Wells Fargo & Company (WFC) Earnings Call Transcript & Summary

Okay. We're ready to go. Thanks, everyone, for joining us today, and we're very happy to kick off here with Wells Fargo. We have CEO, Charlie Scharf. Charlie, great to have you back.

Great to be here, John. Thanks.

Thanks for joining us again. Maybe we will start off talking about the operating environment, kind of get your view on the macro. How concerned are you about the current economic environment and the possibility that the Fed won't be able to navigate taming inflation while also engineering a soft landing?

Yes. I guess I would describe it as I don't think I would say concerned. I think we're just very much believe that there's a reality that the economy has to slow. The Fed has been very clear about what their intentions are. And the scenario of a soft landing is very difficult to achieve and I think extremely difficult to achieve in the environment that we're in today. But a slowing of the economy and if there is a short recession, that's not all that deep. With the conviction that they have to get there and all the different tools, I think we're comfortable that at this point for everything that we see, including the strength of the consumer and the business going into this, that while there will be some pain as you go through it, overall, everyone will be just fine coming out of it.

What are you seeing now from your customers in terms of their spending activity, their ability to manage the challenges of inflation and supply chain disruptions?

I think we see -- so first of all, today, there's no question that the consumer and businesses are still extremely strong. Now the question is how long will that continue and do we see any chinks in the armor? And I think the answer to all those things is yes. So deposit levels are still high, but they are coming down. They're coming down most for consumers who are less affluent. And when you look at the adjustments for tax refunds and things like that, they're likely starting to peak below the levels that they were pre-pandemic, which is the first time we saw that. Consumer spending overall still is strong. There is still growth, but it's slowing. And you can see the impact very directly on the increase in fuel prices, energy, food and some other things like that. And so corporations are still spending. Where they can, they're increasing inventories. And when you talk to them, inflation, supply chain on their mind. What we hear more often than not is employment and how hard it is for them to retain and bring in people at a level that they can afford. So you add all these things together and delinquencies are still very, very good. But the trend on a month-over-month basis is less strong than it was, albeit very small. And you haven't really seen increases yet for increase in mortgage payments and increase in rents and some things like that. So we do expect the consumer and ultimately businesses to weaken, which is part of what the Fed is trying to engineer but hopefully in a constructive way.

Let's shift gears, talk about Wells Fargo and the transformation that you're overseeing. In terms of the progress that you've made, what would you point to over the last 12 months and some of the important milestones that the company has achieved?

Sure. I'd put it into two different categories. We always start with the risk and control agenda that we have and satisfying the regulatory requirements. And it's been -- made it very clear from the time I get there that it is our top priority. It is a lot of work, and we feel good that we're making progress, but there's still a substantial amount more to do. We closed a couple of consent orders. A new one was added, which is additional work for us. But we feel confident that we don't just understand the work that has to get done, but that we've completely changed our approach to how the work gets done internally, how we manage it. And we can see through our own metrics that we have the ability to move forward when we manage it properly. The work is not done until it's completed. And what that really means is not just the work to satisfy the consent order, but get it into the culture of the company and have the mindset of the enterprise be very different. And it's a journey to make this kind of change and to get this amount of work done is huge. I think when I got to the company, we had, I think, it was 12 consent orders that were public. And it's -- that is a huge, huge task. And so anyone who thinks that you snap your fingers and they're all gone doesn't understand what it takes to get it done. But again, I think from our perspective, internally, it's do we feel differently about it today than we did 2 or 3 years ago? And the answer is absolutely. And it's just the road that we need to continue going down. And so that to me is it's pass-fail. We have to pass, and we're going to get it done. But at the same time, we do need to make sure that we're attentive to looking at the opportunities inside the franchise. And we're serving customers every single day across all of our businesses. We have very strong competition and we do need to move forward. And there was a period of time where we didn't move forward because we were very inwardly focused. And we do have to be able to walk and chew gum at the same time. And I think you're starting to see that. You're starting to see that in our approach to efficiency. It's not just talk. It's actually making progress on becoming more efficient, lowering expenses, not just cost avoidance and things like that. It's do we have real business plans across all of our lines of business or we understand what the opportunities are? Are we investing differently? Do we have different products coming to market? You're just starting to see that. And so I think understanding that we're going to get all of this control work done. But at the same time, we have the ability to move the franchise forward and compete with the very best out there, I think we're in very different positions today than we were a couple of years ago.

When you go out and meet with customers, what are you hearing from them about how Wells Fargo is meeting their needs? And what still needs to improve on that front?

Yes. So first, on the positive side, there's no doubt that the relationships that have been built at Wells just continue to be just extremely strong and valuable. We've done business with people for decades across all of the different businesses from the consumer business up to the large corporate business. We've been there for them through their difficult times and our difficult times. The relationships that we have and the products that we've had to support them, including credit, but goes well beyond that are things that are beyond appreciated. And it is very much a very strong relationship-oriented bank. There's no question from my perspective that they want us to succeed. They want us to make sure that we're looking across the franchise to figure out how we can serve them as best as we can. And they value what we can do for them that really only a handful in this country can do for the customers that we work with. And that is the depth and the breadth of the products that we have, and it's the ability to attract and retain the kind of talent that wants to work in a Wells Fargo environment as opposed to someone else.

And just back on the regulatory front. I know there's only so much you can say about it, but you have said this will take a few years to resolve. Are you trying to communicate something with that? And what should we look from the outside? How should we evaluate your products?

Yes. Again, it goes back to what I said before. All we're trying to do and make the point is that there's no magic bullet. I can understand when you're on the outside that you sit there and say, some of these things have been going on for a long period of time. Some of these consent orders have opened for a long period of time and shouldn't these things get closed. And what I can tell you is since I and the new management team have been at the company, we have taken a very different approach. We have started at different points of progress along these different items, and consent orders take years to close. And the consent order process is having an accepted plan by the regulator. It's actually doing all the work to support that, which sometimes includes hiring people, building processes, building technology. Not all of it can be done parallel. Some has to be done sequentially. You need to sustain it. So you don't just build it. You need to have months and months worth of sustainability. We need to do our own QA inside for all the different lines of defense. And then the regulators need to come and do that. And that all takes time. And they want to know that when they close something, it is really done. And so the point is just to tell people, listen, don't confuse whether we're not -- whether we're making progress with whether everything is closed. And to your question, I think, as you see that we start to close some of these things and you see some of the comments that are made, I think it is a -- we're in a different position than we were. We've proven that we can get these things done. We continue to make clear what our commitment is to get the work done. And we're just going to march forward on that path. So I just want to make sure that people's expectations aren't beyond what they should be. But again, what I just -- I should say is just to be really clear is we have plans for everything that we're working on. Every single consent order that we have, any control issue, any regulatory thing, anything that we need to do internally, we have very detailed plans. They are integrated across all of these. And now it's a question of execution. So to the extent that people are either concerned that they don't exist, it's just not well-informed.

Got it. So let's talk more broadly about technology. It's been a big focus for yours. How is that playing a role in transformation, both on the regulatory and risk side, but also in terms of the payments capabilities and other product launches that you've done?

Yes. So one of the things that was very lucky when I got there to have the company that had hired just a terrific Head of Technology, Saul Van Beurden, who's just worked tirelessly both on building his team, but laying out an agenda in our technology space. And I'd say a couple of things. I think the -- this differentiation between what you have to do in your core systems versus what you have to do to build the company for the future. I think that's -- personally, I think that's just too cut and dry. And companies have started to use these terms, what is it, "run the bank and change the bank." And I never liked it, and I always found it hard to explain why. And I think -- like I really come around to understand it, which is run the bank implies that that's a set of costs that you just continually want to get more efficient at. You want to drive that cost down and you want to put more and more over here towards change the bank, which is generally new product, services and things like that. But the reality of these big financial institutions is the core of our operating platforms have to change dramatically. And if all we're trying to do is minimize that, then we're going to be missing out on something which is hugely important, which is the need to actually, within the run the bank, to actually change how we go about processing our business and how we're seen in the marketplace. And so I don't mind spending more personally on run the bank as long as you're spending it on the right things. And so we're very focused on -- for those things which continue to commoditize, drive the cost down, become more efficient on that platform, but really think about how these platforms have to evolve and change. I mean it's the very core of the company, right? And so we're -- I mean, this is true of all the banks. But it's certainly true of us having this federated model overall these years, which is every business within Wells had its own platform. And so now we sit here and we say, we've got to approach the customer very, very differently. We've got to think about if you were a customer and you came into Wells Fargo either physically or virtually, how do you want to deal with us and to try and put all these different platforms together in a way that makes it look like one experience just doesn't work. And so there's a tremendous amount of work that we can do to evolve that infrastructure, which will take years and years to do, part of which involves moving these platforms to the cloud, is a huge part of the future investment of the company. And so we have a very clear plan in terms of how we're going to move the company to the cloud and ultimately what benefits that will get. We've identified partners there and actively working and doing that work already and thinking very differently from a technology perspective about our consumer and our wholesale customer. And wholesale includes small business in this case, so that we can make sure that we're thinking holistically about platforms and looking horizontally across our business from a business perspective and from a technology perspective to build common platforms and common tools so that when we talk to someone, we're talking to them as Wells Fargo. And so that is a hugely important body of work, which again, can very often sound like run the bank. But it is transformative over a period of time done in the right way, and it's a very big part of our investment that we're making. And then separately from that, it is what people generally think of, which is building payments capabilities, building out our digital platforms in a very, very different way, building our investment tools. And so within the company, the discussion that we have is, I think I've said this in my annual report letter for several years, is technology has helped aid what we do. That's very, very different than saying, okay, we're going to look across the consumer, and what does our technology allow us to do if we start with that, right? The way a fintech would sit there and say, "Gee, banks make it really hard to do this. And I can actually build technology from scratch. And I'm going to think about a consumer or business experience, and I'm going to build it very, very differently." And so we're starting to move towards that approach. It's both a mindset, but it's also -- requires organizational change, but one that we're committed to because that is one of -- should be one of the huge differentiators of who we are as a company.

And some of the technology, saving your money, consolidating platforms, that used to be part of the Federation, enabling you to invest, and that's all part of your kind of expense discipline?

No question. I mean that's always -- I think I expanded a little bit, which is there's no question when we have multiple platforms. So it's within our Treasury Services business. I've talked about it. We had a platform that served our middle market customers. And we had a completely separate platform -- we have a completely separate management team that served our large corporate customers. And in addition to just being expensive, highly ineffective, we didn't bring the best of breed. We weren't thinking across the discipline -- across the customer segments. These boundaries are artificial, but we created a very, very hard line there. And so as we merge these things, we will absolutely get cost efficiencies, but we should also wind up with better products and far more integrated products than we otherwise would have been able to offer.

Just talk a little bit about some of the fundamentals. With the Fed raising rates now, are the benefits to your net interest income playing out as you'd expect? Any update from kind of what you said in April, which is that your net interest income looks like it could be up mid-teens this year?

Yes. No, I think what we said we still believe, which is we had gone from, I guess, mid-single digits guidance on NII year-over-year to mid-double digits. As you and everyone knows, there's a huge amount of volatility in the interest rate environment and so exactly where that plays out. I think as time goes on, we'll feel more comfortable putting a finer point on it and making adjustments to it if necessary. But I think generally, what we're seeing is very consistent with that. And at the same time, we're also very conscious of not just maximizing NII, but also making sure that we're focused on what the potential impacts are to OCI as we saw this past quarter and striking that right balance.

Are you seeing any pressure yet to raise deposit pricing? And how might Wells Fargo be different this cycle versus the past given changes in your deposit mix?

Yes, that is an interesting question. I mean we do look -- as a company, we look very different than I think we otherwise would have without an asset cap and probably different than some others. Because we've talked about over the last couple of years in this environment that where deposits have grown so dramatically, deposits have become an issue for us as opposed to assets. So the asset cap turned into a deposit cap because of the cash that comes along with the deposits. So we've been very, very -- we've had to be very proactive about managing the deposit flows. And I think we've tried to step back and to be very strategic about it, both in terms of protecting the franchise, but also being smart financially in terms of what position that put us in. And I think those two things have come together and we'll be the beneficiaries of that today. So those deposits that are really core to the company, which will be here, which are not as rate sensitive are the ones that we've tried to preserve on the wholesale side of the business. We've not limited the deposit flow on the consumer side. But we also haven't run promos, rates or anything like that and effectively paid nothing for it. So as we come out of this, we don't -- we certainly don't have as many rate-sensitive deposits as we probably otherwise would have if we didn't have those constraints. And our mix of wholesale to retail is very different. I think it used to be something like 40% retail and now it's almost 60% retail. And so, so far, no pressure in terms of what we've done. And as rates continue to move up, it'll hopefully position us differently than others, albeit the betas will change as rates increase.

Yes. So hopefully, a little less resistant to price elasticity and maybe a little more resistant to outflow as well?

Yes, for sure. And I also think the other question also comes down to what are people's actions when it comes to their choices. So when they look at the equity markets, when they look at where else they can invest, if rate -- if the equity markets are strong, moving up at a reasonable place and people have a lot of confidence in that, they'll want a different kind of trade-off to keep that money in deposits. If they're more concerned and they want safety, then they'll feel very differently potentially about what rate makes them happy.

And can you talk a little bit about loan growth? You had a good loan growth quarter in the first quarter. It seems like the industry based on the A.G. data is still having good momentum. What are you seeing on loan demand? How broad-based is it? And what do you think is driving that?

Yes. I think what we see is a continuation of what we saw in the quarter. We'd expect it to moderate a little bit, albeit still continue to have growth as the quarters move on. But we see a fairly broad-based growth across all the different categories of assets. And I would say that we're also being -- trying to be very, very thoughtful about where should we be careful, believing that the economic environment is going to change and there will be stress. So as we went through the last several years, we've not tried to stretch to make loans based upon pricing or terms. We've tried to remain very disciplined about what we do and not use credit as a way to get there. And so -- but we've also been focused on helping build relationships and using our products to drive growth. So in our card business, we do see stronger growth than the industry sees, but it's very, very high quality. It's higher quality than what we would have hoped when we launched the product and we would expect that to continue without compromising the standards. And businesses are both -- when we look at our growth, it's kind of split between high utilization rates of existing facilities and new borrowings. And so the -- it's still fairly broad. But at some point, people certainly will be impacted and that could mean more borrowing. We're going to be somewhat protective of what that means. But at the same time, make sure we're there for our customers that we know and believe have strong relationships.

And I think, again, we've got kind of a generalist audience here and some people say, Wells Fargo has an asset cap. If there's a loan growth party, are you invited to it? How do you continue to grow loans when you have an asset cap? Can you explain?

So we have a lot of ability to continue to support our customers through our lending activities. As I said earlier, when we went through the last several years, loan activity has been muted, right? And so up until about 5 months or so, there was almost no growth in loans. But we did have this tremendous inflow of deposits. So that's how the asset cap was impacting us. So we go into this still with a lot of liquidity because these deposits brought cash and we've got cash sitting at the Fed. We've got a significant investment portfolio. And so we've got plenty of options to rebalance between some of that liquidity and, some of which sits in the investment portfolio and loans. And again, I just think from our perspective, we're not chasing loan growth in this environment. I think we're very careful about what could potentially come out there. We feel good about what we've done. We feel like a lot of the credit activities, which historically would have gone through banks have now migrated outside the banking sector. And that's the stuff which hopefully -- not hopefully, but from our perspective, we were smart about not pursuing because that will be the first to encounter stress. And so I think overall, the quality of what we've had and what we're thinking going forward is just different than what it would have been in the past.

Okay. So overall, you feel good about this kind of mid-teens net interest income outlook? You don't want to get into a mark-to-market every time rates change, but you feel good about that given the loan growth and the rates?

Correct.

Great. And then maybe talk about efficiency of it. How about the progress you're making there, embedding efficiency into the mindset of the company and the $10 billion of gross cost saves that you identified, how do you feel about the progress along all those lines?

I think we feel very good about the cost saves that we have talked about publicly in terms of what we want to achieve. So initially, targeting $8 billion or so and then upping it to $10 billion of gross saves, but also making sure that those saves translate to some reduction in our net expenses. Because I know for many, many years, we would talk about expense saves, but you'd actually never see it in the bottom line. And so we're focused on, again, making sure that we're -- that everyone is seeing it at the same time that we're making sure that we're investing where we need to invest. I would say that this is in terms of whether it's after the $10 billion, are we as efficient as we should be? Absolutely not when you just look at relative efficiency ratios, when you look at just total headcount versus other businesses that are larger than ours. The expense levels of the company are too high. Some of it relates to the risk and control work, but that is not the reason why. I mean that's a very small reason why. And that is not -- that is work that we have to do and we're going to do. But as you reduce expenses, it's just -- I refer to you're peeling the onion back. Then once you reduce what you reduce, it then lets you see everything else much more clearly. And so we've reduced spans and layers by a significant amount. We've reduced branch real estate. We've reduced some of the staffing and branches. Customers move towards digital. Our office space is down 6% or 7%. And this is pre the impact of COVID on things like that. And so it's all the very basics. And then once you identify that, you sit there, okay, let's actually -- let's start again because we know there's still a significant amount more, and you do have to be somewhat sequential about when you do this. Because we do have to be very careful that we're not sending edicts out to people that say, okay, everyone's got to cut another $4 billion of expenses. We will wind up doing stupid things. We'll compromise things that shouldn't be compromised, and we have no intention of doing that. So we do have to be very thoughtful about it, making sure the things that we're doing really aren't going to impact controls, customer service or things like that. But we continue to see the opportunity to reduce our expenses. And the question then becomes how much do we think we need to reinvest to take advantage of the opportunities. And so we've been -- tried to be very clear about what we expect for this year. And as we go forward, that's a trade-off discussion that we'll make. And whenever we make that decision, we'll explain it, and I'm sure people will love the idea if expenses are down. And if they're not down on a net basis, they want to really understand it and we'll provide all the transparency. But we are focused on -- our going-in proposition is get more efficient, see some of it in the bottom line, but make sure we're investing properly in both controls and to compete with the very best out there.

Yes. But it is a differentiated aspect of the story, amid inflation and expense pressures everywhere if you can deliver that. And this year, you are still looking to deliver expenses down a few hundred million to $51.5 million and still feel good about that?

It is. And I think, like I said, everyone is focused on what people have thought is doable. And listen, we're not immune to inflation pressures. And we're going to pay people whatever we need to pay across all different levels of the company. We'll see all the other increases in some of our goods and services as other people see. But again, in an environment and in a company where you know you're not nearly as efficient as you should be, it's not an annual exercise where, okay, we said we're going to save 10%. We now have some increased expenses. We're on autopilot for the year and then when we budget. It's an ongoing process that we're always trying to figure out what's next.

On this multiyear journey of net expense reductions, you'll be shooting for expenses down next year, too early to call at this point, obviously. But that will be a goal?

Well, I think what I said before is I think we -- we'd like to see expenses down. We know people would like to see expenses down. But we also have an obligation to make sure that we're thinking very broadly about what we do have to as a company. And we've been able to manage that in a way over the last couple of years where we've driven expenses on a net basis down but also invest properly. And so that's our mindset going in. But I just don't want to commit to anything because there's a lot going on in the world. And we're -- we have lots of plans. We have lots of thoughts on things that we want to build. And we also know that we've got a -- we're a better-run company when we become more efficient, we should drive that. And so our going-in proposition is a downward bias. But just -- we don't want to just -- it's not right to pre-commit to something until you know exactly what your opportunities are.

Sure. Fair enough. Let's dive into some of the fee businesses that you have and just talk about strategically what you're doing and what you're seeing there. Just start with mortgage, the same rising rates that are helping, the interest income are putting some pressure on the mortgage business. How much of a pressure is that? And what are you doing to deal with some of the decline in the mortgage revenue metrics?

Yes. I mean it's a huge pressure. I mean when the mortgage market is down the way it is, there's no getting around that your volumes fall dramatically, and we have to do our best to adjust our infrastructure to support that. So as much as you don't want to be in a position to have to do that, from an employee perspective, we do have an obligation to make sure that we're properly staffed. And in this kind of environment, that means that we'll have less people and we're doing what's necessary for that to happen. And from a production side, make sure that we're again properly staffed to process the business but not beyond what's necessary in this environment.

Is that a business where you can get costs out over a couple of month time frame? Or is it longer?

It's probably a quarter lag or so by the time you identify it all, identify the people, go about the reductions, something like that. So there'll be a little bit of a lag. But listen, I mean, every mortgage business is doing it. You unfortunately see the actions we all have to take. It gets press, which we also work very hard to figure out. We have a lot of openings inside the company. And so given the turnover that we have, can people in those roles fill other roles. But from a pure mortgage perspective, we just -- we've got to bring the cost structure down when the volumes come down.

And strategically, have you changed much in terms of where and how Wells Fargo competes in mortgage, which parts of the business you want to participate in as the originator?

Yes. I think we're -- I'd say we're in the process of changing strategically where mortgage fits in. Mortgage is a -- it's a hard business. It is a business where the -- I think there are very few businesses like this where the majority of what we do is really processing things on behalf of others. So in the conforming mortgage space, right, we underwrite. We basically process the applications according to guidelines that the GSEs tell us we should. And when those produce results, the people like them, we get the kudos for it. If they don't like them, we get the blame for it even though we're just following other people's underwriting guidelines. And so there's some things like that which do put you in a difficult position, which we do need to be very thoughtful about from a reputation perspective. Analysts recognize that through cycles inside a bank, the standards that were held to appropriately so were different than other mortgages -- than other mortgage lenders. So it's very different today running a mortgage business inside the bank than it was 15 years ago and I think appropriately so. And so that does force you to sit back and say, what does that mean? How big do you want to be? Where does it fit in and things like that. Mortgage and home lending generally is extremely important to what we do as a company, both for our customers and the communities that we serve. And so we are very committed to ensuring that we continue to support those two populations. And when you do that, it also -- you do need some degree of scale to do that. And so that means we won't be as large as we were historically. We don't think of it as a stand-alone profit generator where you have production and servicing, balancing one -- I mean that's just -- those days are gone in terms of the right way to think about it inside our company. The question is, what role should home lending play given the broader customer base that we serve. And that's going to be our primary focus. That's what we're going to do to maximize the value that we provide for our customers and our communities. And the things which are more difficult, which put us in difficult positions, which we don't -- which other people can do in a more efficient way, I think that's something that will continue to evolve in terms of where we put our efforts.

How about Investment Banking? You recently hired a new head of Investment Banking in the Corporate and Investment Bank. Just remind us, what are your aspirations in the Investment Bank? What's the opportunity you're looking to capitalize on in terms of collaborating with the middle market lending and other parts of the business?

So first of all, I would say we have no new strategic direction inside the Corporate Investment Bank. Other than what I've said is we're just not afraid to talk about it publicly, as opposed to historically, we never wanted to talk about it because we always told people we're Main Street. We're not Wall Street. It's about kitchen tables, not league tables and a whole bunch of things like that. And the reality is when you look at the company, the Corporate Investment Bank and our Middle Market business is -- it's half the company. It's hugely important. And the Corporate Investment Bank is important and has been important to the company for decades. And I think what Wells and Wachovia when they came together have been very good at is making sure that when we look at what our CIB franchise is, what products does it makes sense for us to participate in. And so we finance a huge amount of corporate customers. Whether we do it off of our balance sheet or whether we do it in the public markets, those makes -- both makes sense for us if you're in there having those conversations with the company. So it just makes sense for us to build our public underwriting capabilities in some of those products and our advisory capabilities alongside that. It does -- it shouldn't be additional risk to what we have today. For the most part, it should leverage the risk that we're already taking because of the huge amount of credit exposures and exposures we have through our treasury management business to these customers and our level of knowledge, but continuing to just grow those businesses organically in a very systematic way, not step function where we need to take a whole bunch of risk to get there is very much what we're continuing to go forward at. And that includes looking across the company and saying, where are the opportunities? And so we talk about middle market as an example. Within our corporate bank, our corporate bank, we did very little in serving our corporate bank customers with our Corporate Investment Bank products. For a whole bunch of historical reasons, it just wasn't something we focused on. And so you don't have to be a rocket scientist to figure out, hey, those people pay The Street a huge amount of fees. We are the primary bank. And this is not like a large corporate relationship where you know the assistant treasurer because you're doing treasury services or something like that. We've been banking the founders. We've been -- we know the owners intimately. And I've had the opportunity to be around the country and meet with these folks. And that's exactly what it is. It's a very close personal relationship where we've banked them, their predecessors. We know the company inside and out and we have these great capabilities over in our corporate investment bank, which we've never actually availed those customers or those capabilities. We never wanted those folks licensed. We never wanted them to have the ability to have those conversations. And so all we've done is we've looked at our own customer base, and we've said we started with how much do those customers pay The Street. And it's huge. It's like $4 billion to $5 billion or something. And you look at what we get paid, and it's teeny, like not even -- it's embarrassing to even say the number. And so this is something that takes time. You need to make sure that we're structured internally to do that. And so we now have people who are running this effort. The Corporate Bank and the CIB are working extremely closely together. We've changed incentives. We're getting people licensed. We've got people dedicated to it. And so again, the idea of -- and it's all about doing a better job for our customers. It's not about saying, okay, let's just identify a new customer segment or a new customer base, and we need to offer them a whole bunch of financing on our balance sheet to get there. These are folks that were already taking the financing risk on. We know them intimately. And so that kind of opportunity, we've said is -- to me, it's a $1 billion opportunity just with our own customers, let alone what it can mean. We've seen how well some of our competitors have done it. And when you look at who our customers pay, they pay a broad range of investment banks, some of which will be difficult to compete with, a whole bunch of which we should be able to compete with every day as we do today on our large corporate side.

And even largely with the people you have in your organization.

Yes, with the people that we have. We hired Tim O'Hara, who we're just thrilled to have. And Tim is just -- as we think about who we want to be and what the opportunities are, we want to make sure we've got the right people out calling on customers. We've got some really great people who have great relationships who are involved in significant transactions, and they should be off calling on customers and working on those transactions. And Tim will be able to take a fresh eye and figure out, and we've had -- and before we hired Tim, we spent months and months with Tim talking to him about who Wells Fargo is, who we don't want to be. We want to grow the business, we're not afraid to say that, but in a way that works inside the risk tolerance of this company. And I think he should speak himself, but I think he's super excited about what that is. And his fresh perspective of what that means for focused people, all those things, I think, will only be a plus for us.

Another growth area you mentioned is credit cards. You've kind of refreshed the product suite. And you've had success bringing new customers in. It's a very competitive space. How are you doing there?

Yes. I think we feel great about how we're doing. And this is just -- it's a testament to if you just first get the basics right, how much opportunity there is in those basics and then it does lay the groundwork for things in the future. So we had a very uncompetitive product set several years ago. Our lead products were branded American Express. And I've got a huge amount of respect for American Express. But if customers want -- if consumers want an American Express card, they're going to go to American Express to get the card, to get all of the benefits that American Express offers and all the great things that they do as opposed to just a brand and Wells Fargo sitting behind it. And so we thought strategically about what the branding should be. We looked at our network relationships and restructured those. And that gave us the capability to invest more into the product, design what we think are some of the most competitive products in their space, whether it's in the spending space, cash back, whether it's in the lending products, rewards are coming, small businesses coming down the pike. And we've been very clear that it's about competing on the -- what the offering is, not on credit. And so as I said, before, the credit quality that we're seeing is far stronger than we saw in the old products, stronger than what we anticipated in, in terms of both FICOs, the credit levels that we assign, which I think are still relatively conservative there. And just the opportunity to spend going forward, which is what we're really excited about. So really thrilled about that, active cash and feel great about where we're going. But again, I would -- it's a holistic effort. It's the product design. It's the marketing behind it. It's the customer service. It's the credit limit. It's making sure that we've got all the right fraud protections, but make sure that customers can use their cards when they want to use their cards. It's a package that comes together that we're very, very focused on to ensure that we've got a competitive offering. And I think what we've proven is when we have a really competitive offering, we can really compete. So just couldn't be happier with where we stand there.

And the last business I wanted to ask you about was Wealth Management. You sold your Asset Management. But you're very committed to and you're big in Wealth Management. Are you still in the midst of a transformation in Wealth? And what are you trying to do differently there?

Yes. So I think -- so we love the Wealth business and we love our Wealth business and think it's an incredibly important asset for us, both on a stand-alone basis, but also on an integrated basis across the company. We've drastically changed how we run the business under Barry Summers. We run one integrated business. So historically, we had a brokerage business. We had a bank-based business. We had two different private banks operating under two different private brands -- two different brands. And each had its own product set, its own investment disciplines and things like that. We said, no, no, no, we're going to run one wealth business. We're going to run one distribution force. And we're going to ensure that we have one set of products and services that are tailored for what the needs of the customers are and their affluence, not based upon where they sit in our individual businesses. So we've materially improved the product set that we have to offer, the capabilities that we now have to offer. So there were a series of capabilities that only the private bank customers can get in terms of trust and some of the other things that we're now putting into the brokerage channel. The lending capabilities were very, very different. They're now comparable. And so we're in a position to compete much more effectively from the customer standpoint. And we're also thinking very differently about the relationship with the bank branches. We have a huge amount of Affluent customers that sit in our consumer and small business bank. We did not have a tailored offering for those customers in a way that wasn't just -- it was not attractive as it could be just from an investment perspective, but it wasn't integrated. So again, in the theme of even though we're organized by line business, we're thinking across the businesses. So we're thinking of the affluent customer, if they come in through the bank channel, that's fine. But how do we make sure we're bringing together deposit products, payment products, lending products, advisory products and investment products. And so the Wealth business is an integral part of that discussion. Mary, who runs that business, Mike Weinbach, who runs -- Mary who runs the branches, Mike, who runs Consumer Lending, and Barry work intimately closely together to make sure that we're bringing together a product set in a coherent and combined way. And Wealth is hugely important to that opportunity and that effort.

Got it. So let's put this all together and talk a little bit about profitability and where you'd like to see the return on tangible equity go. You talked about an interim target of 10%, return on tangible common equity and hitting that this year. When I do the numbers, if you look at Fed raising rates and your net interest income and expense cost, it looks like you can get to 15% or so by the end of the year even. Is there anything that would suggest you could sustain that 15% earlier than expected? Or what are the puts and takes around that?

Well, I would say -- so when we've talked -- so just for the audience, what we've said is we're targeting a 10% return on tangible common equity in the shorter term. And then once we get there, we're going to lay out why we think 15% is reasonable. And the reason why we did that is just credibility. As opposed to putting some number which is going to take a very -- a longer time to get to and being less clear about it, we just want to be really clear that we do see the ability to make progress quickly and be able to deliver on that. And so to your point, we feel like at some point this year, we'll be able to achieve on an annualized basis the 10% return on tangible common. Just want to be clear, we've always described that as like as a sustainable ROTCE. So the fact that our -- which means it does not -- it should not include loan loss reserve releases. It shouldn't include exceptionally low charge-off rates. We should be more realistic about what is an ongoing charge-off right through a cycle. And so while we might be there in terms of what we print, we try to be intellectually honest about what is sustainable over a cycle. And we still think that is at some point this year. We've said that to get to 15%, once -- well, first of all, we said, once we get to 10%, we're going to be more specific about the 15%. And so that will come one of these quarters when we get there, and that's on us to lay that out. And we initially said that we needed to have the asset cap lifted to get there, that we assumed a modest rise of rates, continued efficiency and some contribution from all the work that we're doing to run the company more efficiently. And even from a control perspective, as we get better at building these controls, that actually helps the company over a period of time. It doesn't include reducing the expenses that we're experiencing today to build what needs to get built. Now I would say that rates are moving up faster and more dramatically than we thought. So we probably don't need the asset cap to be lifted. But I think we feel -- continue to feel very confident that the 15% is that next logical step. Again, we'll be a little bit clear about exactly what that time frame can look like and how we actually account for that in terms of what it takes to get there. And then once we get there, we'll have a longer conversation about should it be more than that or not. And when we look at it, there's no reason why when we look at our businesses that we shouldn't be competitive from a returns perspective with the biggest folks that we compete with, who have the higher capital standards than others. And even when we compete with the others, yes, we have higher capital standards, but we also have these great benefits. So over a period of time, the underlying core of the business is extremely attractive in terms of what it can produce. And then the question, I think, for us is where are we in the cycle of our desire and our need to invest to make sure that we're building all the things that we want to build and how much progress can we make within that versus what does that look like and how does that just evolve over time. So I know -- I'm not sure if I've answered it. I think we feel very good about we will get to the 10%. We feel confident that 15% is the next step, and there's a path to get there. And that's all in the context of accomplishing all the work we have to accomplish. And honestly, it's really just starting to take advantage of the great franchise that we have. I mean when we look at all of the businesses that we have and our belief that they can be run, not just more efficiently, but all of them should have an updated product suite, all of them should have better technology, all should lead with technology in a very, very different way. And so we're not relying on those things to get to this 15%. And so those are the things, I think, when we think about, well, why do you get excited about coming to Wells? Yes, it's the sense of accomplishment to fix what needs to be fixed, but it's also to deliver for customers and to do something which is really differentiated, which we've done remarkably well given how undifferentiated we have been over the past decade.

And in terms of capital management, you've returned a lot of capital over the last year. Now you're kind of in the 10.5% CET1 level that you've talked about as your target. Your regulatory minimum is closer to low 9s. So you talked about keeping a pretty healthy buffer, 125 to 150 basis points. Is that conservative? What would need to happen for you to lower that buffer on buffer? And maybe run closer...

I think it's -- I mean different people have different opinions on what's aggressive and what's conservative. I think for us, it's just it's been the prudent thing to do. We've been living in this period of uncertainty with COVID, recessionary environment, potentially on track, but certainly a slowing in front of us and potential changes to the SCB. And so when you have those unknowns out there, you certainly feel better at night when you have more cushion, not less cushion. And it also does help create the capacity for us to lend because it supports a higher RWA in terms of what you can support with the CET1. And so those are all decisions that I think we'll continue to make. I think over a period of time, is it conservative? Yes. I think now it's appropriate. And as the environment changes and we see the results of the SCB and things like that, we might feel differently. But that range of 1 to 1.5 for us feels like the right place to be now.

Okay. And maybe just the last question. You talked a lot about offense that you're building in for the future. Wells Fargo traditionally has been a defensive stock within financials because of its credit track record and balance sheet. Do you think that's still could be the case that Wells could act defensively within financials and have those characteristics?

I don't like to make judgments on our stock versus other stocks. I think we feel very good about the underwriting, which has taken place over the company through the cycle. It really is a historical strong discipline of the company that has continued, and we haven't done anything to disrupt that, just continue to build on what's there. We are asset sensitive. And so in an increasing rate environment, if you can manage credit well, even though we'll have some headwinds in our other revenues because of lower mortgage banking and overdraft fees reductions and some of the things like that, we think we're positioned well for who we are. Again, I'll leave it to you and other people to figure out on a comparative basis what makes sense.

Great. Charlie, thanks so much. Very helpful.

Thanks, John.

Appreciate you coming.