Wells Fargo & Company ($WFC)

Excellent. Okay. Exactly 4:30. Ready to go. All right. Great. Hi, everybody. Thanks for wrapping up the day with us. I'm Ken Usdin, the large-cap banks analyst at Autonomous. Really happy to end the day here with Charlie Scharf, the Chairman and CEO of Wells Fargo. Charlie has been the CEO of Wells since 2019. He became the Chairman of the Board last year as well, add on that title. And as we'll discuss, the past year has been a really important one at the company. In fact, a year ago, we were sitting here a week before the long-standing asset cap got removed a week after we talked at the SEC. So really happy to have you back to discuss the evolution of the company in the year since. Just as a reminder, everyone can put in questions on the Pigeonhole app. And Charlie, thanks again for being here.

Thanks for having me. Great to be here.

Great. So let's start off just big picture. It's been quite a year and 5 months. There's a lot of things going on in the world and in the industry. Maybe just level set us on your expectations for where we are in the economy. You see a lot of data inside the company. Where are we today? And where do you think we're headed in terms of the macro factors that we should consider for a while?

Well, listen, I think you're probably hearing much of the same from all of us who have these large data sets, which are things are still extremely, extremely strong. Really hard to find pockets of weakness in the actual results. Put aside surveys of how people are feeling for a second, but when you look at consumer spend, consumer spend is actually even stronger than it was a couple of weeks ago, a couple of months ago. People are spending more on fuel, they're not spending less on other things, and they're actually spending some more on some of those other things. It's not at the expense of delinquencies because delinquencies are flat to down across almost all of our products. And savings rates are still really strong across both deposit products and investment products. So you add that all together, that paints a pretty, pretty good picture of where things stand. Now it's true that it's differentiated across different wealth levels. That's not new. But it's not really spreading, but it's also not getting better for the lower end. So all in all, things are extremely strong relative to the consumer. And on the business front, it is more of the same, which is businesses are still financially very, very strong. When you talk to them, they're nervous, they say they're not growing inventories and things like that as much as they might otherwise do if they had more confidence in what the next 6 months were going to look like. But when you actually look at just deals that they're doing, when you look at normal course business, there is loan demand, and they're doing interesting strategic things. And their overall performance is still relatively strong. So you add that all up together just in the normal banking business, things are really good. And I'm sure you've talked about markets and the investment banking business, and things are extremely strong there. So just paints the current picture of things are really good. What can change that? Oil being higher for longer, oil will be higher than people probably initially expected. But if there is an end to the war in sight and there's an expectation that oil will come down, that will have less of an impact away from just the consumer in terms of how it filters through all of the products and services certainly around this country because when it comes to consumer spend, oil is only 5% or 6% of the spend. So you add that all together, and again, there are lots of events that can happen in the world. But just relative to what we see in the business, things continue to do really well.

Yes. Do you think this is kind of an adjustment to a new normal where uncertainty is the day to day, and therefore, companies and consumers are less fazed when a real dramatic downturn comes?

I think, I mean there's no question. I think part of it is just the state of the world, part of it is the administration, part of it is just there's more volatility, and that's something that we'll likely be living with for a long period of time. So the question is what are the trend lines as opposed to what are you seeing in any individual period? And again, I think when you come back to it, as long as people feel good about the ultimate direction regardless of what these spikes that we see in terms of news, that will be okay.

Yes. Yes. So a year ago, again, we sat here a week before the asset cap removal, which is a milestone for the company, having dealt with it for several years. To start with, a year later, talk to us about how different it feels inside the company a year later?

It's remarkably different. I think when you have an asset cap and you've had it for a long period of time, just imagine what it's like having to talk to your clients about that, whether you're talking to individuals, you're talking to businesses. When you're -- we were in a position to have to push deposits away, let alone not accept new deposits on the corporate side, we couldn't be aggressive about growing consumer deposits because of the asset cap and because deposits bring cash with it so those are impacted by the asset cap as well, and just the overall morale of not being able to compete on a level playing field, even though you're being judged by the same standards. So yes, the asset cap is lifted, but it's also all the other consent orders have been lifted. I think it was 13 from the time I got there. And so now we're in a position to be able to compete without the restraints that we've had in the past. So everyone across the company is focused on growing, I'll describe it as intelligently, sustainably, in a way that makes sense for the company over a long period of time. So people feel really good about the reputation of the company and what we've been able to accomplish. But I think they all sit and look at the opportunities that we have and say, this is a great company that should win in the marketplace. And now we can do what we need to do to actually capture that value.

Yes. And how would you mirror that from the external side? How -- what's the client reception been to that change?

I think, listen, the clients have been, I mean, remarkably understanding through the -- through some of our most difficult times. Again, when you go to -- when you're a bank and you go to a client, you say, please take your deposit someplace else. That's a hard conversation to have. And so when we look at what's been happening over the last 6 months or so since the asset cap has been lifted, we've been able to attract a lot of those deposits back which helps solidify and broaden these relationships that we have. And I would say that in general, I know this is going to be -- it sounds like a generalization, but people are rooting for us. They want other choices. They want other large banks to be able to be there to help support them with all the things that we do. And so extremely receptive to doing more with us over time.

Yes. Got it. And so as we've gone through the first 5 months of the year, the stock, even after this kind of restart for the company, has underperformed a little bit. And the feedback that we get from investors is a combination of profitable growth question, sustainability of NII, NBFI that's come up and M&A. So there's a lot of things that have been out there. So if we can talk through them, why don't we start on the growth side? So you've talked a lot about just the growth path in some of your different businesses. Why don't we just tick them off a little bit and just kind of talk about your biggest avenues?

Sure. I guess let me start with when it comes to how we feel about the opportunities that we have, like, we feel as good as we have ever felt about our opportunity to grow, to increase our return on tangible common equity and to take share in all of our businesses. Full stop. End of story. With the exception of mortgage because we're not looking to take share in the mortgage business. And nothing has changed. In fact, we probably have higher conviction than we've ever had that those opportunities are still there. When you go through the businesses one by one, we have a great consumer banking franchise, which, as I alluded to before, we were in a position for extended period not to aggressively grow. Again, when you have an asset cap and you can't bring on deposits with the cash associated with it, every deposit that we brought in the consumer business meant we had to free up room elsewhere for it. So we had to be very, very careful about working to grow that franchise. Now that those shackles are off, it is all about spending more money on marketing. It's hiring bankers. It's retooling our incentive plans. It's updating our products. We are starting to grow our net checking accounts in a meaningful way that we hadn't grown for a very long period of time. And when you look at all the things that we have to offer relative to our deposit products, our payments products, our lending products of all types, our investment products that we have because of the 12,000 advisers we have, there are only a couple of us that are able to do that. And so now we have the ability to actually use that to actually grow relationships, to grow deposits and bring these other things along with it. And you're starting to see that in the results. And so when we think about what proof points do we look at to say that the growth is going to be there, it starts with active check accounts. It starts with active engagement and products and balances and loans and cards and all those things come along the way. So we feel really great about the trajectory that we have in that business. And we're still very early on in what we think the opportunity is. Our commercial bank, there, we've actually been at it a little bit longer in terms of figuring out where we can grow without stressing the balance sheet. We've been targeting areas that we think are ripe for success. One is offering our corporate investment banking products into our commercial banking clients. And we've seen real success there. Most of that is fee-based. And we probably -- we should be making $1 billion more a year out of that business. I mean, not -- we're not talking $50 million, $100 million, we're talking $1 billion when you look at what our middle market customers pay the Street, if we were just to get our fair share, not even all of it. We're looking at where we have underpenetration across the country because we haven't invested over the past bunch of years, and we've added over 150 bankers in markets, and those bankers are just starting to become productive. So you see it in terms of the deposit growth we've seen in the business, the loan growth in the business, it's really starting to come through. Corporate Investment Bank, we've been talking about. That's a business we've been focused on because we had these significant lending relationships and significant treasury management relationships and just very underpenetrated in fee-based products. So the opportunity to do more with higher returns is really meaningful. And so focused on equity capital markets, debt capital markets, covering the sponsor communities, our M&A franchise, and you see meaningful increases in our market shares across almost all of those products. Our revenue growth has been extremely strong, and we've got a long, long way to go. And same things on the market side. On the market side, we were always in some of the core basic products on the market side, very focused on corporate flows because of the corporate relationships that we've had. We've been building out institutional capabilities. And as we see the opportunities there, again, we're just at the beginning. And when we think about -- when you look at what our results were last quarter, we're talking mid-teens-ish growth in revenues. And when you look at this upcoming quarter, we would expect the same across both our total markets revenues as well as our investment banking business. So real proof points there. And then we have our wealth business, where we would expect low double-digit revenue growth in the upcoming quarter in the wealth business, stabilization, and now growth of the adviser base. So we just look at all these things and every one of them is a slightly different story. Every one of them is starting to have real growth today. And this is in an enterprise where we think we can continue to achieve that growth with little or no expense growth just because of the opportunities that we have to continue to drive efficiency in the company. So the premise for us and why we feel so good about the future is we look at all of these businesses, we say they should all be growing faster than they were growing when I first got to the company, we're starting to see it in all these businesses. And the simple equation of growing revenue faster than expenses in -- with the right level of risk-weighted assets is all accretive to ROTCE. So that kind of lays out the path for why we think we'll just continue to make progress and increase that number.

And one of the things that's happened as you've embarked on the restarting the growth is that some of the initial growth is a little bit lower net interest margin than the company, and then there's a little bit of a...

Just hold on a second. Can I stop you for a second because that's a little bit of the talk track that's out there. So let's just be really clear. When you -- when we look at where we've been growing the company over the last, call it, 2 to 3 years, we've been very focused on growing businesses that didn't require balance sheet. And so we've been growing our card business, we've been growing our M&A franchise, we've been growing our underwriting franchise. When you go through all these business, and those are very high-returning businesses, high ROA businesses, even though I'm not sure that's the right way to think about the business, but certainly high ROTCE business. More recently, because we've had the capacity to increase the balance sheet, what we've done is we've said we had actually gone to our markets folks when we had our balance sheet constraints, and we said, you guys have to free up balance sheet, stop financing a bunch of clients, and we've been adding that back. The actual financing of clients is not high ROA. You can make 20, 25 basis points on it, but it is a reasonable ROTCE business, and you do it because you expect to get more trading flow from those customers, which doesn't always happen like in that same day you advance the lending credit. It builds over a period of time. So when you look at our NIM, it's compressed NIM a little bit, but it's not hurting ROTCE. And if we continue to execute the way we think we can execute, it should be absolutely accretive to our ROTCE goals which, I think, is the right way to think about a financial services company.

Yes. And so then the follow-up to that is then, with that as the base point then, there's a little bit of a time lag, right? But when you initially offer some balance sheet and then you get the other stuff from clients, how does that -- how will we see that emerge and evolve?

I think you see it -- you should look to see it in 2 places. Number one is, you should expect to see revenue growth more quickly. So if we're extending balance sheet to someone like, again, what we're saying is we might not get all of the revenue that we would expect, but we do -- when we sit in the business review like we did this morning with the CIB and we look at how we expect to use the balance sheet, like, we expect to be paid for the balance sheet usage day 1, not over time. We expect to get a reasonable level. The question is when do you get the outsized returns because all of the other things will come. And I think that's where -- what we want to be able to show you is the ROTCE going up more dramatically over time in that business as it becomes a bigger portion of the business and we get paid for it. But again, I want to be clear, we expect -- you should expect to see it in revenues and returns day 1. Even if there's a little bit of NIM compression, the question is, is it a good business to do on a standalone business? And is it accretive to the earnings and returns of the company?

Got it. Okay.

And just to be clear, because if it's not, we're not going to do it. I mean, it's like -- we're not in the business of just extending balance sheet to counterparties and not getting paid for it. And what we found is people are absolutely willing to pay for it.

Got it. Understood. So talking about the second point then, so on net interest income and net interest income growth, can you talk about the key drivers to getting to the $50 billion plus or minus goal that you have set out for [ 2026? ]

Sure. Yes. So we gave guidance of around $50 billion for NII. We still feel very comfortable with that. And when you look at the pieces of it, it's pretty straightforward for us because most of it is not markets related. About $2 billion of the $50 billion is markets related. So most of it is non-markets related. So it's our lending, deposits, investment portfolio, et cetera. And so when we came into the year, we were assuming that there would be, call it, mid-single digits loan growth. When you look at the first quarter alone, we grew loans 4%. So we would say, let's not project that 4% every quarter for the rest of the year. But we're seeing good loan demand. And we're not changing our underwriting criteria to grow loans, right? These are -- we're growing loans in businesses that we know where we think we understand the credit, where we think we're the attractive lender for different reasons in different parts of the business. Most of them are relationship oriented on the wholesale side, and we're growing our card business and the auto business. And so as I said, the assumption was mid-single digits. We're doing a little better than that, but we'll see how the rest of the year turns out. So there could be some upside there. On the deposit side, I would say also mid-single digits. We've assumed in our $50 billion that a significant amount of it would be interest-bearing because that is what you bring interest-bearing deposits on for the relationship then over a period of time, you attract more and more of the noninterest-bearing. And just as a reminder, I've said this multiple times, we've had to push away these interest-bearing commercial deposits as part of the asset cap. So we're just -- we're bringing them back on, so our deposit mix has -- since the asset cap became more consumer weighted, it will now return to something that's more normalized as we bring those deposits back on. But they're deepening the relationships. And again, they're balance sheet users, and so we would expect to get paid for it. So again, kind of mid-single digits and maybe playing out kind of very much within our assumptions there. And then you look at just the overall rate cycle. And what we've said is when we gave the guidance, it assumes a couple of rate cuts. That doesn't look like the world is believing that, that's going to play itself out. But expectations change all the time, as we know. And as it gets later in the year, it becomes less impactful on this year's NII but certainly could be more helpful towards the end of the year and as we go into next. So hopefully, that gives you a sense for when we think about where we are on that, the confidence that we have and the reasons why.

Yes. And you mentioned the remixing of the deposit base based on bringing back some of those commercial borrowers. You guys have one of the lowest cost retail deposit bases. And how does that work through in this higher-for-longer environment that you mentioned in terms of being able to kind of protect that low-cost deposit franchise?

Yes. Listen, I think it's a great question, and there's no easy answer to it other than we've been through cycles more recently. And those that are the most price-sensitive react early on. And then you've got like the stragglers of those that are -- that decide to become rate sensitive and decide to take action. So it's something that we've got to look at. It's one of the reasons why when you go through what I said about NII, you might feel better about it than our guidance. But what you -- but this issue is something that we're not exactly sure how it plays itself out. And so it gives us a little bit of comfort there.

Okay. Third topic then, NBFI and credit. So underlying asset quality, very strong. As you mentioned, the economy holding in very well. And you put good context on -- with your disclosures around the portfolio, private credit, NBFI. You had that one loss in the first quarter. Conference call commentary sounded good about the book in general. How would you reinforce that comfort in that portfolio as time moves up -- moves along?

Sure. Listen, I think obviously, for -- because of the increase in just private credit broadly, not just direct lending, but all the different pieces of private credit that exist out there and where the financing is coming from and a lot of the noise, we wanted to try and be as transparent as we could about where our exposures were. And so for those of you that haven't had a chance to look, I encourage you to go back and look at our last quarter's earnings presentation where we provided fairly extensive detail on what makes up all those pieces of exposure because they're all very, very different. It's everything from warehouse lending for an auto finance company to lending to a capital call facility. And so the credit -- the credit risk is very different in all those things. I would say all of the things that are embedded in there are things that we've done for a long period of time. We have not -- again, just like I said earlier, we have not changed our underwriting criteria to chase volume. A lot of the growth that we see is because of the volume that exists in the marketplace, we believe the business that we're doing is not representative of the industry overall, but the higher quality business because we've been doing it a long time and we're clear about the loans that we want to make and not want to make. And when you go through each one individually and look at what the attachment points are and how much loss there has to be, it's very, very well protected. So again, we'll continue to provide the disclosures. We'll talk about the credit performance so you can see it, but we feel really good about what we have there.

Yes. And as the company begins on the growth path again, how do you make sure that you don't drift on underwriting? And so you said you won't do bad business that you aren't interested in. But companies that grow faster are typically put in the -- watch out for underwriting. So how do you maintain that discipline? And how is that driven through the risk organization?

I think the -- as big a company as Wells is, we're really not a complicated place, which is actually really helpful, meaning we are predominantly U.S. When you look at just where our business is, 95% of our revenues come from the United States. When you look at the places where we extend credit, it's the credit card business, it's the auto business, it's core commercial banking, it's asset-based lending. I mean, it's a lot -- it's the traditional businesses in which we operate. And the things where we're focused on growing are predominantly in the same relationships, in the same asset classes with the same credit standards that we always have, but now we've got the ability to actually do more than -- because we were eliminating -- because we were limiting what we were able to do in the past. So I've talked about this. We've grown our credit card business substantially since we got to the company, not by changing credit criteria, but by introducing 13 new products that all have better product propositions, better customer service than we've ever had, extremely competitive out there. And because they're really great products, we get positive selection. The credit -- the credit profile of our borrowers is slightly better than it was pre that. And that's not on average. We're looking at tails as well. So we look at all those things, the people who run credit in the company are the same people that have run credit in the company for a long period of time. It's something that we are well aware of that we've done for a long period of time. And when we think about all the things we want to evolve and change, the credit culture of the company is not one of them. And so we're just -- continue to be focused on extending credit the way we've extended credit.

Yes. Okay. And then the fourth topic of interest on the M&A front. So with the asset cap off, regulatory constraints are lower, you're below the deposit liability cap. You've got room to grow. You've got plenty of excess capital. The concept of Wells being a potential acquirer has come up in the last 6 months or so. As you think philosophically about inorganic opportunities, how do you prioritize potential additions to the franchise? What are nonstarters? How do you just think about the go/no-go...

So just to be clear, it's come up not because we brought it up, because everyone asks about it. And what I say is when people ask us about doing deals, I say like the -- like you asking about it and me answering it, that's more conversation than we have about it internally. We are very, very focused on taking advantage of the organic opportunities that we have. We are incredibly excited about the ability to grow within a franchise that has been unable to grow in many of the things that we've done. So that is, first and foremost, where we're putting all of our attention. Number two, I would say, having been around for a long time and been involved with a lot of companies that have done a lot of deals, one of the things that, like, I've just learned over and over and over again, both looking at things that have gone well and things that haven't gone well, is, like, you better know what you're doing when you do it. And know what you're doing means that you run a really great business where you have really strong returns, you've proved to the marketplace, you can grow. And we're still in the process of doing that. So the idea of us going out and the fear that we're going to do something that's sizable in the banking space, it's not the way we think about it. We think about it like, hey, we -- to be in a position to do that, you got to earn the right to do that. And we've not. I mean, not -- we haven't even come close to earning the right to do that. So I would say, like, that's actually not a bad place to be because we think we've got so much opportunity in the existing franchise, but you kind of put those things together and just go, it's just like not on our list of what we're thinking about. It's just not.

Got it. Okay. Let's talk about different topics then specifically about costs, about AI, about how you're bringing this through the company. So AI's got the potential to change the overall profitability of banking overall. How do you think through the opportunities and the challenges as you incorporate it as every bank is into the tech ecosystem and...

And what are the payoffs?

Yes.

Because I think when we -- so when we think about -- let me just talk about expenses first and then talk more broadly about AI.

Yes.

So because, again, when you think about, like, where we are as a company, we think one of the great opportunities that we have is we're at a very different place than a lot of other people. There are a lot of -- most of the people we compete with have been, like, at it for 10, 15 years of getting better and better, becoming more efficient, figuring out where to spend money, where not to spend money. That's not who we've been. Who we've been is a company that actually wasn't good at expense discipline for a long period of time. Then we had all of these issues where we were forced to spend a lot of money, gigantic amounts of money, over $2.5 billion a year to actually fix a lot of these things. And concurrently, we've been looking at where can we unpack a lot of the processes, where can we look at multiple platforms and things that exist for us to figure out how to become much, much more efficient. And so we are far from done with that before AI even comes along. And it's -- we don't -- I don't like to draw a lot of attention to it. But we've gone from -- since I joined the company, I think 275,000 people to 205,000 people. And I think of our assets, we sold a couple of businesses, I think that was 4,000 people. So we've done this in a way where we're actually improving the performance of the company, better customer service, higher returns, higher growth because we're just eliminating all of the wasteful things that have happened inside the company. We want to do as much through normal attrition as we can. And we would say just on that journey, like, we're far from done, like, not even close. If you sit down with the operating committee or the people who report to them and say, are we a really well-run company? Are we really efficient? Have we gotten to everything? They say, absolutely not. It's like peeling an onion back. You saw what you saw. We got a lot of the saves we got. Now we're to that next level, and it's all those things we can continue to do. So when we think about how we allocate our dollars, our expense base is down, but we have cut something like $15 billion of expense out of the place, but we added something like $8 billion or $9 billion back in new investments in things like bankers, marketing, building infrastructure to support some of these things. And so when we look at how we're thinking about the expense base of the company, the conversation literally is, there's one conversation that says every part of the company, area by area, how can we do more with less? And then what are all the things that we want to do to spend to grow the business. And it could be anything from, as I said, technology, to just people, coverage bankers, investment bankers, relationship managers in the commercial bank, all the way through to things like advertising. And so those are -- and then the question is, what are those -- where do those net to? And I would say -- and I talked about this before. We are conscious of the fact that we have to prove to people that when we make investments, that they're going to -- that you, as analysts or shareholders, will actually see that. So we don't just sit here and say we're going to spend every single last dollar that everyone wants to spend. We prioritize it. We have looked at the overall expense levels. We feel good about where we're investing, but we have targeted intentional restraint on the overall expense base? But at the same time, I would say, I don't think there's anything that we're not doing that we should be doing because of the way we think about that. That just forces us to become even more diligent about freeing up resources so we can invest more. And as we sit here today, we still have that same thought process. We still believe lots of room to generate efficiencies out of the company, and that gives us more room to increase the level of investment without increasing the expense base of the company. And as I said, that's before AI. And we think about AI in 3 different buckets. We think about how we use the tools and what that means for our own ability to become more efficient as well as our ability to provide better what we do, better products and services for our customers. We think about the impact of AI on our customer base because we lend a lot of money, we have a lot of -- we do a lot of things for people, and so just like if private equity investors are thinking about how AI is going to impact business that they're investing in, we're very actively thinking about what that means for the risk that we take and also where we should be doing more, not just where we should be doing less. And then the third piece, which is obviously the most complicated, which is just how does -- how can it ultimately change our business model? And is that a plus or a minus in terms of how we react to that? So 3 very, very different buckets. First bucket, I would say, there's a lot of debate on what it means for employment with AI. And I just -- I find it very surprising when really smart people take one side or the other. They sit there and they say, it's not a threat to employment or they sit there and say, it's a huge threat to employment, right? It's just -- it's so obvious to me, looking at the way we're using AI inside the company, it is both of those things. And the risk is that those -- that they're not totally aligned in terms of the same people and the timing of it. And so when we look at the money that we're spending to develop tools today, it is going to result in us being able to do things much more efficiently than we do today. We know that. We see that. We're planning for it every step of the way. And by the way, it doesn't take a lot of investment dollars to get these opportunities. So historically, you had to go spend a huge amount of money in order to build technology to get efficiencies out of it. The amount of money it takes to build an agent is relatively small. So that's not a driver of any material increase in expenses. It's more a question of how much can we do at one point in time. But we're looking at -- I mean, every area of the company, you can start in audit and you can go through testing and go through what the automation should be in terms of testing versus humans doing that. You can look at legal, you can look at contracts, you can look at patent filings. You can look at pitch books in the investment bank that are automated. You can look at credit memos. I mean the list goes on and on about the places where we've got the opportunity to become much more efficient with the AI tools. And so that is something that we think will actually be super helpful for us. How much of that actually results in pure margin or return expansion is to be seen because people do it, there's a lot of competition out there, and you'll share some of that. But it is certainly a net positive to how we think about the overall expense base in the future. And then there's the opportunities just to be able to do more. And so yes, we're going to hire more people over time who either have the skills to build models or will be able to use the tools that we're building, do a better job servicing customers because people don't go away in this, right? There's a substantial ability to use these tools to put our bankers and our call center reps and people in a position to do a better job for their customers. So we've got this mismatch that as a country, we're going to have to deal with. And we're very actively thinking about how do we retrain, how do we get ahead of that. But that is certainly a risk that exists more broadly. But for us, it's a real opportunity.

Yes. And just coming back to one point that you mentioned that you purposely kept a restraint on the overall level of expense growth. How do you get to the point where you feel like flattish is the right number?

It comes down to because the way we do the process is we don't set the artificial constraint out at the beginning, we say, let's get as much efficiency as we can out of the place and then let's make the full list of all the places that we want to invest, and ultimately, either myself, with Mike Santomassimo, who is the CFO, we do it with the operating committee, we literally go through, we prioritize all those things where we think they've got either the highest return or the smartest thing to do for our customers. And then we draw a line that says, like, that's the amount we're going to do. And then you look at the things that fall below the line. And literally, we go and we talk about it, how do we feel about not doing that or how do we feel about doing it a little bit more slowly. And what you just -- what you find very naturally is that, first of all, there's only so much you can do at once. So there is a natural limit to how much you can invest wisely. And so having it below the line doesn't mean you're not going to do it. It might mean you're going to start it in the second half of the year instead of the first half of the year. So those are the kind of trade-offs. And by the way, it's no different than your own life. We talk about that all the time. I mean, you can wake up in the morning and say, you want to go buy the following 5 things in your life. But you say, I'm not going to do them all today. I can't do them all today. Even if I got them, I probably wouldn't be able to enjoy them as much. So you prioritize and you figure out where are those things. I will say, if we thought that it was the right thing to do for the company to spend more money and to have a different outcome on net expenses, we'd be really thoughtful about it, but we would do it. But we just think given how much we're investing and the opportunities we have for savings, we're just lucky enough not to be in that position. So whatever revenue growth we have come through the company, when you have little or no expense growth and you've got real revenue growth, it's a pretty good outcome for the future.

And you mentioned that this is still plenty of opportunity ahead early going. And obviously, there are still opportunities across the company, just got out of this 8 years of building this enormous risk and control function. Hopefully, some of which will become more efficient over time, not that you're going to drop the ball on that or move backwards on it. But what are the biggest pockets where you still see the opportunity set to take out some of that incremental cost?

So when we -- I mean, when you look at what we're doing, I mean, literally, it's everything from multiple call center platforms, multiple testing functions across the company. I mean, literally, it's things like that. And we've done things up to this point. But those -- just given the scope of the company and the amount of redundancy that existed, there's still things just like that.

Got it. Okay. Let's talk a little bit about the capital side and talk about returns. So the recent proposals for Basel III and the G-SIB surcharge, you talked about potential for a 7% reduction in RWAs. How do you feel about the package of rules as presented, the benefits that you expect to get and any anticipated changes that might happen as we get to the final rule?

Yes. Listen, I think what the Fed has done with the other regulators is hugely important because what they did is they didn't just decide what they want the answer to be and then solve for it. They spent a lot of time doing a lot of work to support what changes needed to get made. And I personally feel really good about where they've come out. Every company will have a slightly different opinion. Everyone will look at their own profile and say, well, this might not be fair, that might be -- not be totally fair. But in the scheme of all the things that had to go, I think that they have handled the most important things that are the most significant. And what it's going to allow most of us to do is to be able to do more business that we should be doing. We're going to be able to lend more. We're going to be able to use our balance sheet in ways that make sense. We'll be able to compete more with the nonregulated institutions. And I think all things being equal, [ Spark ] business done within the regulated community is actually a good thing, not a bad thing. And so I've got tremendous respect for not just the outcome that they got to, but the process that they went through to get there.

Yes. Yes. And as it relates to Wells, do you think at some point, when everything is finalized and done, you've got an internal goal 10% to 10.5% on CET1. You're kind of right in the middle of it right now. The reg requirement, as it stands now, is 8.5%. That's a big buffer, a big comfortable buffer. And you continue to be able to grow the balance sheet, return capital, et cetera. Over longer periods of time, is that still the right zone? Or do you think there might be some room?

I think, first of all, we're going to have to -- the way the capital rules get implemented is either 1 or 2 things: Either risk-weighted assets can come down; or the actual capital percentage requirement can change. And so for us, the fact that our RWA is going to come down, those targets might not change, but what they apply to -- but you get to the same answer in terms of how much excess capital you have. And so under those measures, certainly, we will have more excess capital than we have today. And so that -- for us, it's just degrees of freedom as we look at the growth prospects that we have versus shareholder return. And I think we've tried to be very, very prudent, both when we had the asset cap, but even now, post asset cap, where, I think, we bought about $4 billion of stock back last quarter, where we want to run at a comfortable capital level, where we're protected for bad things that can happen, but recognize that there are limits to that. And so we're either going to deploy it effectively to use for our customers where we're going to get paid for it and it's going to add to the conversation about increasing the returns of the company or we'll return it to shareholders in the shorter term because we generate plenty of capital, and we'll be able to build balance sheet over a longer period of time.

Right. Right. And one of the points you hit on earlier was the direction of travel for your ROTCE over time, right, and roadway ahead. So last fall, you put out a new target medium term, 17%, 18%. You didn't put an explicit time frame on it. And as we kind of get talked about earlier, initially, very well received, but then there's been a little bit of skepticism about how long it might take to get there. So there's the we will get there, and then there's the when do we get there? I'm just -- how do you still think about your...

Answer to that question. I mean I just -- our investors are, like, really smart people, right? And so like why would it make any sense for us to put a specific date on something when we don't know the credit environment, we don't know the interest rate environment, we don't know the markets. I mean, we do live in a -- both a volatile and a cyclical business. And so you just got -- and the way the world works is if we say something, we want to deliver it. And so we just don't have the ability to put that level of precision on it. But you should see consistent improvements in ROTCE period by period by period. And again, what we've said is, and I think -- I'm not sure you said this, but that was before the changes in capital. And what we've also said is that's not the destination for us as a company. That is another waypoint along the way towards what we think we should be able to attain. And it's just simply looking at our business mix, business by business, what the return should be. So again, when you think about a business where we've got a reasonable revenue growth fueled by loans, deposits and noninterest revenues, which, I think, grew 8% last quarter on a year-over-year basis and you do that without any kind of meaningful expense growth or very, very little expense growth in a reasonable credit environment without taking a lot more risk so you're not deploying capital below the level of returns that we've seen, we are going to wind up with increased ROTCE.

Yes. All right. And then so maybe just to wrap up, Charlie, just any summary thoughts, any points we didn't hit on that you think are important to touch on?

I mean, I think -- listen, I think, hopefully, what's coming through is just how good we feel about the opportunities. And it's not lost on us about the stock price performance. It's -- what that means for us is that we got to make sure that we're really clear about why we feel good about the opportunities in front of us. We don't feel any worse today than we did when the stock was 10 points higher. In fact, as time goes on, I said we think we have more and more conviction. And so -- but what we are very focused on is to make sure that you all know how committed we are to continuing to drive the improved results and that we've got to work to continue to explain why we feel as good about the opportunities and recognize they've got to see it, right? We've always said this, right? When we first started our journey of return -- of saying we're going to increase returns, we were returning 8%, right? We didn't say we're going to get to 17% or 18%. We've given way points along the way because we want to make it reasonable. We want to -- we want you to see that we do what we say we're going to do and then continue to raise the bar. And so that's the way we think about it. We believe that we've got a great hand, but we also believe that we've got to show everyone that's the case. And hopefully, you see it in the results today along the way, and you'll continue to see it and it will play itself out.

Great. All right. With that, please thank -- join me in thanking Charlie for joining us today.

Thanks, Ken. Appreciate it.