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Sentiment Change: +17

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Wells Fargo & Co Earnings - Analysis & Highlights for Q4 2024

Overview

PositivesNegativesOutlook

Net income and diluted EPS were up 11% YoY.
Retail mortgage originations increased by 31% YoY with higher purchase volume and stronger refinance volume in Q1 when interest rates were lower.
The company increased the number of Premier bankers by 8% and branch-based financial advisers by 5% YoY.
Wealth and Investment Management revenue increased by 8% YoY due to higher asset-based fees driven by increased market valuations.
The company's solid performance in Q4 caps a year of significant progress for Wells Fargo across multiple areas.

Q4 2024 Earnings Call

Consumer, Small and Business Banking revenue declined by 7% YoY, driven by lower net interest income.
The growth in deposits reflected the slowdown in migration to cash alternatives with balances in those products lower than a year ago.
Average loans declined by 6% YoY, driven by continued reductions in the commercial real estate portfolio and lower loan balances in banking as clients continued to access to capital markets for funding.
The company saw some pretty significant spread compression at different points over the last couple of years.

Q4 2024 Earnings Call

The company expects to see some growth in the Markets business to drive some loan growth.
Mortgages are expected to continue to decline a little bit due to the rate environment.
The company expects approximately $900 million of incremental technology expense, including investments in infrastructure and business capabilities.
The company expects other expenses to increase by approximately $800 million, including expected merit increases and performance-based discretionary compensation.
The company expects trading-related net interest income to be higher due to lower interest rates.
The company expects to have some of the strongest returns and growth rates in addition to having some of the best businesses.
The company expects to have seasonally higher personnel expenses in Q1, which are expected to be $650 million to $700 million.
The company expects to have a slight headwind to net interest income due to its modestly asset-sensitive position and the recent forward rate curve, which includes between one and two Federal Reserve rate cuts.

Q4 2024 Earnings Call

Q&A Highlights from Wells Fargo & Co Earnings Call Q4 2024

Analyst asked about the company's assumptions for retail deposit growth mix and how it relates to the paydown of higher cost borrowings throughout the year in their plan.
- Michael Santomassimo, Chief Financial Officer, explained that the company has seen a stabilization of the mix between non-interest bearing and interest bearing products, which is helpful as they look forward and expect to see absolute growth across the consumer franchise. They don't expect pricing pressure to come through on the consumer side, and the promotional savings and CD rates are continuing to come down as rates have started to move.
Analyst asked about card profitability and its impact on ROE as more balances roll off teasers and upfront expenses wane.
- Michael Santomassimo, Chief Financial Officer, explained that the company is still early in seeing card profitability come through in the P&L, as they started launching new products three-and-a-half years ago, and the first of the vintages came on starting in August - July, a few years ago. He mentioned that the credit box and credit performance are behaving as expected, and the company is seeing good new account growth across different products. He added that it's just a matter of time for card profitability to meaningfully come into the P&L.
Analyst asked about the company's expense investment priorities and the impact of severance charges on the company's ability to extract additional efficiencies.
- Mike Santomassimo, the company's CFO, explained that the company continues to see opportunities for efficiency improvements, like peeling an onion, and that the company is still focused on driving efficiency and improving the customer experience through technology and automation. He also mentioned that the company expects to see some incremental loan growth later in the year, with low to mid-single-digit growth in certain categories.
Analyst asked about the 15% return target and whether it is achievable given the company's current performance.
- Charles William Scharf, CEO of Wells Fargo & Co, explained that the company's goal is to achieve a 15% return on equity, which is in line with the best performers in the industry. He mentioned that the company's businesses are growing at a healthy rate and have strong returns, but they need to address the orders that are currently constraining them. He also stated that the company will address the 15% return target in due time, but for now, their focus is on achieving that goal.
Analyst asked about the last mile to the 15% return target and whether it will be driven by revenue growth or expense reduction.
- Michael P. Santomassimo, CFO of Wells Fargo & Co, explained that there are multiple paths to achieve the 15% return target, including revenue growth in the credit card and home lending businesses, as well as profitability improvement in the investment bank, capital markets, and wealth management. He mentioned that reasonable people can have different opinions on the exact path to get there, but the company is confident that they will achieve their goal.
Analyst asked about how Wells Fargo is being more conservative in trading compared to other banks.
- Michael Santomassimo explained that Wells Fargo has been very disciplined in managing its risk appetite, focusing on balance sheet-friendly areas like FX, due to the asset cap and other factors. Charles Scharf added that Wells Fargo's business is smaller and less complex compared to the biggest banks out there.
Analyst asked about the thought process behind Wells Fargo's decision to act and make adjustments.
- Michael Santomassimo explained that Wells Fargo has acted twice in the third and fourth quarters, looking at different opportunities, and has been disciplined about payback periods, with a total payback period of roughly two to two-and-a-half years across both repositionings. The company will continue to evaluate opportunities based on market conditions.
Analyst asked about the company's strategic planning going forward, specifically regarding potential acquisitions and the impact of the asset cap and the Federal Reserve's cease-and-desist order.
- The company is focused on organic growth opportunities across each of its businesses, including card, wealth, investment banking, and capital markets. They have a plan that they have been executing for the past five years, which involves basic execution across all priorities. They believe there is a tremendous opportunity to build on their existing positions in each of these businesses across the country.

Q4 2024 Earnings Call