WELLS FARGO & COMPANY/MN Q3 FY2026 earnings call

• Financial Performance & Returns:
  • EPS grew 13% to $1.87, and ROTCE increased to 16.3% for the quarter, approaching the 17-18% target range.
  • Net Interest Income (NII) rose 5% to support the full-year guidance of approximately $50 billion.
  • Non-interest expense declined modestly, with an efficiency ratio improving to 63%.
• Growth Drivers & Balance Sheet:
  • Broad-based growth in loans and deposits, both averaging up 11% year-over-year.
  • Strong momentum in consumer primary checking accounts and business banking relationships.
  • Continued expansion in commercial banking client base and deposit gathering initiatives.
• Operational Efficiency & Technology:
  • Headcount decreased 2% sequentially and 8% year-over-year, continuing a six-year decline trend.
  • Significant investments in AI capabilities, ranking Wells Fargo #5 globally in AI maturity. AI is being used internally to accelerate coding, identify cyber vulnerabilities, and improve risk management, and externally to enhance customer service and underwriting speed.
  • Launched tokenized deposits on a proprietary blockchain platform to improve cross-border payment efficiency.
• Credit Quality:
  • Net loan charge-off ratio remained low at 38 basis points.
  • Consumer credit performance was strong, with delinquencies at historically low levels.
  • No signs of broad-based credit deterioration despite monitoring macroeconomic risks.
• Strategic Positioning:
  • Maintaining discipline on credit while focusing on deepening existing customer relationships.
  • Expanding market share in investment banking, including improvements in equity capital markets share and US M&A volume ranking.
  • Balanced approach to growth, risk, and capital returns, with CET1 ratio maintained at 10%.

• Consumer Banking and Lending: Revenue grew 5% year-over-year. The segment generated solid revenue growth while reducing expenses, with return on allocated capital increasing to over 32%. Key drivers included a 14th consecutive quarter of growth in primary checking accounts (up 9%), auto originations growing 15%, and credit card openings up 61%.
• Wealth and Investment Management: Revenue grew 12% year-over-year. Client assets reached $2.5 trillion, up 11% from the prior year. Average loan balances increased 16%, driven by enhanced product offerings, AI-powered advisor tools, and expanded alternative product choices.
• Commercial Banking: Revenue grew 6% year-over-year. Average loans increased 10% and average deposits increased 16%. The efficiency ratio improved significantly to 43% from 48% a year ago, supported by disciplined expense management and successful client acquisition strategies.
• Corporate and Investment Banking: Total revenue grew 3% year-over-year. Within this segment, Banking revenue grew 8% (with Investment Banking up 10%), driven by strong M&A (+30%) and Equity Capital Markets (+33%). Markets revenue was relatively stable year-over-year but faced headwinds late in the quarter due to interest rate volatility.

• Full-Year 2026 Net Interest Income: Maintained at approximately $50 billion, plus or minus.
• Fourth Quarter 2026 Net Interest Income: Expected to be approximately $13 billion, representing a step-up from previous quarters due to loan/deposit growth and fixed-rate asset repricing benefits.
• Net Interest Margin (NIM): Expected to remain stable from the third quarter level.
• Full-Year 2026 Non-Interest Expense: Maintained at approximately $55.7 billion.
• Expense Efficiency: While revenue-related expenses are expected to be ~$400 million above original expectations due to growth, ongoing efficiency initiatives are projected to offset these increases.

• Macroeconomic Uncertainty: Persistent inflation, sticky interest rates, geopolitical conflicts (Middle East), fiscal deficits, and volatile energy markets pose headwinds.
• Consumer Credit Sensitivity: While current conditions are strong, management acknowledges that cycles are inevitable and higher prices/living costs weigh on lower-income household sentiment.
• Commercial Real Estate (CRE): Higher interest rates pressure CRE valuations; stress may emerge as properties refinance, though no acute issues currently exist.
• AI Investment Cycle Risks: The massive scale of AI infrastructure spending involves significant leverage and supply chain pressures, creating potential financial and operational risks.
• Regulatory Changes: Finalization of Basel III capital rules could impact Risk-Weighted Assets (estimated 7% decrease) and CET1 ratios.
• Deposit Beta Behavior: Potential shifts in deposit betas in a rising rate environment, particularly in corporate investment banking vs. consumer segments.

Q: Mike Santomassimo clarified Q4 NII drivers, noting NIM stability stems from balance sheet optimization in Markets (sponsored repos) rather than contraction. He expects Q4 NII to step up to ~$13B due to loan/deposit growth and repricing, with Markets NII slightly below $2B offset by non-interest income. For 2027, he anticipates a positive starting point given higher-for-longer rates and continued loan growth.

A: Charlie Scharf dismissed concerns that AI agents will cause mass migration of deposits to high-yield alternatives. He argued that consumers prioritize convenience and primary payment relationships over marginal yield gains, and that autonomous agents moving money to unknown institutions is a distant scenario. He emphasized using AI to enhance customer service rather than fearing deposit inertia loss.

Q: Mike Santomassimo addressed capital management, stating they will maintain a CET1 ratio between 10-10.5%. He downplayed Moody's comment about low-end targets being credit-negative as context-specific to RWA declines. Buybacks remain a flexible lever after assessing growth opportunities and risks, with ample capacity to return capital over time.

A: Charlie Scharf added that Wells Fargo has significant flexibility to deploy capital without harming ratings, especially with anticipated Basel III RWA reductions. They view their strong earnings power and capital position as enabling both customer service and shareholder returns simultaneously.

Q: Mike Santomassimo explained that consumer credit card vintages from 2021 are maturing as expected, while recent larger vintages will boost profitability starting next year. In auto lending, aggressive growth is supported by OEM partnerships (VW/Audi) and a shift toward near-prime segments, maintaining healthy spreads despite peer pullbacks.

A: Charlie Scharf confirmed that as card originations level out and vintages mature, earnings and returns will see a tangible uplift. He highlighted that their full-spectrum lending approach allows them to capture value across prime and near-prime markets effectively.