Wells Fargo & Company Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Q3 Results: Happy with Q3 results, net income and EPS up y/y and q/q. Revenue up 5% y/y with growth in net interest income and fee-based revenue. Loan growth accelerated, credit performance strong, and capital return increased.
• Regulatory and Business Transformation: Closed 13 regulatory orders, lifted asset cap. Transformed business mix by selling non-core businesses, reducing expenses by $3.6 billion since 2019. Headcount reduced by 24% since 2020.
• Growth Opportunities: Post-asset cap lift, growing balance sheet, reaccelerating checking account growth, investing in branch network, enhancing credit card product offerings, and focusing on wealth management client base. Targeting 17%-18% ROTCE over medium term and 10%-10.5% CET1 ratio.

Segment Performance

• Consumer, Small, and Business Banking: Revenue increased 6% from a year ago, driven by lower deposit costs and higher deposit and loan balances. Home lending revenue grew 3% from a year ago. Credit card revenue grew 13% from a year ago with higher loan balances and card fees. Auto revenue declined 6% from a year ago but increased 6% from the second quarter. Personal lending revenue declined from a year ago due to lower loan balances.
• Commercial Banking: Revenue was down 9% from a year ago. Lower net interest income due to lower interest rates and deposit loan balances was partially offset by growth in non-interest income from tax credit and equity investments. Average loan balances in the third quarter declined $7.1 billion or 3% from the second quarter.
• Corporate and Investment Banking: Banking revenue grew 1% from a year ago driven by higher investment banking revenue. Commercial real estate revenue was down 13% from a year ago. Markets revenue grew 6% from a year ago with growth across most asset classes. Average loans grew 8% from a year ago and 4% from the second quarter.
• Wealth and Investment Management: Revenue increased 8% from a year ago driven by growth in asset-based fees, increased market valuations, and higher net interest income due to lower deposit pricing and growth in deposit loan balances.

Guidance

• Net Interest Income: Expect full-year 2025 net interest income to be roughly in line with 2024's $47.7 billion. Fourth-quarter NII expected to grow from Q3, driven by continued loan growth, fixed-rate asset repricing, and higher markets NII.
• Expenses: Full-year 2025 non-interest expense expected to be ~$54.6 billion, higher than initial expectations due to $296 million severance expense and higher revenue-related compensation expense in wealth and investment management.
• ROTCE: Targeting 17%-18% ROTCE over medium term, dependent on factors like interest rates, macroeconomic, and regulatory environments.

Risks

• Factors affecting ROTCE target such as interest rates, macroeconomic environment, and regulatory environment.
• Credit risks in commercial real estate, particularly office valuations which may have lumpy losses but within expectations.
• NDFI exposure and risk assessment related to future credit quality and SSFA role in allowing NDFI.

Question and Answer

• Q: Ken Usdin asks about the timeframe for the 17%-18% medium-term ROTCE target.

A: Charlie Scharf responds it's a medium-term timeframe, dependent on various factors like excess capital and business results.

• Q: Ken Usdin asks about Q4 NII ramp.

A: Mike Santomassimo discusses drivers including market NII growth, loan growth, and fixed-rate asset repricing.

• Q: Ebrahim Poonawala asks about inorganic growth opportunities.

A: Charlie Scharf says they consider inorganic opportunities but focus on organic growth.

• Q: John McDonald asks about loan growth color.

A: Mike Santomassimo talks about consumer loan growth momentum and commercial loan growth factors.

• Q: Scott Siefers asks about consumer credit health.

A: Charlie Scharf says consumer performance is consistent with strong spend, deposits, and credit results.

• Q: Erika Najarian asks about efficiency and WIM margins.

A: Mike Santomassimo discusses WIM margin improvement opportunities and efficiency initiatives across the company.

• Q: Betsy Graseck asks about trading momentum.

A: Mike Santomassimo says there's more opportunity in the markets business within risk appetite.

• Q: Matt O'Connor asks about investment banking top five target.

A: Mike Santomassimo and Charlie Scharf discuss methodical build-out and franchise strengths to reach top five.

• Q: John Pancari asks about efficiency ratio in ROTCE target.

A: Mike Santomassimo says efficiency ratio should improve to support higher ROTCE.

• Q: Gerard Cassidy asks about security risk transfers.

A: Mike Santomassimo says they've used it and may consider more if needed.

• Q: Chris McGratty asks about retail deposit growth.

A: Mike Santomassimo says focus is on growing checking accounts and active core primary checking accounts.