the migration of deposits into cash alternatives has slowed significantly. As a reminder, the majority of wind advisory assets are priced at the beginning of the quarter, so first quarter results reflected market valuations as of January 1st, which were higher from a year ago. Asset base fees in the second quarter will reflect market valuations as of April 1st, which were higher from both a year ago and from January 1st. Slide 16 highlights our corporate results. Revenue grew from a year ago due to improved results in our affiliated venture capital business on lower impairments. In summary, our results in the first quarter reflected the progress we're making to improve our financial performance. We grew revenue driven by strong growth in our fee-based businesses. We continue to make progress on our efficiency initiatives. We increased capital returns to shareholders and maintained our strong capital position. We'll now take your questions.
spk12: Thank you. At this time, we will now begin the question and answer session. If you would like to ask a question first, Unmute your phone and then press star 1. Please record your name at the prompt. If you would like to withdraw your question, you may press star 2. Once again, if you would like to ask a question at this time, please press star 1. Please stand by for our first question. And our first question will come from John McDonald of Autonomous Research. Your line is open, sir.
spk08: Hi, good morning. Guys, I wanted to ask about your profitability targets and kind of how you're seeing the the journey to the mid-teens are a TCE goal. Mike, maybe you could talk about that through the lens of, you know, 12% return on tangible common equity this quarter. Where do you think you're kind of over-earning, under-earning, and what does that journey to the mid-teens look like over the next couple years?
spk11: Hey, John. It's Mike. Thanks for the question. You know, look, I think, you know, not much has changed in our thinking, um, on, on, you know, the, the topic. And so as you sort of think about it on a long-term basis, you know, there's no reason we still, there's still no reason why our businesses shouldn't, you know, have returns like the best, uh, of our peers. Um, and, and as we sort of go through that journey, obviously, you know, we are where we are in terms of the returns today. And as we get towards closer to 15%, it's going to be the same kinds of drivers that we've been talking about now for a while. You know, we've got to continue to optimize sort of capital and balance sheet. You saw us, you know, return some via buybacks today. We're making investments on, you know, each of our businesses, and so we'll need to start seeing some of the returns there. And, you know, this was a one quarter of it, but a good quarter that shows some of the, you know, benefits of those investments we're making across a whole range of the businesses, which is good to see. And Charlie highlighted a bunch of that, you know, in his commentary. And then we've got to stay on the efficiency journey, which we continue to believe is not done. And we've got a lot of work to do to continue to drive efficiency across the company. And we're going to stay at that as we look forward. And so I think it's really those drivers that get in. We still have confidence that we're going to get there.
spk10: Hey, John. It's Charlie. Let me just add a couple of things. Number one is, just as a reminder to everyone, we've tried to be clear. Whereas NII was rising and we got to, you know, certainly either at the peak or near the peak that we were out-earning and that we didn't look at those ROEs at those points as sustainable, but that our clear journey was to continue to get there on a sustainable basis. I think second of all, when we look at, you know, obviously it's very hard to draw any conclusion from a specific quarter, right? We've got the FDIC. operating losses, which, you know, we've talked about where our expectations are for the full year, which are different than the quarter. So it's very hard to draw a conclusion on a specific quarter. But when we look at what is going to get us there, you know, we are very consistent on what those things are. You know, number one is improved business performance. And we try to highlight where we see that. And those areas that we don't talk about are areas that we are still bullish on, but would like to see some more improvement in the ability to increase our returns in those parts of the company, as well as continued capital return, as well as the limitations we have because of the asset gap. So again, our thesis hasn't changed, our views haven't changed, and our confidence in getting there hasn't changed.
spk08: Okay, and then one just quick follow-up there. Do you think this 11% CET1 is probably kind of the ballpark of where you hang out, regardless of the minimum, just because it feels like you have super regional banks, you know, that aren't GSIBs that are running at, you know, 10, 10 and a half. You have bigger banks at 12, 13. Does 11 kind of feel like the right ballpark, which means you can return most of what you're generating now?
spk10: I would say it's something that we continue to think through. You know, you know our existing needs today with buffers are 8.9. At 8.9, you know, everyone understands that Basel III endgame is coming, but likely with significant revision. So, you know, I think as the quarters continue, we'll learn more about where that will come out, and we'll be able to be more informed about where we'll wind up. You know, we've always tried to be on the more conservative end, There's a point at which too much is too much, you know, which is why we bought the amount this quarter that we bought back.
spk12: Okay. Thank you. The next question will come from Ibrahim Poonawalla of Bank of America. Your line is open, sir.
spk04: Hey, good morning. Just following up on that, as we think about Basel, your capital levels, Even with 100 basis points buffer, you probably have $12 billion of excess capital. Given what we saw in one queue, and I heard you, Mike, year over year, you're going to be higher, but that doesn't give enough color. I'm just wondering, should we expect the pace of buybacks to continue, given that where the stock's trading, which is still fairly effective valuations?
spk11: Yeah, thanks for it's my thanks for the question. You know, as you as you look at, you know, the pacing, you know, we're really not going to provide, you know, specific guidance on like, what we'll do quarter to quarter, you know, I think, you know, obviously, as you pointed out, you know, we've got significant excess capital to where we need to be, we'll be able to handle with whatever comes out of Basel three quite, quite easily with where we are today, gives us the ability to be there and invest, you know, as we've got opportunities with clients. And so we've got lots of flexibility. And each quarter, we'll go through the same process we go through every quarter, which is thinking about where the capital requirements are going to go, looking at all the different risks that are out there across the spectrum, whether it's rates or other, and then looking at what we're seeing from client activity. And then we'll make a decision on the pacing of it. But as you say, we're still very confident we'll do more than we did last year, but pacing will kind of leave to... You know, we'll cover that each quarter after we report. Correct.
spk04: And again, just separately, I think there's a lot of focus on market share opportunity for Wells, be it in capital markets, IB, corporate lending, and I think Charlie referenced the hiring of Doug Braunstein. Would appreciate additional color in terms of areas where you see within corporate capital markets where there's market share to be had, and what's the level of investment slash infrastructure needed in order for competing in that space and winning market share?
spk10: Let me start out. I think, you know, first of all, when we talk about the level of investment that's necessary, we're making the investment and it's embedded in what we're spending. And so, you know, we are funding that through normal course of business. Some of the folks that we're hiring or replacing other people and others are additions, but that's part of what it is. And so we don't anticipate any kind of step up in the expense base to fund what we're doing, which we feel great about. We've got the ability to spend along the way and to actually see them paying off for itself. I said this very consistently, which is we are extremely under-penetrated across almost all segments of the investment banking space. We've been stronger on the debt side. We have not been as strong on the equity side. And by the way, all for reasons that relate to our own willingness to invest over the last decade and a half, not because of the opportunity or because of our business model. It's just the opposite. It's just not something that the senior management team here was supportive of. And we feel very differently than that. And so when we look across coverage in the equity space by industry on the strategic side and how that relates to the existing high quality debt platform that we have, again, we're prioritizing industries based upon where we already have strength in relationship and where there are significant wallets. But we feel really great about our ability to serve a broad set of customers and their desire to do business with us because of both the platform and the talent that we have here. And then when we look at the trading side of our business, a big part of what we do there is to support our efforts within the investment bank, but it also is to leverage the broader institutional relationships that we have where we do a lot with those institutions, but we haven't necessarily leveraged trading flow as part of that. And so to do that, we're making investments not just in people, but in technology. We are, as I alluded to, we're not doing any of this by rethinking the way we think of our risk tolerances. It really is about getting the right products, the right services, the right people, and calling on our customer base with a different degree of credibility and desire that we've had in the past.
spk04: Thank you.
spk12: The next question comes from Ken Huston of Jefferies. Your line is open, sir.
spk13: Thank you. Good morning. Wondering if we could talk a little bit about just that kind of last mile of deposit repricing. You talked about the mix shift non-interest down and interest bearing up, but just wondering just what's happening on the pricing side. And are you still seeing, you know, both sides consumer and wholesale, if you can maybe just kind of give us the dynamics that's happening underneath and how you expect that to continue as we get to this, you know, as we stay in this rates peak. Thanks.
spk11: Sure. I'll take that Ken. You know, as you, as you look at the commercial side, not much has changed, you know, it's, it's pretty competitive. We're not seeing it move, you know, one way or the other. in a significant way as you sort of look over the last quarter. You know, good news is we've been able to attract good operating deposits in the corporate investment bank. We've seen some, you know, growth in the commercial bank as well. And so all that's kind of performing as you'd expect. And you wouldn't really expect pricing to move there until the Fed starts to move. And it'll stay pretty competitive at that point. And we still expect betas to be pretty high on the way down as you start to, you know, see that eventually happen. On the consumer side, standard pricing is not moving. And really what you're seeing is you're seeing people continue to spend some of the money that's in their checking accounts and or move some of it into either CDs or higher yielding savings accounts. And so you still see some of that activity happening across the consumer space and the wealth space where you still have some people moving into higher yielding alternatives. The pace of that migration has slowed, at least for now. And so, you know, we'll see how that progresses through the rest of the year. But it has slowed a bit over the last number of months.
spk13: Okay. And on the lending side, I think, you know, what you guys showed is not unexpected at all based on, you know, general softness to start the year. And so, you know, I think you and others had just kind of generically hoped that we'd get an improvement. But with rates where they are, is there any impediment to just seeing, an improvement in loan growth as the year goes on, or is it baked into kind of the demand function that you're seeing underneath?
spk11: Yeah, you know, I think what we're seeing so far is exactly what we expected to see at the beginning of the year. And I know different people have different views, you know, back in January, but, you know, this is exactly what we expected, which is pretty low demand. Now, as I said in my commentary, it's a little bit lower than what we had modeled, but not substantially at this point. And it really is a demand function. When you look at what we're hearing from clients in the commercial bank or some of the clients in the corporate investment bank, they're being cautious still and saying, okay, I'm not going to build inventories as much as I might in a different environment. They're being thoughtful about the cost of credit and how that impacts investments they're making or the timing and the pacing of that. And so on the commercial side, it really is a demand issue at this point. You know, on the consumer side, you continue to see some growth in card balances. You know, given the size of the balance sheet, that's, you know, that's not going to move the whole balance sheet very materially, you know, given where we start from. And then, you know, the mortgage side just continues to decline a little bit given the market that we've got there. And in auto, we're seeing a little bit more decline given some of the changes we made about a year and a half ago, a year, a year and a half ago on some of the credit tightening, and eventually that will start to turn. So, I think those are the dynamics that we're seeing right now. Okay. Thanks, Mike.
spk12: The next question will come from Betsy Gracek of Morgan Stanley. Your line is open.
spk03: Hi. Good morning.
spk12: Hey, Betsy.
spk03: Hey. Okay. A couple of just quickies here. One is, on the net interest income outlook that's unchanged, could you remind us what the interest rate environment is that's the base case for that analysis?
spk11: Sure. Hey, it's Mike, Betsy. Welcome back. Thanks. Sure. You know, when you look at the environment, you know, we're not guessing at sort of what's going to happen, right? So, I think as you sort of look at, you know, the different, you know, variables there, you know, embedded in our, you know, baseline, you know, forecast is that, you know, we would expect somewhere around three rate cuts this year. And that's what's underlying sort of our thinking, you know, at this point.
spk03: And was that the same as last quarter, same assumption set, or has that changed?
spk11: No, I mean, yeah, no, look, it's definitely less than what I think was being projected by the market, and that's, you know, what we put out on our slide in January. And when you look at the impact of that in isolation, you certainly – would see a benefit from less rate cuts. But I do think you have to put that in the context of, okay, now what's going to happen with, you know, client behavior and mix shifts as we look for the rest of the year? I mean, it's certainly clear we feel, you know, better today than we did in January about, you know, our guidance and our forecast there. But I do think we have to let some more time play out to see how people react to what's happening. And I think even, you know, you've got to be really careful to take what happened over a day or two and extrapolate too far, right? We're seeing a bunch of that be given back today even. And what we've seen over the last couple of years is that every time you have this strong reaction, either up or down in expectation for rates, that reaction tends to moderate a little bit over a pretty short period of time. And so we'll see how that plays out.
spk03: Okay. And obviously we've had quite a bit of activity, volatility on the long end of the curve. How do you think about that? And is there opportunity set for, you know, maybe pulling in some more deposits and reinvesting in securities given the, you know, slightly improved long end rates here?
spk11: Yeah, yeah. And we've started to do that to some degree in the first quarter where we have been starting to buy some securities, mainly mortgages, given where rates and levels have been. And that's been a good trade, I think, for us so far. And so I think you'll certainly see us continue to deploy more cash into securities, at least at some modest levels as we look forward over the next quarter.
spk03: Okay, super. Thanks so much, Mike.
spk12: The next question will come from Erica Najarian of UBS. Your line is open.
spk00: Hi. Good morning. Just to follow up on, you know, Betsy's question, you know, on the net interest income outlook, you know, you had a peer that, you know, had a more modest upgrade to that outlook than expected. You know, you held firm on your NII guide. I guess to that end, you know, as we think through, you know, whether or not there are any free cuts or no cuts, you know, above and beyond just marking the market, the NII to the rate curve is the implication to volumes, right? Like you mentioned, you know, in response to Betsy's question, you know, the client behavior. And so I guess I just wanted to, you know, understand in terms of the range of outcomes of, you know, zero, which is being talked about a couple of days ago to what three embedded in your estimates, How should we think about how you're thinking about volumes in terms of loans and deposit behavior? In other words, have you considered a wider range of volume outcomes as you think about the curve outlook?
spk11: Yeah, no, I, I'll try to take an attempt at that, Eric, and you can tell me if I covered it all. But the you know, it's certainly we're at a point in time, you know, and I said this on a call with media earlier this morning, like, we're at a time where it's difficult to sort of, you know, model, you know, the different outcomes that you could expect to see, you know, with net interest income, just given all the dynamics that are happening there. And as you said, like, you know, I think, you know, the fact that rates might be higher than what people expected, you know, a week ago, You know, that could change, first of all, but let's stipulate at this point people, you know, are thinking it's going to be higher for a little bit longer. You know, we do have to wait and see how clients are going to react. And I think we do our best to try to come up with a range of outcomes there. And given that, given what's happening in rates plus, you know, what's happening in quantitative tightening, you know, what's happening in sort of the economy overall, it's going to all matter in terms of what happens with deposit levels. Um, and, and, you know, let's, let's see how that plays out. But I think as I come back to what I said earlier, you know, we feel, we feel better than we did today than we did in January about where we are. Um, but there's a lot to play out for the rest of the year.
spk00: Got it. And just a follow up, um, you know, kind of a two part question, but hopefully very related to one another. Um, you know, it was the, the, the lifting of the consent order. you know, was clearly huge for how the market was perceiving wells. As we think about further remediation, you know, how should we think about, you know, how you're thinking about the potential cost saves that you could extract from, you know, all the processes that may be in place that has been focused solely on the remediation? And I ask that not, you know, in light of the usual recycled question, but clearly had a massive outperformance, like Ibrahim mentioned, on investment banking and trading. And as we think about those expenses, should we start expecting the reinvestment back to potentially accelerate? And also, on investment banking and trading, I know there's a lot of seasonality, but are these new run rates? I guess it's hard for us to tell what the base is, because obviously, as you uh you know as charlie mentioned you've under penetrated across the board so um you know should we continue to see you know a you know moving up of this base despite the seasonality as we look forward um okay there's a lot in there let me let me start mike and then you chime in so first of all mike you can comment on like
spk10: investment banking and trading. But again, we're not going to answer the question on how you should think about what investment banking and trading will be in the future. What we're focused on are, are we building businesses? Are we taking share in a way which is profitable? And that's exactly what we're starting to do. And there is volatility to the business, but we're focused on building it over a period of time. And that's what we're seeing. And so the way we would think about it when we look at our own forecasting is we would expect to see our market shares rise over a period of time and quarter by quarter know that it'll be subject to volatility that exists.
spk11: And, you know, when you think about the first quarter in particular, you know, there's always going to be seasonality on the trading side. That happens pretty much every year. So, you know, you can't just take that as a run rate. And on the investment banking side, You've certainly seen some very high issuance volumes on the investment-grade debt side, so that's likely maybe pulling some issuance forward later in the year, but we'll see. And then some of the M&A revenue that's embedded in there can be somewhat episodic and volatile just given the timing of deals and closings and stuff. And so you do have to look at those two lines over a longer period of time.
spk10: And then on your question on expenses, again, we're in the exact same place that we've been, which is we're not thinking about at all. We're not doing work. We're not thinking about whether there are efficiencies to be gotten out of all the risk and control work that we're doing. In fact, we're still on the other side of that, which is we still have more open consent orders and we're still committed to do whatever's necessary, including spending whatever's necessary to get that work done properly and build it into the infrastructure of the company. I've said there'll be a point at which when it's built into what we do and there's a high degree of confidence that it is part of the culture and our processes, that we will have an opportunity to figure out how to do some of those things more efficiently. But that's not on our radar screen at all. What is on our radar screen is the fact that there's still a lot of inefficiency left within the company, completely away from the money that we're spending on this. And that's where we're focused. And that's why we have the ability to invest in card and invest in investment banking and trading and accelerate the branch refurbishments and hire more bankers and commercial banking and things like that. So I would just still continue to separate the fact that we're committed to get the work done. We're going to do whatever's necessary to spend there. And that's not the area of focus for us when it comes to efficiency.
spk00: That was clear, Charlie. Thank you.
spk12: The next question will come from Stephen Chuback of Wolf Research. Your line is open, sir.
spk07: Good morning, Charlie. Good morning, Mike. So I wanted to start off just on a question, maybe unpacking the NII commentary a bit more. In the prepared remarks, Mike, you noted that you're expected NII to be troughing towards the end of this year. So less concerned about the full year 24 outlook, Steve Monowitz, I was hoping you could just speak to the inputs or assumptions that that supporting that expectation around troughing or stabilization given further rate cuts that are reflected in the forward curve beyond 24.
spk11: Steve Monowitz, yeah and you know when when you look at all the different you know factors Steve you know there's there's there's obviously nothing that's sort of unique to sort of our balance sheet, but when you look at. you know, both the asset repricing that's happening and securities. You look at what's happening and you sort of project forward on sort of the loans and the other parts of the balance sheet. That's obviously a key input as you sort of look forward. And then at some point, you would expect that, you know, the migration and deposit mix starts to stabilize as you go forward. And, you know, I'm a little intentional in the words we use in terms of towards the end of the year. Is it, you know, right this year? Is it early next year? Like, it's going to be You know, we're getting closer to that point in terms of when it's going to trough, you know, calling the exact date with a high degree of certainty is, you know, difficult in this environment. But it's all the, you know, it's all the things that sort of we've talked about over the coming over the last few quarters are going to drive that. And, you know, it starts with like deposits and deposit mix and deposit pricing and then goes through the rest of, you know, where we think the assets sort of net out.
spk07: It's helpful, Collar. And for my follow-up, I might be writing this question, but Charlie, it relates to how you responded to Erica's last one relating to the asset cap specifically. I recognize that you're focused internally on just addressing or remediating all the various consent orders, but externally, investors are clearly spending much more time evaluating the different potential sources of earnings or return uplift once these regulatory restrictions are eliminated, whether it's deposit recapture, growth in trading book, and reduction in that elevated risk and control spend. Don't expect you to quantify it. Don't expect you to speculate on timing for when the asset cap can get lifted. But just given that focus for investors, it might just be helpful if you can contextualize how you're thinking about some of those potential benefits.
spk10: Sure. And I'm not sure you shouldn't feel like you're afraid to ask the question, or we should ask whatever you want. I just try to be as clear as I can on what I think we'll be in a position to answer, and I don't want you guys to get frustrated by the level of consistency of the things that we want to be careful about. But your question, which is, I think, entirely reasonable, I put it into a couple of categories. I think, first of all, Probably the most important thing with the asset cap, quite frankly, is not the pure economics at this point that will come from the lifting of the asset cap. It is still a reputational overhang for us. And while the lifting of the sales practices consent order was extremely important for, you know, those that have just read the newspapers, Certainly those that follow the stock care a lot about the asset cap, and we understand that. And so that is just initially, I think, an important factor in terms of how we'll be viewed as opposed to what we'll actually do. I think when we look at what we have done to proactively manage the company to keep ourselves below the asset cap, There too, you've got two categories. You've got places where we have gone and said, please make your business smaller because just because of normal deposit flows and consumer business and things like that, we'll have some asset pressure and we need to offset that someplace. And then there's the opportunity cost of what we haven't been able to do because we've had the asset cap. And then what does that mean going forward? On the first piece, we have limited our ability certainly within our trading businesses, for some very low-risk things, such as, you know, financing our customers and things like that. So, you know, by not allowing them to provide a level of financing, which is very low risk, we have not captured as much trading flow as we otherwise would have seen. In our corporate businesses, we've been very, very careful to – to encourage our bankers to bring in sizable corporate deposits that weren't clearly operational deposits and in some cases been a little more aggressive about asking them actually not to have it here because we wanted to make room for other things that we thought were really important strategically such as not being closed for business on the consumer side which those folks would not understand is hopefully just something that's That's temporary. So those are the places that, you know, in the short term would benefit from the asset cap being lifted. I think when you get beyond that, you know, the reality is when you look at, you know, what we've been able to do and the amount of excess capital that we have, you know, we're trying to deploy that by, you know, through the dividend and through our share buybacks because there's only, you know, so much that we should keep around and not return to shareholders. But we still, as I talked about, we think there are plenty of opportunities when you look around our different businesses to retrieve higher returns by reinvesting it inside the business. It's not anything which is, I would describe it as dramatic, but in terms of the things that we can do when we don't have the constraints you know, take our, you know, whether it's our consumer business or our wealth business to build out our banking product set, to be more aggressive about, you know, being full spectrum in terms of where we are on the lending side and the deposit side. Across all of our businesses, we've been very, very conservative in what we have asked people to do because we don't want to have an asset cap issue. So again, I would describe it as, you know, it would be the ability to grow in the things that we're competent at, that we do well, that we have in some ways consciously and in some ways unconsciously restrained the company from doing. But all in all, certainly without an asset cap, it's not a neutral, it's a positive because of the things that we proactively stopped as well as we're just limited in our ability to take advantage of the franchise that we have. And you've seen others that don't have those constraints, but have the quality franchise as well. And you see how they've benefited, not just versus us, but versus the broader banking set.
spk07: It's really helpful context, Charlie. Thanks so much for taking my question.
spk12: Of course. The next question will come from John Pencary of Evercore ISI. Your line is open.
spk01: Morning. On the 2024 NII guide, I understand that you feel better about the NII outlook here, but you're watching customer behavior. I know you did mention loan growth. Did you lower your loan growth outlook that's baked into that guidance this quarter versus what you had in there last quarter? And either way, are you able to help us with what that expectation is on the loan growth front?
spk11: yeah yeah john it's like you know what we said in january is that you know we expected loans to decline in the first half and so that's about that's about what we're seeing right so again it's slightly lower than what we modeled but you know it is you know it's pretty close to sort of our expectation and then and then we expected a little bit of growth in the in the second half of the year and overall balances weren't going to do much um you know for the full year and so at this point You know, could we be off on that a little bit, maybe? And could it be a little lower, maybe? Could it be a little higher? Yeah, for sure. And so, but I think the more meaningful drivers this year of where NII ends up, it's going to come back to deposits, right? And, you know, what's the level? What's the mix? What's the pricing look like, you know, given where the environment is? And I think that'll be the more meaningful place to focus.
spk01: Okay. And it relates to that. And deposit growth expectation that you could share?
spk11: Yeah, I mean, I think, again, it's, you know, our full year guidance that we gave you, our assumptions we gave you in January, we thought, you know, the commercial side would be, you know, pretty flat to where we are, to where we started the year. That's coming in slightly better than what we had modeled. And the consumer side, we would likely see a little bit of more decline as well as mix shift. And, you know, again, that's what you're seeing so far.
spk10: It's we want to be really careful and all this right we're not we're not. Trying to be as transparent as we can be about what we're seeing without getting over our skis and making predictions that none of us have the answers to. And so, like what you know when you boil it all down in terms of the customer activity that we're seeing. You know the little a touch less here touch more there there's not a big change from what we said three months ago. in terms of flows on the deposit of the lending side. It really is relatively small relative to the big NII picture and what's going to drive NII at this point. So, you know, if we saw big changes there, we might say let's change guidance. But it's tweaking along the way and we'll see how it continues to pan out. And then what we've said is relative to the rate environment, it's just, again, you know, it's, you know, this is a full year number and we've had, you know, a couple of months go by. It's just too early to mark the whole thing to market based upon that. But, again, we also wanted to just provide the context, as Mike has said and I said in my remarks, certainly what we've seen is helpful relative to just the pure overall rate and curve piece of it.
spk01: Okay. That's very helpful. I appreciate the color there. If I could just ask one more along the credit side, the MPA decline is encouraging there, and I know it can be volatile. Can you just maybe talk about MPA inflows? Did you see a pullback there? Did you see that on the CRE side? Is there anything to extract from that? Thank you.
spk11: Yeah, no, look, I think what you're seeing on the, you know, when you talk about commercial real estate, you're really talking about office. And what you saw in the office space is actually it not move at all and get worse or not get worse in the quarter. And so you actually saw non-performing assets, you know, coming down a little bit in the CRE space as we've charged off some loans. And they weren't replaced by, you know, other items. And so that's a positive in the sense that it's not deteriorating at this point. And then everything else is sort of moving around like as you would expect. There's not substantial movements across the rest of the portfolio.
spk01: Great. Thanks, Mike.
spk12: The next question comes from Matt O'Connor of Deutsche Bank. Your line is open.
spk02: Good morning. I want to follow up on the comment that costs this year could come in higher on higher revenues, investment advisory, and I would assume the same if banking and trading continue to be so strong. Obviously, that's a net positive to earnings overall, but how would you frame the operating leverage if you can pick which revenue buckets, but if those market-sensitive revenues are a billion higher, is there 40% cost against that, 50? How would you frame that? Thank you.
spk11: Yeah, and really what we're referring to when we mention that is primarily in the wealth management business is where we're focused, given where market levels are. And, you know, that business is, you know, the cost-to-income ratio is pretty stable there in terms of the revenue-related comp, and so it's a little less than 50% in terms of, you know, how to think about it. So the operating leverage is good.
spk02: Okay, that's helpful. And then just specifically on banking and trading, I mean, I know you guys invested in those businesses, so there's upfront costs when the revenues come. But it seems like the operating leverage in that segment has been very, very strong. And is that something that you think can continue if those revenues continue to surprise? Or could we see some upper pressure to cost from that to, again, a positive to earnings overall? But, you know, thanks.
spk11: Yeah, no, look, I think the cost to invest there, as Charlie noted, is in our numbers, right? So that's already there. So we're already anticipating that. And at this point, you know, we don't see that being a big pressure point one way or the other. But obviously, as you note, if revenues like far exceed our expectations in a positive way, that would come with a little bit of comp too. So that would be a good thing overall.
spk02: Yeah, agreed. Okay, thank you.
spk12: The next question will come from Gerard Cassidy of RBC Capital Markets. Your line is open.
spk06: Thank you. Hi, Mike and Charlie. Mike, you touched on your non-interest-bearing deposits declined to about 26% of deposits. Do you guys have a sense what's the long-term normalization level for non-interest-bearing deposits as you look out over the 12-month horizon, assuming rates do not go up? We have stable rates. Maybe they come down a little bit.
spk11: Yeah, look, I mean, it's a hard thing to say with a whole lot of certainty, Gerard, in terms of exactly where it's going to stabilize. It will stabilize, you know, at some point, particularly as you look at the underlying mix of the, you know, consumer deposit base, right? You know, a good chunk of our consumer deposits are in accounts less than 250. They're generally operating accounts for a lot of people. And so this thing will stabilize as we go. But as you've seen, we've had some pretty consistent, you know, plus or minus, you know, a little bit each quarter. you know, as we've gone through the last number of quarters. But at some point soon, that'll start to, you know, we would expect that to stabilize. But we'll see exactly where it does.
spk06: And is it fair to assume that the rate of change in the deposit betas is declining, where eventually those deposit betas flatten out as well?
spk11: Yeah, once you start seeing more stabilization in the mix, that's when you'll see deposit costs on the consumer side stabilize, right? Because what you're seeing now is people, as I mentioned earlier, people are spending money in their checking account, low interest costs for us. And then you're seeing growth in CDs and some of the savings accounts, which are higher costs. And that mix shift will stabilize. It's very related to your first question around non-interest bearing. They're kind of related together. Once you get to sort of that core operating balance in people's accounts, then that's when you'll see both of those stabilize.
spk06: Great. And then just as a follow-up on credit, obviously you guys put up overall good numbers, especially in that commercial real estate area, as you highlighted. Coming back to the credit cards, you pointed out that the charge-offs were up, but they're in line with expectations. Assuming the economy does not head into a recession later this year and unemployment goes up to 6%, say it stays around 4%, what are you guys thinking for a peak in net charge-offs for credit cards? When do you think you could reach that?
spk11: Yeah, look, I think you got to really dig into the underlying dynamics of what's happening in the portfolio, right? We're in the middle of a refresh of our product set. We're seeing faster growth in new accounts and new balances coming on than maybe other players, just given the investments we've been making now for the better part of three years. And so with that comes some maturation of the new vintages. At some point, you know, that should peak and you'll start to see sort of the normal behavior. But I just come back to, you know, we spent a lot of time looking at each of the underlying vintages here. You know, everything's performing, you know, on very much on top of what we would have expected or, you know, in a couple cases, maybe slightly better. And the quality of the new accounts we're putting on are, you know, the credit quality of them looks very good and continues to be the case. So I would just say, you know, we're in that normal phase of maturation, and, you know, as it sort of peaks, we'll sort of let you know when we sort of feel like we're there. But it should be coming over the coming quarters. Great.
spk06: Thank you.
spk12: And the next question will come from Dave Rochester of Compass Point Research. Your line is open, sir.
spk09: Hey, good morning, guys. Appreciate all the color on the NII and loan trend outlook. I was just wondering on the loan side, if you've noted any sensitivity at all in activity levels in general amongst your commercial customers to presidential elections in the past and how big of a headwind, if any, you think that could be this year?
spk11: Yeah, I mean, that's hard. You know, I think, you know, certainly it'll be a factor that, you know, people incorporate into their thinking of, you know, how aggressive or not they want to be at investments they're making. But at this point, that would be that would be really hard to kind of prove out with any sort of empirical data. Um, I think at this point, you know, what we're seeing most is, you know, related to the overall sort of, you know, macro economic environment we're in with, with such high rates and, you know, people having some uncertainty just generally around, you know, where things go from here. So, but, but I'm sure, I'm sure that'll factor in at least to a small degree at some point as we go through the year.
spk09: Yeah. Okay. I appreciate that. And then, uh, Just on the trading line, Matt had mentioned the momentum you've seen earlier. You obviously had a great year in trading last year. You had your strongest quarter yet this year. And you've talked about making a lot of investments in the business in recent years. You're still making those now. It seems like you have a lot of momentum in this area where you could grow that this year as well, despite having a huge year last year. Just wanted to get your take on all that.
spk11: Well, the environment is going to matter a lot. And so, you know, we've certainly been helped by some of the volatility that we've seen over the last, you know, four or five quarters. And so, you know, that could change the outcome quite materially for all of us, you know, in the industry and the trading line. So keep that in mind. But as you said, we're continuing to, you know, make, you know, systematically make some investments there. And we feel good about We feel good about that, and I think, you know, we continue to, you know, see some, you know, good performance from a market share point of view across those places we've been making the investments. But as Charlie also noted, you know, we're somewhat constrained in some of those businesses, but we feel good about the progress that the team has made over the last, you know, couple years.
spk01: All right, great. Thanks.
spk12: And our final question for today will come from Vivek Janaja of JP Morgan. Your line is open, sir. Hi, thanks for taking my questions.
spk05: A couple of questions. Firstly, financial advisors, can you give some color on what those numbers have been doing over the past year, the past quarter, since that's not disclosed anymore? Are you building? What types of advisors? Is that new recruits from college? Any color, Mike?
spk11: Yeah, sure. Sure. You know, as you, as you pointed out, you know, over the last, if you go back a couple years ago, and, you know, you definitely saw some declines that we were seeing, you know, in the advisor workforce, but Barry Summers and team have been working really hard to sort of not only, you know, stem some of the attrition, but also, you know, begin to, you know, really ramp up the recruiting again. And I think we're starting to see some of that come through. And so a lot of that, we're back to like more normal, maybe slightly below normal attrition levels across the business, which is good. And we're feeling very good about our ability to recruit high quality advisors. And so I think that trend you saw a couple years ago is definitely different. And, you know, we'll continue to, you know, stay at it. We're mostly focused on experienced advisors, a little less on, you know, as you mentioned, college recruits and that type of thing.
spk10: Yeah, the only thing is, listen, Vivek, this is, I mean, we're recruiting, I mean, it's across, there's no one prototype here. We are, you know, we've recruited some of the biggest teams in the country that have traded over the last year and a half. And these are people that wouldn't have come to Wells Fargo before that because of the issues. And it was competitive, and they chose to come here because of our capabilities, not because of what we're willing to pay them. At the same side, we are staffing up in our bank branches, and those are more entry-level people, people who come out of the banker workforce. And it's going to be across the board. But there's no doubt that the trajectory we have with our population is very different today than several years ago.
spk05: Okay. That's helpful. A completely different question. I want to go back to NII, not to beat a dead horse, but given that higher rates, I mean, sorry, less rate cuts are better for you, if we, you know, so that should help NII now, but if we see rate cuts and eventually in 25, does that mean that the troughing of NII could get pushed further back?
spk11: Yeah, I mean, look, we'll see, Vivek, you know, where it exactly troughs. Obviously, sort of the exact pace of rate cuts is part of the equation, but we also have to look at sort of the broader, you know, trends that we've talked about, you know, throughout the call, right, and, you know, how does the depositor sort of react? Where does the mix shift, you know, stabilize? And, you know, what do we see from a competitive environment? So all of that matters as you sort of look at where exactly it's going to trough.
spk10: Thanks. All right. Thank you, everyone. Appreciate it. We'll talk to you next quarter.
spk12: Thank you all for your participation on today's conference call. At this time, all parties may disconnect.
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