Wells Fargo(US:WFC)2024-04-12 17:44Financial Data and Key Metrics - Net income for Q1 2024 was $4.6 billion, or $1.20 per diluted common share, including a $284 million FDIC special assessment [16] - Net interest income declined by $1.1 billion or 8% YoY due to higher funding costs and lower loan balances, partially offset by higher yields on earning assets [17] - Non-interest income increased by 17% YoY, driven by strong growth in investment advisory fees, brokerage commissions, and trading and investment banking fees [20] - Average loan yields increased by 69 basis points YoY to over 6%, reflecting the higher interest rate environment [18] - Average deposits declined by 1% YoY, with non-interest-bearing deposits decreasing to 26% of total deposits [19] - Net loan charge-offs declined by 3 basis points QoQ to 50 basis points of average loans, with commercial net loan charge-offs down by $131 million QoQ [24] - CET-1 ratio remained strong at 11.2%, well above the regulatory minimum of 8.9% [26] Business Line Performance - Consumer Banking and Lending: Revenue declined by 4% YoY, driven by lower deposit balances. Credit card revenue increased by 6% YoY, while auto revenue declined by 23% YoY [27][28] - Commercial Banking: Middle Market Banking revenue declined by 4% YoY, with weaker loan demand due to higher rates and economic uncertainty [30] - Corporate and Investment Banking: Banking revenue increased by 5% YoY, driven by higher investment banking activity. Markets revenue increased by 2% YoY, supported by strong performance in structured products and foreign exchange [31][32] - Wealth and Investment Management: Revenue increased by 2% YoY, with higher asset-based fees offsetting lower net interest income [33] Market and Strategic Focus - The company continues to see strength in the US economy, with consumer spending patterns remaining consistent and wholesale credit performing well [13] - Strategic priorities include improving risk and control frameworks, with over $2.5 billion spent annually on risk and control-related groups since 2018 [10][11] - The company is investing in new products, such as the Autograph Journey credit card, which has driven a 14% YoY increase in credit card spend [12] - The company is focused on increasing efficiency and reducing expenses, with headcount declining every quarter since Q3 2020 [8] Management Commentary on Operating Environment and Outlook - Management remains confident in the company's ability to increase efficiency and diversify revenue streams, particularly in fee-based businesses [14][15] - The company expects net interest income to trough towards the end of 2024, with full-year 2024 net interest income expected to be 7% to 9% lower than 2023 [17] - Management highlighted the importance of maintaining a strong capital position and returning excess capital to shareholders, with $6.1 billion in common stock repurchased in Q1 2024 [9][26] Q&A Session Highlights Profitability and ROTCE Targets - The company remains confident in achieving mid-teens ROTCE, driven by capital optimization, business investments, and efficiency initiatives [37][38] - The CET-1 ratio of 11.2% is considered conservative, with potential adjustments based on Basel III Endgame revisions [39][40] Capital Return and Buybacks - The company expects to repurchase more common stock in 2024 than in 2023, with $6.1 billion repurchased in Q1 2024 [9][43] - Excess capital provides flexibility for future buybacks, with no specific guidance on quarterly pacing [43] Deposit and Loan Trends - Deposit mix continues to shift towards interest-bearing products, with non-interest-bearing deposits declining to 26% [19][48] - Loan demand remains weak, particularly in commercial banking, due to higher rates and economic uncertainty [50][76] Credit Quality and CRE - Credit trends remain stable, with no significant deterioration in the commercial real estate office portfolio [24][81] - Credit card charge-offs are expected to peak in the coming quarters as new vintages mature [95] Investment Banking and Trading - The company is underpenetrated in investment banking, particularly in equity capital markets, and is making strategic hires to grow market share [45][64] - Trading revenue benefited from market volatility and investments in technology and talent [32][100] NII and Rate Sensitivity - The company expects net interest income to trough towards the end of 2024, with potential stabilization in deposit mix and pricing [69][106] - The outlook assumes approximately three rate cuts in 2024, with sensitivity to client behavior and deposit trends [53][60] Asset Cap and Regulatory Constraints - The asset cap remains a reputational overhang, with potential benefits from its removal, including increased trading flow and corporate deposit growth [71][73] - The company is focused on completing risk and control work before considering efficiency gains from regulatory remediation [65][66]