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

Hey, great. Good morning, everybody. My name is Ken Usdin. I recently joined Autonomous as the large-cap bank analyst. Very excited to help kick off the 41st Annual Strategic Decisions Conference. To start today, I'm thrilled to introduce our first session with Wells Fargo. I have with me here, on the podium, Charlie Scharf. He's the CEO and President. He's been the CEO and President since 2019. Really excited to get into the discussion to talk about Wells Fargo. Given that this is the first session today and my first SDC, I'll ask you to be easy on me, even though that's something that you should probably -- usually ask the moderator. So with that, Charlie, thanks so much for joining us.

It's great to be here.

Great. A reminder, everyone also you can submit questions through the Pigeonhole app as well.

So Charlie, let's start with the macro backdrop. Big picture, there's clearly been a ton of news and noise since the beginning of the year. What's your assessment of where we are in the U.S. economy as far as what we know today? And then we'll talk about where we're going forward.

Sure. I mean what we see is a continuation of what we've seen, which is, there's clearly concern amongst consumers and businesses of all sizes, but it really hasn't impacted any kind of the behaviors that we've seen. So we see a continuing strong consumer in terms of spend, in terms of credit. And we see continuing strong performance from our corporate clients of all sizes. But there's lots of discussions going on about how they need to react and change in this kind of environment. So what we're sitting here planning for is a period of volatility. That's just the reality of the world we live in today with the issues that have been put on the table by the administration. We're hopeful that there's resolution to these things or some clarity of exactly what gets resolved by when. That will help business customers plan for their future. And it's quite possible that there will be some kind of slowdown, but we hope it's not too meaningful. And both businesses and consumers go into that period relatively strong. So it's a very, very odd time. It's very hard to see any kind of trend either way.

Yes. And to that point, right now, we've got in D.C., the administration trying to put forth a lot of policies, talking about relaxing regulations, introducing tax reform. So what are your thoughts on all of that, and how that -- and the effect that, that's also having inside?

Yes. So let's break it apart between regulation specifically, how it impacts banks versus the other things that are going on. One of the things that we have said, and I've said when we go through the earnings call is, the issues that the administration is raising on trade and some of these other things. They're very reasonable issues to raise. And what really will benefit us over a longer period of time are changes that make it more competitive for the U.S. and the rest of the world. And when we go around and talk to our clients, and I'm on the road all the time, and you really get a real feel when you talk to commercial banking clients, middle market clients. And even though they see this period of uncertainty, and they're trying to figure out what it means to have tariffs that they're going to have to either deal with or pass on in one way, shape or form, a huge number of them will tell you about how unfair trade is, and how they look forward to the changes that are coming out of this. And so on a longer-term basis, to the extent that we wind up as a country in a better place than when we started, that's ultimately going to be very, very good for all of our customers and ultimately good for us. On the regulatory side, first do nonbanks for a second. We also hear that people often think about bank regulation when they hear regulation. But for our customers to be able to expand, get permitting and things like that, it's been incredibly difficult under the prior administration, and before that, quite frankly. So they're very excited to see the kind of comments coming out of DC about the changes that they want to make to regulation more broadly. You do see the administration move very quickly on certain projects, which make people feel very good about what's to come. But ultimately, it's going to require changes in the underlying processes and rules. And then lastly, you have bank regulation. And we are very, very supportive of strong regulation and supervision. But that doesn't mean that it should just be more and more and more. And there's a huge amount that has happened which we believe limits banks' broadly ability to participate in helping the economy grow. And the changes that the administration is talking about are very much directed towards those changes. None of the things that we see will result in any kind of safety and soundness harm, it will be just the opposite. We'll actually all become stronger because we're able to be more helpful, whether it's lending, taking deposits, intermediating in the markets, doing the things that we all do, which ultimately helps the strength of the companies.

And so when you put those 2 together, the macro uncertainty, the administration's movements forward, what do you think are going to be the biggest swing factors that we're going to look forward to in the next 6 to 12 months?

Well, first of all, again, specifically for banks, we're very much looking forward to the finalization of capital standards for banks. And we're very, very hopeful based upon everything that we've heard that the administration and the regulators understand that changes need to get made. You've seen that in terms of some of the things that the Fed has put out and the things that they're contemplating doing. When you look at a company like us, our stress capital buffer went up 90 basis points last time, and we have no idea why. And when we look at the company from everything that we see, we absolutely don't think we're any riskier than we were the year before. And that has a real meaningful impact on our ability to -- not just in terms of our returns, but what we can do in terms of the economy. So the recognition that these things are just not helpful, there's got to be more transparency so that we can run the place in a way that allows us to do as much as we can do is super helpful. And so we think that is an important linchpin combined with other changes like LCR and some of the other things that they're talking about, again, to allow us to do more. And ultimately, beyond that, when we look at the uncertainty out there in the economy, it is about the certainty of what happens with tariffs at this point, and ultimately, where they are on the budget.

And so when we think about Wells Fargo, and how it's going to execute against that, we're closer and closer to emerging from what's been a very inward-focused period of time for the company with the utmost attention paid to risk management, controls, et cetera. So when you think about just the starting point today of Wells Fargo versus 5 or 10 years ago, what do you think are the most different things? And how is that going to position the bank to incrementally intermediate and grow the company going forward?

Yes, it's a great question. I mean, when we sit and look at what the company was back in 2019 versus what we are today, we do feel like we're, in some ways, a completely different company, in some ways where -- the strengths that the company had still exists. Let me start with that first. First of all, through all the ups and downs that we've had through 2015, '16, '17, '18, '19, the quality of the business, the quality of the franchise is still extraordinary. When you look at the positioning that we have, we really believe that there are just a very select few of us that have the ability to offer the depth and breadth of products to be able to compete really effectively, pass on those benefits to our customers. And we're differentiated as are the small banks who do things in a way that we can't do, and they serve communities that is difficult for us to serve. So we think competitively, we are still in a great position as the company always was. But when we look at how the company is run, when we look at the focus of the company, we've simplified it down to the businesses, which we think strategically are important to be together to allow us to serve consumers and businesses in a way that I just said that differentiates us. When you look at the people that are at the company, our operating committee, I think, is 17 or so, of which I think 15 are new to the company since I got there. The other 2 are in different jobs, something like 150 of the top 220 people are new. And these are people that had experience in running companies at scale with the proper risk mindset that the company didn't execute on well before we were there, know how to do that, are able to put these issues behind us and then take advantage of this great franchise that we have and grow it. So we've spent an awful lot of time, as you said, Ken, inwardly focused to get these issues behind us. We're not done, but we're a hell of a lot closer to the end than the beginning at this point. And we couldn't be more excited about what the future holds given just the competitive position that we have.

And in terms of one of those legacy strengths, one of those legacy strengths has been the retail deposit franchise. So with the retail sales practices now largely behind, to your point, and you're facing a little bit more forward. So what are the avenues you have specifically on the consumer deposit side to kind of reopen that back up in terms of either building relationships, improving customer behavior, relationship promotion scores, et cetera?

Sure. That's -- so your point is very true. When we think about the issues that we went through, sales practices was front and center in terms of what our issues were. And so the way we had to deal with that issue was we actually had to just literally scale back almost everything that we were doing to drive growth in the retail system and then rebuild it from the bottom up. And so there was a long period, multiple years where we didn't have branch P&Ls. We didn't have sales reporting. We weren't focused on expanding the product set, improving the digital capabilities because we were so focused on creating the right infrastructure to satisfy the regulators, appropriately so, so that they and we could be comfortable when we turn these things back on that we could grow properly. And so when you look at the closure of the sales practices consent order, that was a hugely important point because that was confirmation that our regulators were comfortable that we now have the right processes and procedures in place to be able to do the types of things that other banks have been doing successfully. And so that allows us to go back and to recreate the kind of environment where we can really focus on customers and doing more for them. So when we think about the things that we're doing now that we weren't able to do before. We are very focused on primary checking account growth. We worked really hard to try and preserve share before. Now the focus has gone to what do we have to do to increase share. It's a multipronged effort in terms of how we get there. We've changed compensation plans. We've introduced reporting. We've simplified our product set. We've segmented our customer base so that we have specific products now available to those who are less affluent versus those that are more affluent. We're spending significantly more on marketing and very, very focused on both the branch experience in terms of what it physically looks like in terms of our customer satisfaction scores as well as building digital capabilities to be amongst the best out there. And so all those things come together in a way that should allow us to grow in a way that we really weren't capable of doing 3, 4 years ago. And Saulus Van Beurden, who runs the business as a team doing a great job of putting all those things in place. We're starting to see the very early impacts of these things when you look at those underlying stats that we report in terms of checking account growth, debit spend, active mobile users. And it's just -- it's a big battleship. And when you get it turned in the right direction, given all that we have to offer, we think we're in a great competitive position.

And in terms of just broader growth areas and opportunities, you've talked about several over the last couple of years where you've been investing, like credit card, investment banking, reinvigorating the wealth management franchise. Can you walk us through where you see the biggest opportunities among those? And in terms of like both the growth opportunity and that incremental ROE opportunity that you're also driving the company towards.

Sure. And I think one of the things -- I really believe this, which is very often, we think of like our businesses as I've got a couple of kids. Some people have more kids. I don't love one more than the other. And I had the opportunity with this management team when we came to the company to decide what we think fit, and what we didn't -- we thought didn't fit. And we exited businesses that we thought were low-returning businesses over the cycles. We exited businesses that we didn't think have the right kind of growth rates that didn't make sense for us to invest in. So when you look at what we have left, we think across every one of our businesses, whether it's consumer and small business banking, our consumer lending businesses, our wealth management business, the commercial bank and corporate investment bank, every one of them should be growing faster than they're growing today and have higher returns. And we think we have the ability to do that. With the 2 places that we're very, very cautious about are the home lending business, where you can chase short-term returns and chase growth, and it could turn out very, very badly for you in the future. So that we're focused on building it as a relationship product, not helping drive any of those things for the long term necessarily. And the auto business, where it's -- we're focused on returns, not growth. Every other business, we talked about the consumer bank, and it's all the things I talked about, plus the ability to serve the affluent and the branches, plus the ability to serve small businesses. We have 4,000 branches. We have name recognition. We have this expansive product set across deposits, lending, investments, huge opportunities to grow there. And again, you've seen from some of our competitors when you put it together well, you're a more attractive proposition to consumers than many of the other folks we compete with. You turn to the consumer lending businesses. Our card business, we think, is showing that with our brand, with the right people, with the right product set, with the right level of investment, you can grow very consistently outgrowing the market without stretching on credit, just having a great consumer value proposition. Our wealth business, we have over 10,000 advisers in multiple channels, both in our branches, in Wells Fargo adviser offices, and we have an independent channel. All 3 of those have opportunities to grow. Our commercial bank, same thing. We're adding salespeople. We're working on improving the way we deliver our payments products to commercial banking customers. Again, great opportunities to grow. And the corporate investment bank, which had been underinvested in for years. The company -- actually, the business did remarkably well given the low level of investment. When we look at the relationships that we have, the amount of risk that we take with these folks, the ability to serve them more with fee-based businesses is significant. So all of them, we really feel really great about. Otherwise, they wouldn't be part of the company at this point.

And when we think about just overall strategy in today's world, in addition to investing in the people and the product sets, we have to talk about just how tech and AI plan into the strategy around also business growth and business efficiency. How are you thinking about the intersection of that today?

Sure. And can I expand the question a little bit and talk -- maybe also talk about just the way we think about investments in the business. So one of the journeys that we've been on is to be very, very focused on becoming more efficient as a company. There's a huge amount of waste that exists in big companies, and we've found it firsthand. So even though we've been spending significantly more, $2 billion annually on the risk and control agenda, we've been increasing the level of marketing. We're adding salespeople. We're spending more money on technology. We're doing all of that. At the same time, our headcount has gone from 275,000-or-so since I got there down to 215,000-or-so. We're a better-run company, and we're spending more on these investments. And so we do think very hard about what we want to -- what we should do to achieve higher shorter term -- higher returns in the short-to-medium term versus the level of investment spend that we should be undertaking as a company. And so we're trying to find the right balance of investing where it really is about building businesses for the long term and has the right economic payoff, while making sure that we're showing all of our shareholders that the business is capable of earning at higher levels than it had been earning in the past, and there's a path to continue to increase returns. And so the card business is a great example, where when you look at the growth that we've had and the success that we've had in the card business today, it's not adding to the earnings growth of the company today or returns because it takes 2 to 3 years just to start building the profitability when you look at the upfront costs and the reserving and all that kind of stuff. But when we look at the performance of our card business, when we look at spend, when we look at balance growth, when we look at credit profile, it's right on top of the models that we were using in our assumptions. So we know the growth is built into it. So that's an example of a place where we could be earning more by not increasing the growth rate for the future, and we've made the decision to build the business because we think it's most important, and we're getting increased returns in other places. When we get to the technology agenda, I would say, first of all, our technology agenda is -- it's very, very broad. When we think about where we have to invest. It's cyber, obviously, huge spending. It's like -- the conversation is what else can we be doing, not how can we be doing less there just -- given just the level of risk that exists. One of the things that folks generally don't talk about is just the spend on the infrastructure. And banks for a long period of time have made it very difficult to offer a seamless experience to their customers because of the way these businesses had developed. So we're doing a lot and spending a lot on the infrastructure of the company, whether it's replacing core platforms, loan platforms, deposit platforms, things like that across both consumer and the wholesale businesses. At the same time, we're upgrading our technology to make it cloud native, building new data centers and things like that. So that takes actually a very significant amount of spend, which isn't sexy, but is key to build the right platforms to be able to move more quickly in the future and compete with all the people we compete with. And then getting to your question, it's just the AI opportunity. And listen, it's -- there's no magic bullet here. I'm not going to say anything that you probably don't already know, but it is transformative. We're at the very beginning of figuring out how to get all of the right benefits inside of companies like ours. The things that we're starting with are things that are much more efficiency focused. So things like virtual assistance for our bankers, when we look at call center opportunities and all the manual work that goes into taking a phone call, when we look at all of the call notes, categorization of those calls, trying to understand what our customers are telling us. That should not be done by individuals today with the level of risk and just how hard it is to get it right. And so we're building out a series of capabilities there. But when our operating committee had an off-site last week, we do once a year, we started talking business by business of all the opportunities. And whether it's credit memos, whether it's investment banking pitch books, whether it's filing patents, whether it is anything that humans do today, there is really an opportunity to do it a whole lot more efficiently to offer a better product ultimately for our customers. And then the question we all need to figure out is how much of that gets passed on to the customer and how much gets passed on to our shareholders in terms of how much more we want to be able to do. But the opportunities are hugely significant, and we're at the really early beginnings of seeing the benefits from it.

Yes. And I think the industry and the corporate world is in the same spot. Moving a little bit to the regulatory backdrop as it relates to Wells Fargo. There's been every eye pointed on the hopeful eventual removal of the Fed's balance sheet limiting asset cap and the related consent order. And as we've seen, the company has put to bed nearly all of the 14 orders that have been outstanding since you joined as CEO with only 2 remaining, including that big one. So can you walk through how you will think about the incremental opportunities? We talked a little bit about deposits already. But when that date comes, what's available to Wells Fargo to reopen the balance sheet? And how are you going to think about prioritizing, how to generate incremental balance sheet and add to the earnings base?

Sure. And you didn't ask it, but everyone always wonders just in terms of timing. And so I'll just repeat some of the things that I said more recently, which is we've had this asset cap for a long time now. We've been working extremely diligently to fulfill all the requirements that exist in the consent order, both to lift the asset cap and ultimately lift the ultimate order. Those are 2 different decision points for the Federal Reserve. And what I've said is if you look at all of the work that we've had to do to lift the other orders, most of that other work is very foundational to the work that goes into this order. And so as you've seen the regulators come in and affirm that, that work has been done properly, those are just very good proof points for you all to say we're much closer to that order being lifted than something other than that. And so we feel very, very confident that it's going to get lifted. And we feel very, very confident it's both the asset cap as is the rest of the order. Don't speak for the Fed in terms of timing. They're -- got a very, very diligent process that they go through. But our level of confidence in terms of where we are, and how far we are down that road is extremely high. And I've tried to provide that whatever clarity I can, speaking for us without getting in front of our regulators. What it means for -- it means multiple things for us. First of all, what it does mean is it just -- it does lift the cloud that exists around Wells. So as we go around, and we talk to people and people talk about Wells, we are limited in terms of what we can do maybe not in any specific day, but certainly over cycles and difficult environments, we've been limited on the way we can think about what we can do, both because of this cap, but also the work that's been required. I mean we have been so inwardly focused to get this work done that when the work gets -- when the orders get lifted, including when the asset cap gets lifted, it does give us more bandwidth to build on the foundation that we have inside the company to focus on growth. So it's a combination of our mindset in terms of what we can focus on as well as just this -- the scarlet letter goes away, and we don't -- we're not differentiated from the other companies out there. When we think about what it means specifically to the businesses, as I just said, I think what we said is there's no light switch that the day the asset cap gets lifted, all of a sudden, we start doing a bunch of stuff that's very, very different. We will expand the company in a very controlled way in a way that is within the same kind of risk tolerances that we've had, which will grow linearly over time, not exponentially. But it does -- we have been constrained in terms of our ability to take commercial deposits because when deposits come in, it comes with cash and that's -- it's a deposit cap in addition to an asset cap. So that limitation goes away. We have -- our corporate investment bank has been limited in terms of what they can do because we've tried very hard not to limit our ability to take consumer deposits and wealth deposits because that hurts you strategically. And that's come at the -- that's really come out of the corporate investment bank in terms of our ability to finance trading positions and to be able to grow that business at a reasonable level. So we will add balance sheet back there. And the 2 other things, which I think are incredibly important is during times of stress, historically, going through COVID, we were in a very difficult position, which is when times get difficult, you want to be able to be there for your customers. That's where you build relationships over cycles. And when people start drawing on revolvers and the Fed starts flooding the environment with cash, it puts us in a very difficult position. So not having that as a limitation, knowing that we're going through cycles is extremely helpful and important for us to serve our customers properly. But it also allows us to think more aggressively about how to use the balance sheet. So again, it's not tomorrow, but whether it's private credit, whether it's the things that we wanted to do to compete with the other nonbanks that are out there, we're able to use the balance sheet differently. And so it does open our ability to grow in ways that we haven't been able to grow since we've had the asset cap.

Yes. And to your point about the linearity, you're on this path to get the return on tangible common equity up towards 15%, long-standing view that -- and you've made that progress. And there's a chance that some of these opportunities just went might be initially sub-15%. So how do you balance that linearity make that path continue to march towards 15% and hopefully beyond and methodically continue to open the company up as you just walked through?

Yes. I mean it's a great question and a tough question because we are making those decisions all the time. And I think we recognize that we need to continue to earn the right to invest in our business. And the way you earn the right to invest in the business is to show that you get outcomes that increase returns and increase the level of growth that we've seen. So we try and make the decisions as to what does that look like? And so we're often asked, well, what our expenses going to be next year? We believe we will be able to, on a gross basis, reduce the expense base of the company next year versus this year. But we also know that we want to continue to invest to build the franchise. So we've been very careful not to promise today what that will look like when we get to the end of the year and make those trade-offs because we recognize that we want to show you that we're going to increase the returns of the company that you are going to see more growth. And so it's -- there's no formula to what that looks like, but I just want to make sure that people understand that we recognize both things are important. And it's true if it was your own company. I mean you wouldn't just go spend in a crazy way until you proved that the money you were spending was getting the right trade-offs. So when you take the amount of money that we're investing in marketing in the consumer bank, we've increased what we're spending in marketing fairly substantially. Should it increase from today? Absolutely. But we want to see that we know how to do it. We're getting the right level of growth from the marketing investment that we're making, and then we'll go from there. So what we're hopeful is that you'll continue to see an increase -- you'll continue to see both an increase of the level of returns in the business and to see the things that will drive growth in the future through the different statistics that we show you at the end of each quarter.

Yes. And so when we think about then the last part of regulation is you touched on it a little bit earlier, but we're anticipating a lot of these formal changes down the road to whether it's Basel III or the capital regime, which is another thing that does govern bank growth and bank returns. So what are you thinking about like what that ultimately looks like and that balancing act that you touched on earlier about good regulation versus too much regulation?

Yes. I mean I think the question is how do we think about where we're running our capital levels today versus where it could be. So today, what we've said is that we run our CET1 around 11%, which gives us a fairly significant buffer on top of the buffers that the government wants you to have, which is kind of belts and suspenders. I talked about before how when we look at the level of capital that we're required to hold, we don't understand it. We think it's too high relative to the risk that sits in the company. And when we look at that, we think about that both in terms of what it means overall, but we look at the individual pieces of whether it's RWA and things like that. So we're hopeful that when the Federal Reserve and the other regulators, along with the administration look at what the appropriate levels of capital are, they're not just going to say, well, let's just lock it in at today's level or what it was, that they're actually going to look at what makes the most sense relative to what's the appropriate level of capital to keep these institutions safe and sound, while allowing us to do what we should be doing out there. And the reality is, as I've said, the -- our capital levels have gone up. I think if you look at the capital levels for the banks over the last 4 or 5 years, I think capital levels are up 20% or so, 15% to 20% just over the last 4 or 5 years and easily double going from precrisis to what it was. So the levels of capital are hugely increased from where they had been. The scenarios that we have to go through to justify the capital levels don't always make a lot of sense, and they result in outcomes that when the government tells us what the outcomes are, are often very different than the outcomes that we've seen and we understand them to be. And as I said before, there's really no transparency up to this point as to why that's the case. I think that's going to change going forward. So that's just a very long way of saying that we, as an industry, and we as Wells Fargo, don't go to Washington and say, lower capital, lower capital, lower capital. The conversation that we have is get capital right. And everything that we know from our analysis suggests that the answers should be lower than they are today, certainly not higher, which is what we were hearing before. And if that's true, then we will be able to live with lower amounts of capital and still be extremely strong and extremely resilient through any environment. But we've got to wait and see what they come up with.

Yes. And so if we play that out, and we get to the point where either the 9.8% that you have to currently live at or the 11% where you choose to live out can come down, can you remind us about your usage priorities when you think about the balance sheet growth we just talked about, dividends and buybacks?

Sure. So because we've had the asset cap, we haven't been able to reinvest in the business, as we talked about earlier. So when you look at what we have done, we've made these trade-offs in terms of what we can do inside within the asset cap that we've had. And in addition to having to build capital for what I just talked about earlier, we've returned significant amounts through both dividends and buybacks. And so since we reduced the dividend around the times of COVID, we've been continuously increasing the level of the dividend, which we would hope we would continue to do. And we've been opportunistically repurchasing stock. When you look at our share count, I think it's down 22% over the last 6 years because that's really the only way we could use it. So as we go forward, our first priority would be to be able to grow the company, and to use it organically in a way that fits within the parameters that I described earlier and build in increasing high-returning earning base inside the company, which allows us to increase the dividend and whatever the remainder is, return that back to shareholders probably through buybacks.

Yes. And when we think about just the environment that we're in, I think one of the misnomers that you hit on a little bit earlier is that, that the asset cap is crowded out loan growth for Wells Fargo, right? With a 70-ish percent loan-to-deposit ratio, there's plenty of room to lend up inside the company. But as we've all seen year-to-date, like there's that uncertainty that lingers out there. So when you think about the opportunities for loan growth over the course of time and maybe mesh that in with just the environment that we're dealing with today, where are those opportunities? Where can you step in the most? And what do you want to see from an environment to finally like kick that up another notch?

Sure. Yes. I mean, to your point, Ken, the asset cap is not a constraint on loan growth today because the demand isn't there. And that's been the case inside the banking system now for a bunch of years, which does raise a question when you look at all of the lending that's being done outside of the banking system, why do banks not see the demand, but there's this huge demand that exists outside. And that is an interesting question, which we also think the regulators need to look at in terms of what is driving that. When we think about that, having said that, even though it's not a constraint today, we are very, very careful about how we want to use the balance sheet we have because we do have these revolvers out there. Something does -- again, COVID happened, we start to see significant drawdowns on revolvers. And there's no way for us -- if we're over the asset cap, the way the calculation is determined, there's no remedy for it. So who knows what the Fed would have done in that scenario. So we work very hard, not just to stay below the asset cap on a daily basis the way we're required, but to make sure we have enough room within operating that balance sheet to handle anything that come in terms of environment. So on the one hand, loan growth has been the issue and loan demand has been the issue. On the other hand, there is a constraint because you've got to be very careful about how we use it. And as we go forward, we have been able to grow our card receivables. We've been in a scenario where our home lending loans have been heading downward as we've been shrinking that business. But we would certainly hope to see opportunities as our middle market companies become more confident in the future to be more aggressive about using the existing facilities they have and new facilities. And it is -- it's revolvers, it's asset-backed facilities. It's all the different types of things we do for them as well as what we would see in the larger corporate space. A lot of it is the slowdown that we've seen in terms of the M&A environment, in terms of even large corporates' willingness to invest in these businesses away from some of the headlines that you hear from companies that are building things here to deal with the tariffs. But on a broad basis, that demand will return, and that's what we hope we will use the balance sheet for as well as thinking about what do we do to compete more broadly in the world we live in today, which we really haven't been focused on.

Right. And so the other thing that's been really hard for all banks and investors to navigate is the seemingly daily changes of the Fed interest rate curve and just the bond markets in general, obviously, making it hard for any company to kind of navigate outlooks and such. So can you help us understand in terms of how that loan growth dives into the deposit situation out there and the rate curves. The range of expectations you guys put forth in terms of full year NII plus 1% to 3%, how do we understand like what the range of outcomes are? And then the most important thing to think about whether we land on the low end as you talked about in earnings or in a different place, given that this is a daily change that we're watching?

Yes. Listen, I mean, it's an incredibly difficult -- I mean it's always difficult to forecast NII because you don't always know what loan growth is going to be. You don't always know deposit growth is going to be and you don't know what rates are going to look like in the future. But very often, you're in a trending type of environment and you have a pretty good feel for and a belief for the way you think the economic outlook will evolve over the next 3, 6, 9 months. And as we talked about earlier, there's a lot more uncertainty in all those things. So what will ultimately determine the strength of our NII over the longer term is our ability to grow the business, grow deposits, grow loans. We don't see, as I said before, a huge amount of loan demand. It's stable. It's growing slowly, but there's no significant increase in any kind of trend in demand that we've talked about over the last couple of quarters. There is a fair amount of competitiveness in the environment because all the banks are looking at their balance sheets and saying they'd love to have some more loan growth. And so you do see some people becoming much more competitive in terms of terms. We're trying to be very, very careful, not stretching at all on credit, in fact, being very careful on credit, competing on price where it's for a real customer that we think makes sense. And so those -- that kind of environment is not the kind of environment where you necessarily feel great about NII for the future. But it all depends on what certainty consumers and businesses see and their willingness to change those trends, and that can change pretty quickly. So ultimately, yes, we've got the rate environment, which is a little complicated. It's uncertain. Depending on what economists you get in the room, you get very, very different takes. But ultimately, it's going to be loan growth and deposit growth.

One of the things on the deposit side seems to be that the burden of -- that banks have been dealing with in the last couple of years of yield chasing behavior has calmed down a little bit, and we've seen the ability to reprice deposits down as an offset, in fact, to the slower loan growth. How is that kind of cascading through the Wells Fargo deposit business?

Yes. I think -- listen, I think 1 of the benefits that we have is we have a huge number of deposits, both on the consumer side and the wholesale side that are much more relationship based. And so less price sensitive, they're there over a longer period of time. And when you're in a significantly trending environment of rates moving up or downward both consumers and businesses are looking for a change. And most of that behavior has already occurred. And so now the question is, where do we go from here? The marginal changes allow us to do different things, right? Changes in rates are often good for us both upward and downward in the shorter term and your ability to extract some more net yield out of that is a positive, if you have a sense for the direction of trending.

Yes. All tricky as I intro-ed. On the cost side, you mentioned that Wells has been able to, well, keep costs flattish over the last several years. And even with all the incremental spend, right, funded by all the efficiencies that you've saved over the last several years. So you talked a little bit about this with your investments point. How do you get the comfort that you're towing the line in the right way in terms of trying to keep the line as tight as it can and making the right amount of investments to both do what you need to do for growth and also come back -- coming back to that point of increasing growth and return over time?

Yes. Well, so first of all, we run really 2 parallel exercises in the company that we do annually through the budget cycle, but then we update throughout the year as the world changes. And the -- and literally, the conversation is where should we be more efficient in the company, totally separately from where do we want to increase the level of investment, what are those opportunities? And we want people to think about trading off things within their businesses. But Mike and I spent a lot of time looking across the businesses at how we want to prioritize things. So first of all, I said this before, but I just want to reiterate is, with all of the efficiency that we've generated inside the company, which is over $12 billion on a gross basis today, our net expenses are down. I talked about before, our headcount being down from 275,000 to 215,000. When we, as an operating committee sit inside the company, and we review our results, no one says we're efficient. No one says we're as good as we can be. It's not even close. And it is like an onion, when you peel the onion back and then you see the next thing, which is the next obvious thing to go look at. And it's everything from continuing to move towards common platforms versus the way the company was operated before. It's having people focused on work which isn't driving the highest return level of things so we need to reprioritize what they do. And it's just getting rid of the corporate bureaucracy, the processes that exist inside the place. And as I said before, we've spent -- we've added on a net basis $2 billion, plus or minus, to deal with the risk and control work that we have to do, some of that is project oriented, which as the work completes, will go away over a period of time. And as you implement these things and as they become more mature, they -- we do have opportunities to do those more efficiently, not a today issue, but certainly in the future, as we continue to make progress, that creates opportunity. And then when we look at where we want to invest, it just comes down to how strong do we think the returns are. Again, the card business -- and it's both financial returns as well as strategically building something important for the company. So the card business, we think, is a great example of things that support both of those. Number one is very high returns over the cycle, running at the way that we're running it. At the same time, we think it's incredibly important to be in the payments flow for consumers and small businesses. And being in the payments flow allows us to think about all the different payments products, whether it's stable coins, tokenized deposits, other things which are going to continue to evolve out there, but you got to deal with the way consumers actually behave today and a huge amount of that is credit cards, debit cards, ACH. And if you're strong there, it gives you the opportunity to stay inside of that customer relationship. So hugely important to grow strategically as well as getting the right returns. And so we are sacrificing short-term profitability there because we know we're building something which will generate returns in a couple of years as well as create us -- allow us to be in a much better position to deal with what the future looks like.

Yes. And you touched on -- I was going to ask you about that bucket of spend, the incremental $2.5 billion that you've been spending on risk and control. That -- so I was wondering if you could just talk a little bit more about that over time, if that becomes a little bit more efficient, if some of that cost goes away, is that money that you find that you reinvest into the company, does some of it eventually fall to the bottom line, is it a mix? How does that decision?

Well, I think -- well, first of all, what's going to happen is, and just to be like, we're not going to do anything which is going to take us backwards in the things that we've built. But as I kind of alluded to earlier, all of the work that we're doing, it comes with significant project cost. We have people that have been doing nothing but building these things. We've been paying third parties significant amounts of money to help us build these things. And so when those things are implemented to the satisfaction of regulators, those project types expenses are things that we can deal more quickly than not. Then once these things are implemented, listen, we wrote the response to consent orders 4, 5 years ago, meaning we got a consent order. We give the regulators a plan that says we're going to build the following things. 5 years later, you sit there and say, well, was it the smartest way to do it? Is it the most efficient way, you've learned a lot. So we do have opportunities that will help us become more efficient in that work which will actually make us better controlled because we're looking at things holistically now than we had done before. So again, it's not a today issue in terms of being able to get synergies out of that work. But when the work is behind us, we're going to be very thoughtful about what we can reduce. But we're going to think about it the same way that we think about everything else is, let's just run that work as most efficiently as we can. If there are reductions, there are reductions and then separately say, where are the benefits of investments? And how much of it should we do and in what businesses or what parts of the company should we be investing in?

Yes. And so it wouldn't be a bank conversation without talking about credit and credit quality, which has been great for the company, for the industry, albeit with the bumps in the road that have happened in CRE over the course of the last couple of years. But as we sit here today and think about everything we've discussed in terms of some of the uncertainty in tariffs, what are you watching out for? What are you looking out for amidst this uncertainty? And just talk about where you feel in terms of that underwriting quality that's been inside the portfolio?

Sure. Yes, so listen, what we look -- I mean, we are -- we look tirelessly at the earliest indicators that we possibly can find. And so we look on a weekly basis at spend levels within our debit card business, our credit card business and just ACH bill pay activity and things like that. That ultimately gives us an earlier indicator than very often what we see in payment trends in our loan products, but we do the same there. We take it apart by geography, we take it apart by affluence level, by vintage, all that kind of stuff. What we see is just this level of consistency, not a lot of change in terms of consumer behavior. And it doesn't mean that you don't see changes within categories. So we do see less spend on travel, but you see more spend in other categories and the overall level of debit and credit card spend has been roughly the same. Now I'm not sure that's true across all affluence levels. There's clearly more pressure on the less affluent customer than the more affluent level of customers, but the more affluent customers are kind of bring -- keeping those averages up at higher levels. So we're going to continue to look at those patterns. Payment rates are strong in all of our credit products and that consistency in terms of what we see in terms of spend just says consumers haven't changed behavior dramatically at this point. And on the edge, we're planning for a slight worsening of the consumer, even though we haven't seen it. It doesn't mean we're going to change a lot of behavior because we had tightened over a period of time, we were going through conversations after the election of whether we should loosen credit standards back to where we had started from. And so we're not going to do that. So that's what I mean in terms of just staying relatively tight in terms of credit until we see how this environment plays out. And then on the business side, ultimately, it's going to be what are the impact of these tariffs and their willingness to grow their business. But at this point, again, consistency in terms of credit performance across most all industries with just a couple of idiosyncratic differences in industries or retailers or things like that.

Got it. And to wrap up, any final thoughts that you'd leave us in terms of what we should all be collectively thinking about Wells Fargo and...

Well, listen, I hope -- I mean I hope what you get out of the conversation is, we're extremely proud of what we've accomplished because it's been a long, hard road, given the hand that we were dealt. But the hand that we were dealt had this amazing franchise in it. And we think we've just got a great team of people. We think we're positioned extremely well. And whether it's the next 3 months or 4 months or 5 months as we get through this level of uncertainty, we are bullish on the country, and that means our opportunity to serve customers more broadly is hugely significant. And our ability to look more outwardly and to focus on those opportunities, is something that really excites us, not just putting our issues behind us.

Thanks so much, Charlie. Please join me in thanking Charlie Scharf from Wells Fargo.