Wells Fargo CFO Michael Santomassimo Talks Risks, Tariffs
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Bloomberg Audio Studios. Podcasts, radio, news. So let's turn now to the banks and kick things off on The Big Show with Mike Santomasimo. He is the CFO over at Wells Fargo, and he joins us now from their trading floor. Mike, it's always good to speak with you. A pleasure to have you on on your earnings day. The big question here is not so much about what happened in the first quarter, but the

path moving forward and I want to start there with what you're hearing from your customers whether they are individuals or companies. Yeah, thanks Matt and Scarlett for having me again. You know, like I think first you gotta, you know, that as we come into this environment, you know, the consumer

is in good shape. You know, consumer continues to spend. Most of our commercial customers are in good shape as well. We're not seeing any kind of big deterioration across the portfolio. So we come in with a pretty good strong foundation.

and as you sort of now look forward what what's happened is you've got some uncertainty right and what uncertainty does is cause people to take a step back and say you know how's it going to impact me how's it going to impact the demand I might have for my products or how's it going to impact the cost of my goods sold and they're going to take a pause and and and see how that may change their their perspective looking forward and that's pretty you know natural I think for folks and that's what we're hearing overwhelming for clients is they're they're taking a step back

on the commercial side saying, "Okay, I got to really understand this a little bit better." But again, on the consumer side, what we're seeing is just good consistent performance. People are still spending, people are still out there using their debit and credit cards, and so still quite robust in terms of the overall activity. But I think most commercial customers are taking a step back and trying to evaluate the situation.

Understood. So, Mike, you left your full year guidance unchanged. What would it take to actually update that and provide more details to investors? Well, I think the good news is we left it kind of guidance unchanged, as you said. And as you look at what's happening right now, there's a whole bunch of factors that go into where it's going to go for the rest of the year. First is just overall deposit levels and mix. That's stabilized and looking pretty good overall.

You know, we've seen some deposit growth in our consumer business. We saw the stabilization, you know, in terms of people looking for higher rates continue. So all positives as we sort of look forward. We saw a little bit of loan growth in the first quarter. Unclear sort of how that progresses throughout the year. We are expecting to see a little bit more as we go. That'll be a factor of sort of how people feel about, you know, the certainty of where things are going.

And then I think it's just the macro view on rates. And I think you can see over the last just couple days or week or two, the expectations for rates, both long-term and short-term rates, have been changing quite a bit. And so we need to see that stabilize. And I think that'll all be a fun-- those are all the key inputs into what net interest income will look like for the rest of the year. But as of now, from where we sit today, we still think the range we gave in January still is reasonable.

You're not likely to see a lot of things stabilize in this administration, Mike, and I wonder how you hedge against that. You know, Charlie Scharf earlier, or in the statement, I think, said that he applauds the administration's willingness to look at barriers to fair trade, but there are certain risks associated with such significant actions. And how do you hedge against those potential outcomes, as broad as they are? Well, I think you have to look back, and I think we tried to cover a little bit of this on the call.

and look at the full universe of stuff happening. There's a lot of good things happening on the regulatory side, both for banks and more broadly. And we're hopeful that some of those changes will get implemented. And that'll be helpful for banks like us to sort of help support the broader economy, the markets, our clients. And so we're hopeful that'll continue, and unabated from sort of what's happening with trade policy. And then I think it's a matter of just getting a little bit

bit more certainty in terms of what the guardrails are and the timeline is on the trade policy. It doesn't have to all be locked and loaded and done. It just needs to have a little bit of guardrails around it. And then I think people will very quickly sort of adapt from there. And you have to continue to kind of look beyond sort of what you read in the headlines every day and just look at see what fact first versus what may be presented to you. And so

And, you know, like I'll go back to where I started. Like the good news is like the economy is still pretty active and pretty strong. And most customers come into this environment in a pretty good place. So that's all sort of supportive for things continuing to be pretty constructive for the rest of the year. But the risks have definitely gone up. There's no doubt about it over the last couple of weeks. And so we have to try to find ways to continue to support clients and then make sure that we're thinking about all those risks appropriately.

I think, you know, going back to your earnings this morning, Mike, a lot of people on the street were surprised by lower loan loss provisions than they expected. Saul Martinez from HSBC notes that that, as well as the positive tax expense, helped out. Gerard Cassidy at RBC also said that your performance relative to their estimate was driven by a lower than expected performance.

effective tax rate and lower than expected provision for credit losses. Why keep that so low when you're staring so much uncertainty in the face here? Well, you know, it is, we talked about this on our call a little bit. You first start with just the performance of the portfolio, which has done very well. You know, we had a couple years ago now, two or three years ago at this point, you know, had done a bunch of tightening actions, credit tightening actions on the consumer side.

And that's serving us well as we come into this environment. And so you can see the performance continue to get better and better across many of those portfolios. And then when you look at the commercial side, again, same thing. It's been performing quite well. And I think as you look at the assumptions that go into the allowance, we're already assuming that unemployment ticks up quite a bit.

And we noted on the call that we did increase the allowance a bit more, you know, as it relates to some of the uncertainty that we've seen as we came into the end of the quarter. So if we hadn't done that, we would have seen a bigger release there, you know, given how well the portfolio is performing and slightly lower balances across some of the portfolio.

Mike, can you give us an update on the asset cap that's now seven years old at Wells? It limits your balance sheet to the size it was at the end of 2017. I know that the bank has made a lot of progress this year, resolving five consent orders in the first quarter alone. Is there anything more to resolve on Wells Fargo's end?

Well, I think in the release and in sort of the call comments that we had, you can see, as you pointed out, that we've made a ton of progress, not only closing the consent orders, but we also noted that we completed much of the work that's common across the orders that got closed and some of the other orders. And so we're just going to keep continuing focusing our energy on the things we can control, which is making sure that the work's done at the highest quality.

We'll let the Fed ultimately determine the timing of the asset cap, but we feel good about the progress we've made, and that's thanks to the thousands of people across the company that have done that. So if the Fed removes the cap sometime this year, what are the initiatives, what are the things that Wells is going to start working on right away to look for new streams of revenue growth?

Well, most of the strategies that we have in place are going to be the same ones. So we've been investing in our wealth management business, our credit card business, our corporate investment bank, our commercial bank. None of that changes. What happens in a time when we have more flexibility on the size of the balance sheet is we'll be able to deploy more balance sheet to our markets business.

in terms of financing trades that we can sort of help our clients with. And then maybe more broadly in certain types of deposits that we can take. But a lot of the core strategies don't change. We're going to continue to execute those, and those will drive growth in the balance sheet and the revenue in the company over a long period of time. But we'll have a little bit more flexibility to do some more activity in our markets business.

Mike, I saw that net interest income was down due to the impact of lower rates, but partially offset by lower deposit pricing and higher deposit balances. And I wanted to ask about that specifically. You know, a lot of families, when they're facing uncertainty, will make sure that the rainy day fund is stocked up. Are you seeing that?

No, a lot of what we've seen now is just consistent sort of activity and growth over the last four quarters. And what you're seeing in the first quarter is just the cumulative impact of that. We're not seeing big shifts in behavior at this point across either the consumer or the corporate client base. And so maybe that'll happen in the future, but we're not seeing that at this point. It's just

It's just normal activity plus some growth that we've seen as we've been able to grow a little bit more in all the businesses on the consumer side. But we're happy to see some of that growth come across the client base.

Mike, great to get so much intel from you. Really appreciate you sticking with us here on The Close. Mike Santamassimo there, the CFO, Chief Financial Officer over at Wells Fargo. How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals.

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