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Transcription de la conférence des résultats du WFC ou présentation …

SAN FRANCISCO 15 juillet 2020 (Thomson StreetEvents) – Procès-verbal de la conférence téléphonique ou présentation des résultats de Wells Fargo & Co publié le mardi 14 juillet 2020 à 15 h 00 GMT

* Charles W. Scharf

* John M. Campbell

* Christoph M. Kotowski

Oppenheimer & Co. Inc., Département de recherche – MD et analyste principal

RBC Marchés des Capitaux, Division de la recherche – MD, chef de la stratégie des actions des banques américaines et analyste des banques à grande capitalisation

* John G. Pancari

Evercore ISI Institutional Equities, Division de la recherche – MD principal et analyste principal de la recherche sur les actions

* Matthew D.O & # 39; Connor

Bonjour. Je m'appelle Regina et je serai votre opérateur de conférence aujourd'hui. À ce stade, j'aimerais souhaiter la bienvenue à tous à la conférence téléphonique sur les résultats de Wells Fargo au deuxième trimestre. (Manuel d'instructions) Veuillez noter que l'appel d'aujourd'hui sera enregistré.

Je voudrais maintenant transmettre l'appel à John Campbell, directeur des relations avec les investisseurs. Monsieur, vous pouvez démarrer la conférence.

John M. Campbell, Wells Fargo & Company – Responsable IR [2]

Merci, Regina. Bonjour à tous. Merci d'avoir rejoint notre appel aujourd'hui, où notre PDG Charlie Scharf; et notre directeur financier, John Shrewsberry, discutera des résultats du deuxième trimestre et répondra à vos questions. Cet appel est en cours d'enregistrement.

Avant de commencer, je voudrais vous rappeler que notre publication des résultats du deuxième trimestre et les ajouts trimestriels sont disponibles sur notre site Web à wellsfargo.com. Je voudrais également souligner que nous pouvons faire des déclarations prospectives lors de l'appel aujourd'hui qui sont sujettes à des risques et des incertitudes. Les facteurs qui pourraient faire en sorte que les résultats réels diffèrent sensiblement des attentes sont énumérés dans nos documents SEC, y compris le formulaire 8-K d'aujourd'hui, qui comprend notre publication des résultats et des ajouts trimestriels. Des informations sur les mesures financières GAAP non mentionnées, y compris un rapprochement de ces mesures avec les mesures GAAP, peuvent également être trouvées dans nos documents SEC dans le communiqué de presse et dans le supplément trimestriel disponible sur notre site Web.

Je vais maintenant transférer l'appel à Charlie.

Charles W. Scharf, Wells Fargo & Company – président, chef de la direction et administrateur [3]

Bonjour à tous. Merci, John. Je vais ouvrir l'appel en vérifiant ce qui est clairement un très mauvais trimestre pour nous. Je passerai en revue les moteurs de nos résultats, commenterai l'environnement et discuterai des raisons de la réduction de dividende proposée. Je transmettrai ensuite l'appel à John pour qu'il revoie les résultats du deuxième trimestre.

Notre évaluation de la durée et de la gravité du ralentissement s'est considérablement détériorée par rapport à nos hypothèses à la fin du premier trimestre, et cela et l'impact de COVID ont eu un impact significatif sur nos résultats ce trimestre. Nous avons augmenté notre provision pour pertes sur prêts de 8,4 milliards de dollars. L'amortissement a augmenté de 204 millions de dollars par rapport au trimestre précédent pour s'établir à 1,1 milliard de dollars. Le revenu net d'intérêts a diminué de 13% par rapport au trimestre précédent, principalement en raison de la baisse des taux d'intérêt. Les restrictions à l'exploitation en dessous du plafond des actifs ont limité notre capacité à compenser la baisse des taux d'intérêt par la croissance du bilan. Et nous avons en fait pris des mesures au cours du trimestre pour limiter la croissance du crédit et des dépôts, ce qui mettra en évidence John. La dépense était d'environ 400 millions de dollars liée aux décisions que nous avons prises sur la base de COVID. Nous ne nous attendons pas à ce que la plupart d'entre eux soient permanents, mais ils convenaient aux employés et amélioraient la sécurité de nos installations. Rémunération différée d'environ 350 millions de dollars avec rémunération en honoraires; Pertes d'exploitation de 1,2 milliard de dollars, principalement pour les provisions pour corrections de clients liées à nos travaux en cours pour résoudre les problèmes historiques des services bancaires communautaires alors que nous continuions de régler les problèmes en suspens sous un nouveau leadership. Cette disposition nous permet de faire la bonne chose pour nos clients et de résoudre ces problèmes le plus rapidement possible.

Les revenus ont diminué d'environ 295 millions de dollars en raison des frais COVID et des exonérations de taux d'intérêt pour certains produits. De plus, un solide trimestre de revenus hypothécaires a été partiellement contrebalancé par une dépréciation de 531 millions de dollars de nos actifs de services hypothécaires en raison de la hausse des défauts de paiement prévus et des hypothèses de remboursement anticipé plus rapides. Et bien qu'il s'agisse d'une plus petite partie de l'entreprise, nous avons enregistré des ventes records dans notre banque d'entreprise et d'investissement ce trimestre.

Malgré la perte ce trimestre, notre ratio CET1 est passé de 10,7% au dernier trimestre à 10,9% et est bien supérieur à notre minimum réglementaire de 9%. Rappel: Notre minimum réglementaire reflète notre coussin de capital de stress attendu de 2,5%, le minimum possible.

Comme vous le savez, Wells Fargo est avant tout une banque américaine qui souscrit des dépôts et des prêts mixtes. Notre composition de bilan se compose de 80% de prêts en espèces dans notre portefeuille de placements. Si les consommateurs, les petites entreprises, les moyennes et les entreprises souffrent, nous le faisons aussi. Étant donné que l'environnement économique créé par COVID a un impact négatif sur nos clients et nos clients, il affectera nos résultats, en particulier sous la forme de pertes de crédit surdimensionnées et de marges d'intérêt nettes compressées.

Parce que nous travaillons avec un plafond de bilan, nous devons également prioriser la capacité de bilan des actifs et des dépôts. Dans un tel environnement, il y a certainement des coûts d'opportunité pour nous. De plus, compte tenu de l'incertitude et de la reprise, nous devons gérer le bilan dans la mesure où nous pouvons rester en dessous du plafond des actifs, même si une autre phase de baisse importante du crédit est en hausse ou en hausse sur notre base de dépôts.

Cependant, nous sommes responsables de la position dans laquelle nous nous trouvons. Le plafond du bilan est dû au fait que le leadership n'a pas à la fois surveillé et construit l'infrastructure de l'entreprise, et notre sous-performance financière est due au fait que le leadership n'a pas pris les décisions difficiles qui étaient nécessaires. Nous nous concentrons sur les deux. Il nous reste encore beaucoup à faire pour créer la base de risque et de contrôle appropriée pour ce que nos régulateurs attendent, et rien ne peut ou ne fera obstacle à ces activités. C'est notre priorité absolue. Cependant, nous sommes également conscients que nous sommes extrêmement inefficaces depuis trop longtemps et nous prendrons des mesures décisives qui n'affectent pas nos risques et les travaux réglementaires pour augmenter nos marges.

Jusqu'au premier point, nous continuons d'apporter des changements importants pour améliorer la fondation de l'entreprise. Au deuxième trimestre, nous avons annoncé une structure organisationnelle des risques afin de fournir une meilleure vue d'ensemble de toutes les activités de prise de risques et une vision plus large des risques dans l'ensemble de l'entreprise. Notre nouveau modèle de risque comprendra 5 chefs des risques d'entreprise qui ajouteront des équipes et des dirigeants par type de risque.

Au cours du trimestre, nous avons embauché un nouveau chef des risques opérationnels, un nouveau chef des risques pour les prêts à la consommation et un chef des contrôles. Nous continuons d'élargir l'équipe de direction avec des talents supplémentaires. Depuis que j'ai rejoint l'entreprise il y a 9 mois, j'ai ajouté 6 nouveaux membres au comité des opérations, tous extérieurs à Wells Fargo et possédant une expérience solide et pertinente dans l'industrie. Depuis 2018, plus des deux tiers de notre comité d'entreprise sont venus à Wells Fargo. Tous les PDG de notre division sont désormais en place, y compris Mike Weinbach, qui a rejoint Wells Fargo en mai en tant que PDG de Consumer Lending. et Barry Sommers, qui est devenu PDG de Wealth and Investment Management fin juin. Lester Owens se joindra à nous dans un nouveau poste de chef des opérations la semaine prochaine. Lester possède plus de 30 ans d'expérience dans l'industrie des services financiers et dans des postes de direction. Il sera responsable de l'élaboration d'une approche plus intégrée des opérations commerciales de Wells Fargo. Il a fait ses preuves pour offrir une meilleure expérience client tout en augmentant son efficacité.

Nous avons également assumé des rôles et des rôles importants au sein de notre comité des opérations, y compris un nouveau chef des relations gouvernementales, des communications d'entreprise et de la responsabilité d'entreprise, ainsi qu'un directeur administratif et un nouveau chef de notre entreprise de prêts immobiliers.

Nous continuons d'avoir plus de 200 000 employés travaillant à domicile, et nous prévoyons d'avoir des employés travaillant actuellement à domicile jusqu'en septembre au moins. Il est trop tôt pour déterminer exactement quand nous finirons par revenir à un environnement de travail plus traditionnel, mais nous serons prudents lorsque nous ramènerons des gens au bureau. Je crois que les personnes qui travaillent ensemble physiquement ont des avantages importants, mais nous irons de l'avant si nous sommes sûrs que les risques pour la santé sont gérables. S'il y a un besoin spécifique, nous prendrons les mesures de sécurité appropriées et prendrons ces décisions en fonction de la géographie et de l'emplacement. Nous le faisons depuis le début de la crise et continuerons à le faire et à servir nos clients et nos communautés.

Nous avons effectué des ajustements importants pour nos clients. Fin juin, nous avions aidé plus de 2,7 millions de consommateurs et de petites entreprises en reportant les paiements et en supprimant les frais. Cela comprend des reports de plus de 2,5 millions de dollars, ce qui équivaut à plus de 5 milliards de dollars en capital et en intérêts, dont 3,2 milliards de dollars en prêts hypothécaires gérés par d'autres. Nous avons accordé environ 6 millions d'exemptions de frais aux consommateurs et aux petites entreprises de plus de 200 millions de dollars.

Nous avons traité environ 246 000 reports pour nos clients commerciaux, ce qui équivaut à plus de 1,5 milliard de dollars en paiements de principal et d'intérêts.

De plus, nous avons fourni des prolongations d'échéance aux clients des ventes commerciales et du financement automobile, ce qui équivaut à environ 6,6 milliards de dollars en capital et intérêts en circulation.

À la fin de juin, nous avions financé 179 000 prêts PPP totalisant 10,1 milliards de dollars pour un volume de prêts moyen de 56 000 $. 60% de ce montant concernait des prêts de moins de 25 000 $, 84% pour des entreprises de moins de 10 employés, 90% pour des ventes annuelles de moins de 2 millions de dollars et 41% pour des entreprises à faible et moyen roulement. Zones de revenu ou au moins 50% de recensements minoritaires.

Et nous avons annoncé notre fonds Open For Business la semaine dernière. Nous nous engageons à verser des frais de traitement bruts d'environ 400 millions de dollars du plan de paie pour aider les entreprises touchées par la pandémie de COVID-19. Nous travaillerons avec des organisations à but non lucratif pour fournir des capitaux, un soutien technique et des programmes de résilience à long terme aux petites entreprises, en mettant l'accent sur le service aux entreprises minoritaires.

Les dépôts des clients ont continué de croître, reflétant des programmes de relance sans précédent du gouvernement, une baisse des dépenses et la conversion des investissements en espèces par les clients, tandis que les dépôts commerciaux ont diminué. Cela reflète les mesures que nous avons prises dans le cadre des mesures de plafonnement des actifs décrites plus en détail par John.

En mars, nos clients commerciaux ont pris plus de 80 milliards de dollars de leurs engagements de prêt pendant la tourmente du début de la pandémie, et presque tous ces prêts ont été remboursés au deuxième trimestre. Les dépenses par carte de débit ont commencé à augmenter en avril et sont revenues à leurs niveaux d'avant COVID en mai. Et dans la dernière semaine complète de juin, ils ont augmenté d'environ 10% par rapport à la même semaine il y a un an.

Les dépenses en cartes de crédit à la consommation se sont régulièrement améliorées à partir de la mi-avril, mais ont diminué d'environ 10% fin juin par rapport à l'année précédente. Les dépenses en cartes de visite ont été sensiblement inférieures au deuxième trimestre, diminuant toujours de plus de 30% au cours de la dernière semaine complète de juin par rapport à la même semaine de l'année dernière, les baisses intersectorielles diminuant. Nous continuons de surveiller nos dépenses de consommation et de nos clients commerciaux alors que le pays traverse les différentes étapes de sa réouverture.

Les tendances de l'utilisation numérique sont fortes. Le volume du dollar pour les dépôts mobiles a augmenté de plus de 100% au deuxième trimestre par rapport à l'année précédente. Au deuxième trimestre, les enregistrements numériques ont augmenté de 21% d'une année sur l'autre.

Maintenant, permettez-moi d'en venir au dividende. Nous avons annoncé aujourd'hui que notre conseil d'administration prévoit de réduire notre dividende du troisième trimestre à 0,10 $ par action. La Réserve fédérale a autorisé les banques à verser des dividendes sur actions ordinaires qui n'excèdent pas un montant égal à la moyenne de son revenu net au cours des quatre trimestres civils précédents. Sur la base de ces instructions, nous avions précédemment annoncé que cette restriction nous amènerait actuellement à réduire le dividende de 0,51 $ par action. Bien que cette exigence s'applique actuellement au troisième trimestre, la Réserve fédérale se réserve le droit d'étendre les restrictions à mesure qu'elle apprend l'évolution de l'événement COVID.

Quoi qu'il en soit, notre conseil d'administration a vérifié le montant du dividende et j'ai discuté d'une façon dont nous aborderions l'évaluation du bon niveau pour l'avenir. Nous considérerions d'abord notre position en capital. Comme je l'ai dit, notre position en capital reste assez solide, donc notre niveau actuel de capital n'est pas le moteur de notre décision. Néanmoins, à l’avenir, nous ne prétendrons pas comprendre la voie du rétablissement plus profondément que d’autres. En utilisant nos hypothèses économiques, notre niveau de capital reste supérieur au minimum requis et nos résultats CCAR confirment la solidité de la position de capital. Cependant, nous pensons qu'il est conseillé de déterminer que nos hypothèses sont exactement cela. Nous avons donc jugé opportun d'intégrer cette incertitude dans notre réflexion sur le niveau de dividende approprié dans cet environnement.

Après avoir évalué notre capital, nous avons pris en compte notre niveau de bénéfices actuel et prévu. Nous prévoyons que l'impact de COVID continuera d'avoir un impact sur nos bénéfices jusqu'à ce que nous constations une tendance claire vers des améliorations significatives du chômage et du PIB. Cela entraînera une baisse continue des valeurs NII et certains revenus de commissions économiquement sensibles, ainsi que des coûts potentiellement imprévus pour opérer dans cet environnement.

Bien que notre LCA soit destinée à couvrir les pertes attendues en fonction de nos hypothèses économiques actuelles, nous sommes conscients de l'incertitude et de la nécessité de réévaluer continuellement ces hypothèses. Et j'en discuterai plus avant, mais bien que nous ayons commencé à nous attaquer activement au fait que nos dépenses sont considérablement trop élevées, il faudra du temps pour que l'impact de nos actions sur nos résultats devienne apparent.

Dans l'ensemble, en ces temps d'incertitude, il est essentiel que notre dividende en actions ordinaires reflète la capacité bénéficiaire actuelle, continue de fonctionner dans un environnement d'exploitation difficile, élabore des directives réglementaires et protège notre capital en raison de la détérioration de la conjoncture économique. Dans cette optique, nous pensons qu'il est conseillé d'être extrêmement prudent jusqu'à ce que nous voyions une voie claire vers une amélioration économique globale. Nous sommes convaincus que cette amélioration économique potentielle, combinée à nos mesures visant à augmenter nos marges, permettra à notre merveilleuse franchise de soutenir un dividende plus élevé à l'avenir. Nous sommes extrêmement déçus de prendre cette mesure et comprenons que beaucoup dépendent de ce flux de revenus. Dans cet environnement, cependant, nous devons être prudents.

J'ai reconnu dans le passé que nos dépenses sont trop élevées et que nous créons des feuilles de route pour améliorer notre taux d'efficacité. Pour le répéter, Wells Fargo n'a rien de structurellement différent qui pourrait nous empêcher d'être aussi efficaces que nos grands collègues, mais nous en sommes loin. Pour que nous puissions rapprocher notre niveau d'efficacité de nos concurrents, vous devez éliminer plus de 10 milliards de dollars de dépenses selon les mathématiques. Bien que notre travail visant à fixer certains chiffres et délais soit en cours, nous nous attendons à ce qu'un certain nombre de mesures soient prises à partir du deuxième semestre pour réduire notre base de coûts et ajuster nos dépenses à la taille et à la composition de nos entreprises. Ce sera certainement un effort pluriannuel, mais souhaiterait une réduction des dépenses l'année prochaine.

Et maintenant – nous avons maintenant une équipe centrale qui dirige les efforts à travers l'entreprise, et nos secteurs d'activité et fonctionnels ont des ressources dédiées qui sont empilées contre elle. Ces travaux n'ont pas commencé au cours des derniers mois, mais l'environnement d'exploitation extrêmement difficile et les perspectives incertaines ont accéléré notre sentiment d'urgence. Il est important de noter que je crois fermement que cet exercice vise à faire de nous une entreprise meilleure et plus efficace, et pas seulement à réduire les coûts. Nous avons trop de niveaux de gestion, les zones de contrôle pour les gestionnaires sont trop étroites et nous avons des ressources pour des activités qui ne sont pas une priorité aujourd'hui. Cela ne peut pas continuer.

Nous avons également la possibilité d'utiliser les informations que nous avons acquises depuis le début de la pandémie pour accroître l'efficacité au sein de l'organisation. À moyen terme, nous avons la possibilité de réduire considérablement nos coûts, notamment en augmentant l'acceptation numérique pour les clients privés et professionnels. Réduire les dépenses des tiers; Consolidation des emplacements, y compris les succursales, les succursales et les emplacements de l'entreprise; et différent lors de l'utilisation de la technologie. De plus, la capacité à consolider nos plateformes opérationnelles reste importante.

En tant que société financière, et en particulier en tant que G-SIB, nous devons être financièrement solides pour servir nos clients et soutenir nos communautés, mais aussi pour offrir à nos employés des opportunités de croissance. Et bien que notre bilan soit solide, nos marges sont trop étroites. Pour nous assurer d'être cette source de force, nous devons prendre des mesures pour améliorer nos résultats.

Comme je l'ai dit, et je le répète, nous ne ferons rien qui affecte le travail que nous faisons actuellement pour créer notre environnement de contrôle et de risque. Il est possible de devenir plus efficace ailleurs dans l'organisation et nous protégerons ce travail à tout prix. Je partagerai plus de détails sur nos plans au fur et à mesure, et nous en parlerons davantage au cours du prochain trimestre.

Bien qu'il subsiste une grande incertitude économique, de nombreuses tendances de liquidité des marchés sont fortes, car les programmes de la Fed continuent de soutenir efficacement le bon fonctionnement des marchés des capitaux. Les spreads de marché ont continué de s'améliorer depuis le pic de la faille et sont toujours bien avancés depuis le pic de la faille. Ils ont suivi 70% à 90% de leur expansion à la mi-mars. Les marchés de liquidité, de trésorerie et de swaps de taux d'intérêt sont revenus à leurs niveaux d'avant la crise et le programme d'achat sur le marché libre de la Fed a stabilisé les évaluations hypothécaires et amélioré la liquidité. HQLA Bid-Ask, une mesure du coût du transfert des risques, est retombé au niveau d'avant la crise, tandis que la mesure de la volatilité est désormais inférieure au niveau d'avant la crise.

Cependant, la reprise économique ne se fera pas en douceur. Une grande partie de l'économie est encore largement fermée ou commence à s'ouvrir, et des restrictions supplémentaires sont introduites alors que le virus continue de se propager dans de nombreuses régions du monde. Bien que les dépenses de consommation aient augmenté depuis la fin du premier trimestre, elles étaient toujours inférieures à celles de l'an dernier, avec des baisses importantes dans des domaines tels que les voyages, les divertissements et les restaurants. Et tandis que les programmes de relance économique de l'État représentent un filet de sécurité pour beaucoup, ils sont censés expirer, ce qui augmente la possibilité d'une nouvelle crise économique.

Après tout, les villes, les communautés, les gens et les entreprises apprennent ce qu'il faut pour rouvrir en toute sécurité et les vaccins et les thérapies progressent. Nous ferons tout notre possible pour soutenir la reprise la plus rapide possible, mais nous resterons prudents dans nos perspectives jusqu'à ce que nous voyions les faits.

Je voudrais terminer mes observations aujourd'hui en discutant d'un sujet important: l'injustice raciale. Dans mes conversations avec divers groupes au cours des derniers mois, la douleur et la frustration liées au manque de progrès à la fois dans notre pays et à Wells Fargo sont claires. L'inégalité et la discrimination ont été clairement identifiées et ne doivent pas être poursuivies. Wells Fargo n'a pas créé efficacement la diversité ou un environnement toujours inclusif, et j'ai décrit un certain nombre de mesures que nous prenons pour changer les résultats, y compris la création d'un nouveau rôle (inaudible) qui aura un large mandat à promouvoir de la diversité et de l'inclusion sur le lieu de travail et dans notre entreprise. Nous évaluerons les membres du comité d'entreprise en fonction de leurs progrès dans l'amélioration de la représentation diversifiée et de l'implication dans leur domaine de responsabilité. Cela aura un impact direct sur les décisions de rémunération à la fin de l'année. Et nous avons annoncé le don de ces frais de traitement bruts pour PPP, qui est évalué à environ 400 millions de dollars.

Ce n'est que le début des travaux nécessaires pour faire face à cette crise et apporter une contribution significative aux changements nécessaires. Mais je pense que c'est un tournant et nous ferons un peu pour rendre cette fois différente.

Enfin, je tiens à remercier tous les employés de Wells Fargo qui continuent de travailler sans relâche pour servir nos clients et mettre en œuvre avec succès nos priorités.

Je vais maintenant transmettre l'appel à John.

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John Richard Shrewsberry, Wells Fargo & Company – Vice-président exécutif et directeur financier [4]

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Merci, Charlie, et bonjour à tous. Les commentaires de Charlie couvraient la plupart des informations de la page 2 de l'addenda, y compris le principal moteur de notre perte déclarée, l'augmentation de 8,4 milliards de dollars de la perte de crédit au deuxième trimestre. Permettez-moi de souligner quelques éléments ici.

Premièrement, nos impôts sur le résultat au deuxième trimestre reflétaient l'incidence des avantages fiscaux annuels, en particulier les crédits d'impôt, qui résultaient de notre perte avant impôts déclarée. Par conséquent, nous prévoyons actuellement un taux d'imposition effectif d'environ 26% pour le reste de l'année, peu importe l'incidence des éléments individuels. De plus, les résultats de placement du régime de rémunération différée ont augmenté le bénéfice net des titres de participation de 346 millions de dollars et les charges de personnel de 349 millions de dollars. Comme nous l'avons déjà souligné à plusieurs reprises, ces couvertures sont largement neutres en P&L, mais elles peuvent entraîner de fortes fluctuations de nos ventes et dépenses déclarées.

À la fin du mois de mai, nous avons conclu des accords pour convertir ces couvertures économiques des actions en dérivés sous forme de swaps sur rendement total. À la suite de ce changement, nos rapports sur cet élément seront moins volatils à partir du troisième trimestre, car la plupart des implications comptables des couvertures différées sont présentées dans les charges de personnel.

Passons à la page 3. Charlie a commenté le soutien que nous fournissons à nos clients et à nos communautés pendant la pandémie, mais permettez-moi de souligner que le don de 400 millions de dollars que nous avons fait aux efforts de redressement des petites entreprises la semaine dernière concernait le nouveau Le Fonds Open For Business a annoncé qu'il fera un don lorsque les frais bruts seront comptabilisés dans les ventes.

Passons à la page 4. Alors que nos résultats du deuxième trimestre ont été largement influencés par l'environnement économique, notre capital et nos liquidités sont restés solides, notre ratio CET1 et notre LCR ayant augmenté à partir du premier trimestre. Notre ratio CET1 est passé de 10,9% à 190 points de base, ce qui est supérieur à notre minimum réglementaire actuel de 9%. Nous prévoyons que notre coussin de capital de risque sera de 2,5%, ce qui est aussi bas que possible dans le nouveau cadre, et que le minimum réglementaire pour notre ratio CET1 restera à 9%. Malgré la forte augmentation de nos quotas au cours des deux derniers trimestres, notre niveau CET1 était de 23,7 milliards de dollars supérieur au minimum réglementaire.

Notre LCR est passé à 129%, 29 points de pourcentage au-dessus de notre minimum réglementaire. Nos principales sources de liquidités non grevées étaient d'environ 511 milliards de dollars.

Passons aux prêts à la page 5. À l'instar des tendances de l'industrie, l'encours du crédit à la consommation et au crédit commercial a diminué vers la fin du deuxième trimestre, mais les soldes moyens ont augmenté en raison de l'augmentation des encours à la fin du premier trimestre. J'expliquerai les moteurs des soldes créditeurs plus en détail à la fin de la période de consommation et de négociation, en commençant par le consommateur à la page 6.

Le crédit à la consommation a diminué de 20,1 milliards de dollars ou 5% par rapport au premier trimestre. Cette diminution comprend le reclassement de 10,4 milliards de dollars afin d'ajuster le statut des premiers prêts hypothécaires à vendre afin d'offrir une souplesse dans la gestion de notre bilan dans la limite des actifs. Le ralentissement économique provoqué par COVID-19 a réduit les dépenses de consommation et s'est reflété dans la baisse des soldes de cartes de crédit, la baisse des sauts automobiles et d'autres soldes sur les crédits renouvelables et à tempérament. De plus, nous avons pris des mesures au deuxième trimestre pour resserrer les normes de crédit à la lumière de l'environnement économique actuel et pour faire face aux limites du plafond d'actifs. Ces mesures comprenaient l'achat de prêts hypothécaires jumbo par le biais de notre entreprise de prêts hypothécaires correspondants et le refus d'accepter les demandes de fonds propres et de lignes de crédit personnelles.

Dans le secteur automobile, nous avons pris des mesures pour réduire le risque futur de perte et nos spreads pour les nouvelles origines se sont élargis à leur plus haut niveau depuis 2016. Cependant, alors que les États rouvraient au cours du trimestre, nous avons constaté une augmentation de la demande de crédit, notamment une augmentation des dépenses en cartes de crédit et une augmentation des origines des prêts automobiles.

Passons aux prêts commerciaux à la page 7. Les prêts C&I ont diminué de 54,9 milliards de dollars, ou 14%, au premier trimestre en raison du remboursement des prêts renouvelables après une augmentation des emprunts au premier trimestre lors des turbulences du marché au début de la pandémie. Comme l'a souligné Charlie, presque tous les 80 milliards de dollars de prêts ont été remboursés en mars au deuxième trimestre. Ces paiements étaient en partie attribuables à la vigueur des marchés financiers et ont contribué aux ventes records de notre banque de financement et d'investissement au deuxième trimestre.

Les prêts immobiliers commerciaux ont augmenté de 2,1 milliards de dollars par rapport au premier trimestre, les prêts immobiliers commerciaux et les prêts à la construction ayant augmenté.

Passons aux dépôts à la page 8. L'industrie a connu une très forte croissance. Cependant, en raison de notre limitation du plafond d'actifs, nous avons travaillé pour contrôler la croissance de certaines catégories de dépôts avec des valeurs de liquidité inférieures. Même après ces mesures, les dépôts moyens ont augmenté de 9% sur un an et de 4% sur un an. Das Wachstum im verbundenen Quartal war auf unverzinsliche Einlagen zurückzuführen, die um 18% zulegten, während die verzinslichen Einlagen um 1% zurückgingen.

Die Bankeinlagen für Endverbraucher und Kleinunternehmen stiegen gegenüber dem ersten Quartal um 78,6 Mrd. USD. Dieses starke Wachstum spiegelte die Auswirkungen von COVID-19 wider, einschließlich der Präferenz der Kunden für Liquidität. Aufschub von Darlehen und Steuern, die sonst die Einlagen verringert hätten; Stimulus-Checks; und niedrigere Konsumausgaben.

Die Wholesale-Bankeinlagen gingen um 32,1 Mrd. USD zurück. Dies spiegelt Maßnahmen wider, die wir im Rahmen der Obergrenze für Vermögenswerte ergriffen haben, einschließlich eines Schwerpunkts auf der Reduzierung bestimmter nicht operativer Einlagen. Die durchschnittlichen Einlagenkosten gingen gegenüber dem ersten Quartal um 17 Basispunkte auf 17 Basispunkte zurück, wobei sie in allen Geschäftsbereichen zurückgingen. Während die Einlagenkosten für Wholesale Banking am stärksten zurückgingen, was auf höhere Betas für Einlagen zurückzuführen war, gingen auch die Einlagenkosten für WIM und Retail Banking zurück. Derzeit gibt es keine aktiven Werbeaktionen für das Privatkundengeschäft. Wir gehen davon aus, dass die Einlagenkosten in der zweiten Jahreshälfte weiter sinken und die in den Jahren 2015 und 2016 erzielten einstelligen Tiefststände erreichen werden.

Der Zinsüberschuss ging gegenüber dem ersten Quartal um 1,4 Mrd. USD oder 13% zurück, da die Bilanzierung aufgrund der Auswirkungen eines Umfelds mit niedrigeren Zinssätzen neu bewertet wurde. 275 Mio. USD weniger günstige Bilanzierungsergebnisse für die Ineffektivität von Absicherungsgeschäften aufgrund starker Zinsänderungen; 187 Mio. USD höhere MBS-Prämienamortisation aufgrund höherer Vorauszahlungsraten; Diese Rückgänge wurden teilweise durch eine Verlagerung auf einen kostengünstigeren Finanzierungsmix ausgeglichen.

Der Zinsüberschuss ging im ersten Halbjahr um 13% zurück. Und wie ich bereits im Juni erörtert habe, erwarten wir derzeit für das Gesamtjahr 2020 einen Zinsüberschuss zwischen 41 und 42 Milliarden US-Dollar, was einem Rückgang von 11 bis 13 Prozent gegenüber dem Gesamtjahr 2019 entspricht. Dieser Rückgang spiegelt den niedrigeren wider Zinsumfeld und die Einschränkungen, die die Obergrenze des Vermögens unserer Fähigkeit zur Vergrößerung unserer Bilanz auferlegt, sowie höhere Abschreibungen auf MBS-Prämien, die wir voraussichtlich für den Rest des Jahres beibehalten werden.

Wenden wir uns Seite 10 zu. Die zinsunabhängigen Erträge stiegen gegenüber dem ersten Quartal um 1,6 Mrd. USD oder 24%, was auf einen Anstieg der Nettogewinne aus Beteiligungspapieren um 1,9 Mrd. USD zurückzuführen ist, was auf eine geringere Wertminderung der Wertpapiere und höhere aufgeschobene Anlageergebnisse des Vergütungsplans zurückzuführen ist. Ich werde einige dieser Treiber genauer erläutern.

Die Gebühren für den Einlagenservice gingen gegenüber dem ersten Quartal um 279 Millionen US-Dollar zurück, was auf die Auswirkungen von COVID-19 zurückzuführen war, einschließlich geringerer Überziehungskredite, da Kunden weniger Debitkartentransaktionen und höhere Einzahlungssalden sowie höhere Gebührenbefreiungen vorgenommen haben. Die Treuhand- und Investitionsgebühren gingen gegenüber dem ersten Quartal um 223 Mio. USD zurück. Das Investment Banking verzeichnete ein starkes Quartal mit einem Umsatzanstieg von 156 Mio. USD oder 40%, der auf die Stärke der Fremd- und Eigenkapitalmärkte zurückzuführen war. Dieses Wachstum wurde sowohl durch niedrigere Beratungsgebühren für Einzelhandelsmakler, die zu Beginn des zweiten Quartals bei niedrigeren Marktpreisen für Beratungsaktiva mit niedrigeren Preisen festgesetzt wurden, als auch durch geringere Einnahmen aus Maklertransaktionen ausgeglichen.

Die Einnahmen aus dem Hypothekenbankgeschäft waren im Quartalsvergleich relativ stabil, wobei ein starkes Wachstum bei der Entstehung von Hypothekendarlehen durch Rückgänge bei den Serviceerträgen mehr als ausgeglichen wurde. Die Gesamtzahl der zur Veräußerung gehaltenen Wohnimmobilien stieg gegenüber dem ersten Quartal um 30% auf 43 Mrd. USD, was hauptsächlich auf niedrigere Hypothekenzinsen zurückzuführen ist. Niedrigere Zinssätze führten zu einem starken Branchenvolumen. Das zweite Quartal wurde als der größte Originierungsmarkt seit dem dritten Quartal 2003 angesehen. Da wir unsere Anwendungspipeline verwaltet haben, um die starke Nachfrage zu bewältigen, stiegen unsere Margen.

Im zweiten Quartal betrug unsere Produktionsmarge für zur Veräußerung gehaltene Hypothekendarlehen für Wohnimmobilien 204 Basispunkte gegenüber 108 Basispunkten im ersten Quartal. Wir haben die Kapazität weiter ausgebaut und erwarten, dass die Originationen im dritten Quartal steigen, wenn die Zinsen niedrig bleiben, und wir würden erwarten, dass die Margen mit dem Niveau des zweiten Quartals relativ stabil sind.

Die Serviceerlöse gingen im ersten Quartal um 960 Millionen US-Dollar zurück. Der Rückgang war auf eine niedrigere Bewertung unseres MSR-Vermögenswerts aufgrund aktualisierter Annahmen, einschließlich höherer Vorauszahlungsannahmen, und höherer erwarteter Wartungskosten aufgrund eines Anstiegs der prognostizierten Ausfälle zurückzuführen. Die Servicegebühren waren aufgrund von Zahlungsaufschüben und Gebührenbefreiungen, die unseren Kunden als Reaktion auf die Pandemie gewährt wurden, ebenfalls niedriger.

Schließlich stiegen die Nettogewinne aus Handelsaktivitäten um 743 Mio. USD aufgrund höherer Handelsvolumina bei vielen Produkten, erhöhter Volatilität, die zu breiteren Spreads für Gebotsangebote führte, sowie erheblichen Spread- und Preisverbesserungen auf bestimmten Kapitalmärkten.

Wenden wir uns den Ausgaben auf Seite 11 zu. Wie Charlie hervorhob, sind unsere Ausgaben zu hoch, und wir beginnen, weitere Maßnahmen zu ergreifen, um unsere Effizienz zu verbessern. Der Anstieg unserer Aufwendungen um 1,5 Milliarden US-Dollar gegenüber dem ersten Quartal war auf höhere Betriebsverluste sowie höhere Personalkosten zurückzuführen, was auf einen Anstieg der abgegrenzten Vergütungsaufwendungen um 947 Millionen US-Dollar zurückzuführen ist.

Charlie described the $1.2 billion of operating losses, which included $765 million of customer remediation accruals for a variety of matters as well as higher litigation accruals.

The $597 million increase in personnel expense included the increase in deferred compensation, which is P&L neutral; and $231 million of COVID-19-related employee expenses, including premium pay for those who had to come into the office, and payments for backup childcare. Most of the COVID-19-related employee expenses have now expired.

We also had $133 million of higher COVID-19-related occupancy expense to make our properties safer for our employees and customers, including enhanced cleaning, additional supplies and workstation modifications. These costs will likely remain elevated until the pandemic ends.

The impact of COVID-19 also reduced some of our expenses, including travel and entertainment and advertising and promotion expense.

Turning to our business segments, starting on Page 12, as Charlie highlighted, we now have the leadership for our 5 business segments in place, and we will transition to reporting our segments in accordance with the structure starting in the third quarter. Community Banking reported a net loss of $331 million driven by an increase in provision expense. On Page 13, we provide our Community Banking metrics. We had 31.1 million digital active customers, up 4% from a year ago. While the number of digital customers remain stable from the first quarter, these customers are doing more digitally, with log-ins up 10% from the first quarter; and the number of checks deposited using a mobile device reaching a record high in the second quarter, up 32% from the first quarter.

Approximately 20% of our branches are temporarily closed due to COVID-19. As a result of fewer branches being opened and increased digital usage, teller and ATM transactions were down 19% from the first quarter and 28% from a year ago. However, we still have approximately 1 million teller transactions occurring at our branches every business day.

Our customers' demand for cash has decreased by approximately 20% compared to a year ago. This decrease was reflected in lower demand for cash in our branches. While ATM transaction volume was down, the amount of cash withdrawn at our ATMs has increased, reflecting higher levels of cash per withdrawal, in part, driven by the higher ATM withdrawal limits we implemented in the first quarter.

Charlie highlighted the improving trends we experienced during the second quarter for debit and credit card spend. Higher debit card spend later in the quarter resulted in total second quarter spend being flat compared with a year ago. However, transaction volume was down 13% from a year ago, with customers spending more per transaction. As a reminder, debit card fees are based on transaction volume, not dollar volume.

Turning to Page 14. Wholesale Banking reported a net loss of $2.1 billion as revenue growth was more than offset by an increase in provision for credit losses. I've already discussed the drivers of loans and deposits, so let me highlight a few other business drivers.

Corporate and investment banking capital markets had record revenue in the second quarter, driven by the trading revenue increases I described earlier and record investment-grade debt issuance. Wells Fargo Capital Finance was the #1 book runner of asset-based loans, with year-to-date market share increasing to 20%. We maintained our leadership position in this market by providing an important source of liquidity to our customers during a very challenging time.

Wealth and Investment Management earned $180 million in the second quarter, down 61% from the first quarter, primarily driven by an increase in the allowance for credit losses, the lower interest rate environment and lower market valuations at the beginning of the quarter. We continue to experience strong demand from clients for liquidity products with growth in deposits and money market funds in our asset management business. Wells Fargo asset management achieved a record high $578 billion in assets under management in the second quarter, up 12% from the first quarter, driven by continued momentum in the money market business, higher market valuations and fixed income net inflows. While advisory assets in our brokerage business increased 14% during the quarter, we had lower retail brokerage advisory fees since they're priced at the beginning of the quarter when market valuations were lower. These fees will benefit from the stronger markets at the beginning of the third quarter.

Turning to credit results for the company on Page 16. Our net charge-off rate was up 8 basis points from the first quarter to 46 basis points, which is still a historically low level, particularly during an extremely challenging economic environment. Keep in mind that a significant amount of customer accommodations we provided for our consumer and commercial customers since the start of the pandemic will delay the recognition of net charge-offs, delinquencies and nonaccrual status for those customers who would have otherwise moved into past due or nonaccrual status. However, I will point out that this dynamic was considered in our allowance for credit losses.

Commercial-criticized assets increased $13.3 billion or 53% from the first quarter, with C&I up $7.2 billion and CRE up $6.1 billion. Nonaccrual loans increased $1.4 billion from the first quarter, driven by growth in commercial nonaccruals. I would note that 75% of our commercial nonaccrual loans were current on interest principal as of the end of the second quarter. We provide more detail on C&I nonaccrual loans on Page 17.

While C&I loans outstanding and total commitments declined from the first quarter, nonaccrual loans increased 59%, driven by oil and gas and real estate and construction C&I loans, which includes credit facilities to REITs and other nondepository financial institutions. Last quarter, we provided more details on industries with escalated monitoring, and those industries largely drove the increase in criticized assets in the second quarter, including retail, entertainment and recreation.

Turning to our commercial real estate portfolio on Slide 18. We are the nation's largest commercial real estate lender, and our portfolio is well diversified, both by property type and geography. Our commercial real estate loans are subjected to rigorous underwriting standards and are well structured. Before COVID-19, this portfolio was performing at historically strong credit levels with a good mix of assets and geography, a well-capitalized customer base and overall low levels of leverage. We have proactively reduced our exposure to retail and have minimal exposure to land or condos where losses were highest in the last cycle.

Since the pandemic began, we've worked to assist customers on a case-by-case basis. We've continued our strict routine monitoring process with the goal of identifying problems early. Our CRE team has an experienced bench with workout backgrounds and perspective in times of distress, which has enabled us to ramp up quickly. However, these are unprecedented times, and nonaccruals were up $286 million or 30% from the first quarter.

Given what's been going on in the economy, it's not surprising that shopping centers, retail and hotels, motels, accounted for 59% of nonaccrual loans in the second quarter and accounted for 90% of the increase from the first quarter.

Criticized assets were up $6.1 billion or 140% from the first quarter, driven by the same sectors that drove the increase in nonaccruals, with the addition of office buildings.

Turning to our oil and gas portfolio on Page 19. Oil and gas loans accounted for 1% of our total loans outstanding, with $12.6 billion outstanding at the end of the quarter down 12% from the first quarter. Total commitments were down $1.7 billion from the first quarter, reflecting the impact of spring redetermination changes on borrowing basis, proactive portfolio management, as well as the weaker credit environment. Net charge-offs increased $111 million from the first quarter, with 87% of second quarter net charge-offs from the E&P sector. Nonaccrual loans increased $865 million from the first quarter, with approximately 93% of nonaccruals still current on payments. Criticized loans increased 26% from the first quarter, reflecting downward credit migration resulting from commodity price volatility and included numerous credit downgrades of publicly rated companies.

On Page 20, we provide detail on our allowance for credit losses. The $8.4 billion increase included $6.4 billion for commercial loans and $2 billion for consumer loans. Our allowance coverage for total loans was 2.19%, up 100 basis points from the end of the first quarter, with the largest increases across commercial loans, junior lien mortgage loans and credit card loans.

We highlight the key drivers of the increase in our allowance for credit losses on Page 21. We considered current economic conditions, which worsened significantly compared to prior expectations as unemployment levels reached 14.7% in the second quarter. In addition, over $2.4 trillion in fiscal stimulus programs as well as customer accommodations provided near-term support for borrowers. On this page, we provide details on the economic forecast in our base case scenario for the second quarter allowance, which assumes near-term economic stress recovering into late 2021, including unemployment levels declining to approximately 6% by the fourth quarter of 2021.

While housing prices are forecasted to remain relatively stable, commercial real estate prices are forecasted to decline by low to mid-teens with hotel, restaurant and retail sectors expected to decline much further. In addition, collateral prices remain highly uncertain given limited property sales.

While the large majority of weight is placed on the base case scenario, we apply some weighting to a downside scenario to reflect the uncertainty in the economic forecast. And as I previously mentioned, customer forbearance and other deferral activities provided in response to COVID-19 were considered in our loan portfolio performance expectations and loss forecast. However, please keep in mind that our allowance for credit losses is influenced by a variety of factors, including changes in loan volumes, portfolio credit quality as well as general economic conditions.

While the timing of the end of the pandemic and the eventual path to economic recovery remain unclear, we believe that our allowance captures the expected loss content in our portfolio as of the end of the second quarter.

Turning to capital on Page 22. As I highlighted earlier, our CET1 ratio increased to 10.9% in the second quarter. We elected to apply the modified CECL transition provision in our — to our regulatory capital. The impact of this selection was an increase in capital of $1.9 billion and a 14 basis point increase in our CET1 ratio. Additionally, as a result of senior debt issuance during the second quarter and a decline in our RWA, our TLAC ratio increased to 25.3%, which provides a significant buffer to our required minimum of 22%.

In summary, our results in the second quarter were disappointing, and economic conditions remain uncertain. But we're focused on doing the work necessary to improve the earnings capacity of the company, including reducing our expenses while meeting our regulatory commitments.

And Charlie and I will now take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from the line of Erika Najarian with Bank of America.

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Erika Najarian, BofA Merrill Lynch, Research Division – MD and Head of US Banks Equity Research [2]

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My first question is a clarification question for Charlie. Charlie, during your prepared remarks, you noted that your expenses were about $10 billion greater than your peers or where you need to be to be equivalent to peers on efficiency. Are you saying that mopping off $10 billion in expenses is an eventual long-term goal for this company to be in line with your larger peers?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [3]

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Well, I mean, what I said was that the math — if you do the math, what it says is that when you look at their efficiency ratios versus ours, our expenses are at least $10 billion higher than they should be, and there's no reason why that should occur. And so we are doing the work to create a road map for a company which is significantly more efficient. Exactly what the time frame is and where we ultimately get to, I think we'll provide more information on and the future will play itself out. But we can do the same math that you can do, and there's no reason why, as a management team, we don't have the ability to be as efficient as the rest.

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Erika Najarian, BofA Merrill Lynch, Research Division – MD and Head of US Banks Equity Research [4]

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Got it. That's clear. And my follow-up question has to do with the potential for the Fed to extend the income test beyond the third quarter dividend. And I'm wondering, so as we think about — you mentioned that expenses should start coming down in 2021. As I think about how consensus is formulating future earnings power, I think consensus is expecting that your — the majority of your reserve build should be behind you. But I don't think that restructuring costs, for example, that would relate to future efficiency initiatives are in with consensus.

And I guess the question that I'm really asking here is that if the Fed extends the income test beyond the third quarter, do you feel confident that according to how they're looking at dividend capacity, that $0.10 is supportable going forward?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [5]

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Pour sûr. This is John. They certainly have the ability to extend the current framework. And frankly, it even seems likely just given the way the calendar lines up and the resubmission process is going to work for the next CCAR.

I think Charlie's point is we're going to do what's necessary to get as efficient as we can be. And to the extent that, that kicks off onetime charges, which you might expect, and if that has an influence on our dividend capacity as a result of the Fed keeping the current regime in place, then we'll have to tolerate that. I don't think we're not going to do what's right economically because of accounting consequences. We're going to do — we're going to follow GAAP. We're going to get as efficient as we can. The outcome is going to be the outcome. We — in part, we set the current dividend or proposed to set the current dividend where it is so that it would buy us plenty of room to operate while we get through the next few quarters and chart the eventual path to greater profitability. But accounting consequences will be what they are. It wasn't a primary consideration in setting a number where we did.

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [6]

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The only thing that I would add is I think — is that when we think of the work that we did, we didn't — our Board didn't approach this conversation around the dividend with an idea of looking at it each quarter and making a determination. And so our hope is that this does become a level which is sustainable as we go through this period of uncertainty and as the Fed decides how they want to treat capital return over the next series of quarters.

We do have some items that impact our capital — our ability to return capital with this rule that doesn't reflect our earnings power going forward, right? We had a $3 billion settlement with the Department of Justice, which is, in our historical numbers, that $3 billion, when you look at it, is something like, round numbers, $0.18 a share of a negative that ultimately will roll out and is already actually in our capital numbers. So we have these dynamics that the Board thought about when we set the dividend level for the quarter that don't relate to the future earnings capacity of the company even as we look out into 2021.

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Operator [7]

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Your next question comes from the line of John McDonald with Autonomous Research.

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John Eamon McDonald, Autonomous Research LLP – Senior Analyst Large-cap Banks [8]

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John, could you remind us just where you are on the asset cap flexibility? What needs to be done each quarter now with deposits coming in and some loan demand? And what kind of flexibility you have to operate under that and where you are today on the way it gets measured?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [9]

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Pour sûr. Pour sûr. So we were in compliance with it at the end of the second quarter. And the items that we did during the late first and early second quarter to maintain compliance were really focused on our wholesale funding footprint by shrinking the amount of external repo and other financing that we do and taking trading assets down. And then we had a focus on certain categories of nonoperational deposits, the ones that have very low liquidity value.

And it's really — this is — from this point forward, this is more of a liability management exercise to make sure that we don't retain too much in the way of low liquidity value deposits, that we're thoughtful about other liabilities.

On the asset side, there's so much cash on the balance sheet right now that it gives plenty of flexibility, I think, to do what we need to do with loans. You saw that our LCR print is 129% for the quarter, and deposits have grown nicely. So we're very thoughtful and cautious about how we price deposits, about those that have low liquidity value. We're thoughtful about maturities as they come up in nondeposit funding because with the inflow of deposits, we can rely more on that and less on notes and institutional CDs and other things. That's the work that we've been doing, and that's the the path that we have for the next quarter or 2.

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John Eamon McDonald, Autonomous Research LLP – Senior Analyst Large-cap Banks [10]

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Okay. And you reiterated the net interest income outlook for the year. How should we think about kind of the jumping-off point for the net interest margin and net interest income as we go into next quarter? What are some of the puts and takes that we should factor into the model?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [11]

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Ja. I think it's going to be relatively flat from where it is today. We're sort of — we're in that zone. And as I said, $41 billion to $42 billion for the year still feels like the right number. So I think it'll be — we're not really carefully managing the NIM. It's we're looking for the dollars in net interest income. But it shouldn't deviate too much from where we are right now.

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John Eamon McDonald, Autonomous Research LLP – Senior Analyst Large-cap Banks [12]

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Okay. Got it. And is there anything in terms of asset cap progress, Charlie, you can comment on? I know you can't say too much, but in terms of the work being done and progress and doing what you need to do to satisfy the Fed?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [13]

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John, I appreciate everyone being interested given the limitations of it and asking the question. It's going to be the same response every single quarter, which is we're focused on it. It is, along with the other enforcement actions, the biggest priority that we have. We're doing our work. And the Fed will determine when the work is done to their satisfaction.

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Operator [14]

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Your next question comes from the line of Scott Siefers with Piper Sandler.

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Robert Scott Siefers, Piper Sandler & Co., Research Division – MD & Senior Research Analyst [15]

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John, just was hoping you might be able to sort of update or refresh your thoughts on how and sort of when losses might evolve. I guess embedded in that is sort of how are you treating reups deferral requests, things like that. And I guess additionally, the updated reserve build kind of implies sort of what you're thinking about cumulative losses through the period. But just any updated thoughts you can share, please.

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [16]

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Ja. Well, as it relates to deferrals, which generally speaking, is the consumer side of the house, the fact that we are deferring definitely pushes out roles through delinquency buckets into charge-off. And so the actual charge-offs themselves will probably come later than they otherwise would. We believe that we've fully provided or captured that in the allowance. And so we've taken the credit charge today that we think is the right one at the end of the quarter, even if the charge-offs come somewhat later.

We're also seeing — we saw a tick-up in charge-offs in commercial, but there also, things do take a little bit before they roll. I think — I guess I would expect the charge-off rates, and it will be different by asset category, to sort of move up slowly through the end of the year, even into the first couple of quarters of next year and then start to flatten out after that, just based on the way things progress through loss recognition.

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Robert Scott Siefers, Piper Sandler & Co., Research Division – MD & Senior Research Analyst [17]

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Okay. Perfect. And then maybe just to switch gears a little, the additional customer remediation accruals. Charlie or John, can you go through sort of the — I know you alluded to sort of taking a fresh look at things under new management. But I guess just curious, given the charges we've already seen over the past couple of years, sort of what drove those additional accruals and the new thinking.

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [18]

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Yes, it's as Charlie said. It was — it's new leadership at the top of the organization in Consumer Lending and in the center capability that we have running customer remediation. I think they've gone item by item and thought about how to be a little bit more expansive, a little bit more consumer friendly. Many of these things aren't crystal clear, and you're always making a judgment as to who it applies to, how much should apply and over what time frame. And really in an effort, as Charlie said, to speed it up and move it through, they were a little bit more expansive in order to accomplish that.

But it's — by and large, it's the same items that we've been talking about for the last couple of years. There are always new things that come in and out of that bucket, but the bigger dollars relate to the same topics that we've been covering for a while.

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [19]

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And the only thing I'd emphasize, as John said, is most of the dollars do relate to those items. And there's a lot of value in getting these things behind us. It's the work, it's the overhang. It's what our customers and communities think about us. And so we're obviously going to do what's right for the financial position of the company. But we want to treat people properly, and we want to move on and move to the future. And so we made decisions around what we were willing to do, certainly with that balanced lens.

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Operator [20]

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Your next question comes from the line of Betsy Graseck with Morgan Stanley.

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Betsy Lynn Graseck, Morgan Stanley, Research Division – MD [21]

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A couple of questions. So first off, Charlie, just want to get a sense as to where we should be thinking about where the expense improvements come from. And the reason I'm asking is, I know you're in the middle of the business unit reviews. You've got new business unit heads in several places. Typically, folks like that are going to want to make investments. You're not going to touch the regulatory side. So where should we anticipate you have room to start bringing down expenses ahead of regulatory framework changes?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [22]

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Ja. And I think your point is actually a very important one, which is part of the reason why we've been — we're trying to be very careful about making it clear that we are going forward and actively going to start to take actions to reduce expenses. But we don't want to back ourselves into a corner until all of our work is done because of those 2 things that you mentioned, which are very important.

Having said that and I — the reality is that the work that we have to do, the foundational work to build the risk and strong infrastructure and ultimately satisfy the work that the regulators would like us to satisfy, it's clear. It's distinct. It is fairly broad across the company, but we know exactly what it is and what resources are decked against that.

When we look elsewhere in the company, and I think I used the words in the prepared remarks, it is we just — we have spans and layers at the company which are well beyond what I've seen at other places and makes us a very, very inefficient company. When we just look at the work that's being generated, the things that are being done, we, as a management team, believe that we can change the priorities so that we're being really clear on what has to get done and stop a bunch of work that has to get done. We have duplicative platforms, duplicative processes across the company. And so as we think about a series of these things, they are extremely significant because these things exist just about in every part of the company.

In addition, I just also want to point out that we have stopped any reductions that were going to take place, just given the environment. And so there is a series of actions that we are ready to take. In fact, we have a series of employees who've been told that their jobs will ultimately go away, but we're going to let some time pass as we got through the initial stages of the COVID crisis.

So we do see a clear path to start making an impact on the expense base. And it's like an onion. The more we do, the more clearer the next round will become.

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Betsy Lynn Graseck, Morgan Stanley, Research Division – MD [23]

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And is that something that you could start in the second half? I know you mentioned that we'd see the benefits here in 2021 with expenses below '20. But should we anticipate that some of this will start in second half '20?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [24]

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We are clearly going to take the actions in the second half of this year. And obviously, depending on what the economics of all that is and the accounting of it, not quite sure whether you'll see it or — in next year.

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Betsy Lynn Graseck, Morgan Stanley, Research Division – MD [25]

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Got it. Yes, okay. That's understandable. And then could I just switch gears to a question on mortgage? So the question here…

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [26]

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I just want to add one thing, which I just think is important, which is because I didn't say this in the prepared remarks, but I've certainly talked about this inside the company, which is we don't look at a quarter like this and just say, "Okay. That is what it is." Losses are higher. Our margins are narrow. We know we've got some work going on, and so we'll eventually get around to it.

While we knew these things had to get done and the work was getting done, it's not lost on us, our underperformance relative to where we should be earning. And so while I think there was a sense of urgency towards both getting the regulatory work done and improving our performance, whatever sense of urgency existed before is going to be small relative to what it is going forward.

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Betsy Lynn Graseck, Morgan Stanley, Research Division – MD [27]

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Ja. Yes, I got that. No, I get that. And I also am hearing in your commentary that the costs around the regulatory and the risk and the — those costs, is it fair to say, are more known today than they were maybe a year ago?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [28]

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Ja. I think absolutely. As time goes on and we become — we get clear on what has to be done, it's clearly easier for us to put a broad understanding of what that takes.

And again, just to be clear, when we go — and part of the reason why it takes us a period of time to do this properly is we're going to have very formal processes in place to ensure whatever reductions in our expense base we take that they do not impact any of that work. And so that will be informal, and it will be very, very formal. Because that would be just a terrible, terrible mistake for everyone if we were not to do that properly. So beyond heightened consciousness on that issue.

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Betsy Lynn Graseck, Morgan Stanley, Research Division – MD [29]

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Okay. Gut. Just switching to mortgage. Refi speeds have been incredibly high and — through second quarter. And John, I just wanted to get your sense as to what's in your base case assumptions for 3Q, 4Q? I mean part of the reason for asking is it impacts the servicing prepayment speed that impacts your NII outlook with refinancing on the agency. And then I also just wanted to have a quick follow-up question here on the Ginnie buyouts that you did that the American Banker highlighted this morning. Just understand, is that the first of many or not?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [30]

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Ja. Good question. So on mortgage fees, and it shows up in the MSR, shows up in our investment portfolio, and it shows up in the runoff of booked loans that are in our held-for-investment portfolio in loan form. The speed assumptions vary, depending on the vintage, the coupon, the debt-to-income, the LTV, et cetera, and the refinance ability of borrower by borrower. But I think we're as aware as anyone of how fast things have gotten. And we're seeing 30-handle CPR on various pools of loans.

And so while we think we've captured that in our updated estimates on the MSR, in particular, it does feed into this level of, call it, $500 million to $700 million per quarter of premium amortization for mortgage securities, which we — as I said, is likely to remain for the rest of the year.

On Ginnie buyouts, as — what's happening there is that there are loans that have gone delinquent, in part because of COVID. And as the servicer, we essentially have the accounting consequence of owning them, whether we buy them out or not. They're deemed — because the option to purchase them is so deeply in the money, we're deemed to have bought them. And so our calculus was either to have a giant pile of cash and that consolidated asset or to go ahead and buy them out and not have that asset — essentially that asset twice but use the cash to buy the asset. And these are guaranteed loans, from our perspective, not a huge credit consequence. It's just carrying the asset for a period of time before it either gets redelivered or sold or worked out in some way. So that's why we were a big buyer in the — actually, that was after the end of the quarter.

And then with respect to whether it continues on, it's — well, it's facts and circumstances. The same tension will apply. If we're deemed to have them on our books because we have the option to buy them, then we may — and if cash levels remain where they are, then we may go ahead and do it, just so that we don't really double up the size of our balance sheet. And that is an asset cap consideration.

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Betsy Lynn Graseck, Morgan Stanley, Research Division – MD [31]

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Ja. No, that makes a ton of sense. But so it's a function of more forbearance from here. Is that the driver?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [32]

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Ja. More/ongoing, that's right. And whether we're the servicer or not, but that's right.

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Operator [33]

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Your next question comes from the line of Ken Usdin with Jefferies.

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Kenneth Michael Usdin, Jefferies LLC, Research Division – MD and Senior Equity Research Analyst [34]

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Just a follow-up question on the NII outlook. It seems like in the second half, some pluses or minuses just to get to the mid-zone of your 41, 42. But just can you help us understand just how much more roll-through there needs to be from here on both asset yields and securities deals to your earlier points of how you're reinvesting? And then what from here can also happen on the deposit cost side as a partial offset?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [35]

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Ja. So I think on the deposit cost side, the — our anticipation is that between the reduction in pricing for interest-bearing deposits and the growth or continuity of noninterest-bearing deposits that our average deposit cost is back in the single-digit basis points by the third or fourth quarter. That's the trajectory that we're on. That's where we were in 2015, 2016.

On the asset side, depending on what happens to LIBOR, probably, in particular, the spreads are holding firm where we're lending. And there will be some — it could be some lower spread loan product that is replaced with higher. You've heard about that in autos. It's true in some categories of C&I. But that's a piece of it.

On the securities front, we've been trying to stay invested, but the level of prepayments that Betsy just referred to, I think, at our securities portfolio down by almost $30 million in the quarter. And so how much more duration we want to add at these low yields is a separate issue. We haven't been adding much in credit-related securities product.

But as I mentioned, I think to John, the outlook for NIM is relatively range-bound through the rest of the year. And we're sort of bumping along what we think the bottom could be. I mean, obviously, things could change. But at 0 in the front end and 60, 70 basis points in the long end, this feels about like where we're likely to be with the things that I mentioned.

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Kenneth Michael Usdin, Jefferies LLC, Research Division – MD and Senior Equity Research Analyst [36]

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Richtig. And then so I guess then it really just NII growth next year or just — you're starting from a high point this year. So we'll probably be in the whole still next year. But really, does it depend on the asset cap then? Or does it depend on the mix of earning assets in order to get that kind of off this $10 billion-ish type of NII number?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [37]

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Ja. It's a good question. It's both. So it's what choices we make on the asset side and what the market is offering; what — where loan demand comes from, I think, will matter a lot; slope of the curve. If things get a little steeper, that obviously could be helpful because we're so exposed at the long end. And then if there's an opportunity to have a bigger balance sheet, we're certainly not budgeting that way or counting on it, but that would be a difference maker.

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Kenneth Michael Usdin, Jefferies LLC, Research Division – MD and Senior Equity Research Analyst [38]

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Okay. One just quick follow-up, John. On the servicing side of mortgage, great production and then the tougher servicing results. There's both the core fees that are contracting because of the prepays, and then there's all the hedging. What's the best way you can help us understand how that mortgage banking line item just trajects from here, given especially the uncertainty in how you model out the servicing side?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [39]

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Ja. It's tricky. But — so I think what we've said is we expect volumes on the production side to be a little bit higher and margins to be relatively constant. So if those 2 things hold true, the third quarter should be a great — relatively great production environment for mortgage.

And on the servicing side, we think we've captured the higher servicing costs for default servicing, modification servicing, et cetera. We now have faster speed expectations in the model. Although we said that a quarter ago, too, we were surprised on the downside. But if we've — if both of those things are captured, then we will produce lower servicing fees because the book itself is getting smaller. But I'll take smaller servicing revenue to — as long as we're not taking big write-downs on the assets that are offsetting the benefit that we're generating on the origination side. And hopefully, the third quarter reflects that.

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Operator [40]

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Your next question comes from the line of Saul Martinez with UBS.

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Saul Martinez, UBS Investment Bank, Research Division – MD & Analyst [41]

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First of all, a really, really specific question related to the fourth quarter dividend cap. Can you just verify, John, that that's based on net income before preferred stock dividends? And because I think that the guidance from the Fed is public that it's based on your NIAT net income figure. And for you guys, obviously, that does matter given the size of the preferred stock dividend. So I just wanted to make sure that, that point is clarified.

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [42]

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Ja. The way we're calculating its NIAT after tax but before preferred stock dividends, which gets you to NIAT available to common.

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Saul Martinez, UBS Investment Bank, Research Division – MD & Analyst [43]

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Okay. Got it. Okay. So you're calculating before preferred stock dividends, just to be clear?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [44]

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Correct. Ja.

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Saul Martinez, UBS Investment Bank, Research Division – MD & Analyst [45]

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Okay. Got it. A much, much, much broader question. And kudos on the donation to CDFIs. I think a lot of them do a lot of very good work. And I guess on that point, though, I do think that it's pretty clear, though, that Wells does have to, maybe more than others, really focus on multiple stakeholders and different goals. And the idea of strictly shareholder-driven capital is obviously already under tapped. And you have to meet your regulators, meet their demands, employees. I think you guys genuinely are concerned about the well-being of the communities you work in. And then you have guys like me who talk about your ROTCEs and super high-efficiency ratios and how you're going to rightsize your cost structures. And I guess how do you think about that, the balancing act and of those competing demands? I think in the past, those management teams have argued that they can do all of those things simultaneously. And I think to a certain degree, maybe that is true, but there are some trade-offs and some element of the zero-sum dynamic going on. So I guess, Charlie, I'm curious maybe just more philosophically how you kind of think about that. And I guess, ultimately, how do you think about shareholder value in that total pool of goals?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [46]

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Ja. I guess I don't think about it as a trade-off, and I don't think about it as something which is different for us versus other significant companies, whether you're a financial institution or not. I think it is very, very clear that our ability to be successful as a company for our shareholders includes the fact that we are broadly considering a much broader set of stakeholders. If we don't do that, customers, whether they're consumers or companies, ultimately won't want to be supportive of us. We'll have issues in our local communities. It will filter through to the legislative and likely the regulatory agenda.

So I think we very much think that they are very much related and that there's no reason why the things that we should be doing to be more thoughtful of a broader set of stakeholders. They aren't a set of financial negatives. Ultimately, it should be something beyond that.

The PPP fees were certainly something that was very unique. We are in the middle of this really horrific time for small businesses and especially minority-owned small businesses. The right thing for us as a significant company in this country is to be as helpful as we can with that community. It's also ultimately helpful for us if we can make a difference in the communities that we operate. And then we also looked at that relative to just the — what we thought was fair for us in order to participate in the PPP program.

And so I think you put all those things together, and there is alignment. And those that don't think about it that way will likely suffer over the long term.

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Operator [47]

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Your next question comes from the line of Steven Chubak with Wolfe Research.

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Steven Joseph Chubak, Wolfe Research, LLC – Director of Equity Research [48]

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So I wanted to start off, Charlie, with — just a theoretical question on the asset cap. Can you talk about the proactive steps that we're taking to manage the balance sheet to stay below? How that's negatively impacted NII? Since most investors are focusing at this juncture on normalized NII and through-the-cycle revenue growth expectations. If the Fed were to lift the asset cap tomorrow, I was hoping you can give us some idea or context around the amount of pent-up growth potential in the balance sheet today. Just — I think it would be helpful if you could frame the impact of the asset cap on NII or at least volume growth based on where things stand today.

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [49]

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So this is John. If — just as a data point using rough math, if our balance sheet was expanded by, call it, $200 billion or about 10% during this COVID time frame and is a question about whether there was ample opportunity to do that around several asset classes. But in certain areas, there certainly was, with something like our average NIM, the impact that, that would have had on us would have been — and this is — these are approximations, but to reduce the drawdown on NII by 50%. So half of how things have worsened would have been covered by that expansion of the balance sheet. That's one way to think about it.

There were more immediate opportunities to put loans on, in particular, I'd say, in March, as capital markets were closed. I think everybody knows that. And we saw customers drawing on available facilities, new other requests for new facilities.

The bigger, probably more constant, piece of an increased balance sheet, at least in the businesses that we serve today, would probably be to have a bigger securities and securities financing portfolio in support of our corporate and investment bank, where we have drawn down as part of managing under the asset cap. And there's a handful of benefits to that, including being able to do more business with the companies that we're — and the institutions that we're financing in that realm. But you also end up with a big LIBOR-funded book that is a little bit less asymmetric in a down rate scenario. And we certainly suffered from that. There's a real benefit to being substantially deposit funded in that it's very low cost to begin with. But in a down rate environment, it's a little bit more violent in terms of the outcome that it generates.

And to have a bigger component piece of LIBOR-funded assets with LIBOR-funded liabilities, it's a little bit less high producing in the best of times, but it maintains its margin in a down rate environment. So that would have been a benefit also.

But Charlie, you may have other thoughts.

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [50]

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I think that's okay.

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Steven Joseph Chubak, Wolfe Research, LLC – Director of Equity Research [51]

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Okay. No, that's helpful color, John. Just — I have one more question. It's one, I guess, I've asked over the last couple of quarters. But wanted to get some context around the core fee income level or the jumping-off point we should think about for the back half. You cited some of the tailwinds from mortgage production. Trust fees should benefit from the higher markets. But you also have some normalization of trading activity. And just given all the different moving pieces, I was hoping you can give us some sense as to what the right jumping-off point might be for 3Q.

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [52]

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Ja. We don't put a number on it and call it core but rather talk about the component pieces of it. And so service charges on deposits, which is a big one for us, my assumption is that it's going to feel, at least for a while, like it does today. People are spending differently. They're maintaining cash balances at a higher level. And so there are — whether it's waivers because of high balances or the absence of overdraft, that puts pressure on that line item as our customers do what's right for them in this environment.

You mentioned brokerage advisory, et cetera. That should be stronger going into the second half of the year. Investment banking, we had a record high-grade market in the first quarter. So while other activity may pick up a little bit, my sense is that, that probably normalizes somewhat.

Card fees have reflected what I mentioned on my — in my prepared remarks, which is at least in the debit card space, we've got balances or flows in dollar terms about equal to last year but the number of transactions lower, which has a negative impact in card fees. And credit card fees have been improving but haven't caught up. So that — I don't think it's going to pop back up anytime really quickly.

Mortgage, I mentioned on the production side, should be very strong or should be strong. And hopefully, we've accounted for faster speeds and higher costs in servicing. Trading, as you said, probably gets a little bit softer. And other items are less material, and there's nothing really noteworthy. So that's how I would think about the categories.

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Operator [53]

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Your next question comes from the line of Matt O'Connor with Deutsche Bank.

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Matthew D. O'Connor, Deutsche Bank AG, Research Division – MD in Equity Research [54]

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I wanted to circle back on kind of the longer-term view of getting your efficiency closer to peers. And I guess the first question is why do you necessarily think it's an expense issue versus a revenue issue? Or is it a combination of both?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [55]

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It's definitely a combination of both. Revenue, particularly interest income, which doesn't carry a lot of expense load, would be very helpful. I think what we're trying to do is assess where the company is today and what we can do about it. And we can do more about expense than we can about revenue in a balance sheet-constrained environment, in a recession and in a low rate environment. So it's actionable by the management team. But without a doubt, some amount of normalization of certain categories of revenue would be — will contribute to it.

But having said that, I think we've sort of factored in a variety of different ways on the idea that all things being equal, and I'm sure they won't be, but at least as we think about it today, that $10 billion is a reasonable amount to go after to put Wells Fargo on a level playing field with the large-cap peers.

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [56]

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And the only thing I would add to what John said is this isn't — the calculation of the $10 billion, that's a mathematical exercise. When the management team, the Operating Committee gets in a room, there is absolutely no disagreement in the room, not about the math, but about the inefficiencies that exist inside the company away from all of these risk-related activities.

And the work that we've been doing is to build the plans from the bottom-up to identify where that is. And so whether that's the full $10 billion or not, we'll see what we get to. But there is — we certainly have a clear belief that we can make a significant dent based upon what we know.

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Matthew D. O'Connor, Deutsche Bank AG, Research Division – MD in Equity Research [57]

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And just to be clear what you think kind of the longer-term cost base can be, when you used the $10 billion as kind of a reference point, should we just annualize this quarter's costs? That gets you about $58 billion. You take out $10 billion, gets you around $48 billion? I mean is that the thought process?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [58]

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I think of $54-ish billion as more of the normalized starting point without the excess expenses that are loaded into this quarter for the items that we mentioned.

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Matthew D. O'Connor, Deutsche Bank AG, Research Division – MD in Equity Research [59]

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Okay. $10 billion off to $54 billion?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [60]

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Ja.

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Matthew D. O'Connor, Deutsche Bank AG, Research Division – MD in Equity Research [61]

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Okay. And I guess just related to that, like, whenever I think about kind of cost saves, like there are areas that you'll want to invest in. There is just natural inflation creep. So you guys kind of opened up a little bit of a can of worms on the $10 billion. So I know these are things that are tough to predict, like looking out a few years but…

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [62]

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But we didn't open a can of worms because — I don't look at it like we opened a can of worms. I think we look at it like we're acknowledging what the facts are, which is — the facts are is we compete with other companies that are investing tremendously. And with that — those set of investments, the math says the following. And so what we've been purposely having said, we're going to reduce our expenses by a certain point in time because we are doing the work to figure out what the timing looks like with our reductions versus our investments.

But I think what's important is not just that we acknowledge that, that gap exists, but we are proactively working to get to a place which makes sense both from an efficiency standpoint, knowing that we should be investing in the business.

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Matthew D. O'Connor, Deutsche Bank AG, Research Division – MD in Equity Research [63]

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Okay. Gut. And it sounds like we'll get some more details in the third quarter or so. I think we all look forward to that.

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [64]

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Thanks.

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [65]

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Thanks, Matt.

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Operator [66]

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Our next question comes from the line of John Pancari with Evercore ISI.

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John G. Pancari, Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst [67]

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On the credit side, just want to see if I can get your updated thoughts around your through-cycle loss estimates that you would expect. I know your 2020 company run DFAST is about $27.7 billion. Is that a fair way to think about it? And then also, I want to get your thoughts around the reserve. You took a pretty good addition this quarter, and now your reserve is about 74% of that 2020 DFAST. Do you think there's likelihood for additional substantial reserve additions from here?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [68]

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Thanks for the question. So we're — we do the math to compare our own estimations to the DFAST outcomes, but we don't think of them as necessarily better informed about our loans and our portfolios and our risk profile and our collection activity, et cetera. So that's — it's a useful data point, and it's an external one that people can judge against. But we're — we think more about our own experience and the scenarios that we believe are the likely ones in the world that we're living in. And so that's how we focused it.

With the build that we made in the allowance, I think we're at almost 2.2% coverage of the outstanding loan portfolio. And of course, it's very different by loan category like it is for every other bank. I think we believe that if the world unfolds in the way that we've got it modeled and assumed in our both modeled loss estimations and in our bottoms-up portfolio-by-portfolio work that we will have captured the loss content in the portfolio as of the end of the quarter. And as a result, unless things really lag in a worse direction that this would be — this would have accounted for those losses.

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John G. Pancari, Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst [69]

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Got it. And then related to that, on the commercial real estate side, just wanted to see if you could discuss the credit trends that you're seeing in commercial real estate. I know that delinquencies in CMBS structures really spiked for the industry beyond even financial crisis levels. And — but clearly, that is being staved off somewhat at the banks by forbearance efforts. Are you — can you just give us a little bit of that granularity around what you're seeing and the level of forbearance in commercial real estate? And is it seeing a greater pressure in the portfolio to forbear to — given the pressure that your borrowers are seeing?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [70]

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Ja. Ja. The first distinguishing point I would make is that — and I know you know this, but for everybody's benefit, CMBS structures are nonrecourse loans. And so there's no alternative other than realizing on the collateral. There's no mechanism for extra cash flow to enter into a structure, unless somebody does something that are not contractually obligated to do to try and shore things up. And I think as I've seen most recently, the June numbers in CMBS are about 13% of loans are not current.

Conversely, on a bank's balance sheet, most of the loans that we have, have real sponsorship and recourse and, generally speaking, are lower LTV than CMBS to begin with. So our actual performance is quite different.

And then I think we talked about this last quarter, too, but the variation in how deep will go from an LTV perspective is, as you'd hope, with the more stable property types, we might have higher leverage; and with the least stable property types, we'd have lower leverage, which helps a lot in a downdraft.

So we have, in round numbers, roughly $150 billion worth of commercial real estate loans outstanding at the end of the quarter. The biggest pieces: 1/4 of that is office; 20% of that is apartments; 12% is industrial; 10% is retail, excluding shopping centers; and then 9% is shopping centers; and everything else is below 9%. Actually, hotels is about 8%, which is a volatile property type.

And then among nonaccrual loans, the shopping centers are 32%; hotels, 14%; and retail, excluding shopping centers, is another 14%; and everything else is below 14%. There's about $1.3 billion of nonaccruals overall.

So that's what it feels like. We're working through these things borrower by borrower. Sometimes, the concessions that we're making are just covenant related. Sometimes, they are real forbearance. And we allow people to take a little bit more time to pay. Our borrowers have been generally calm and constructive. It's not a lot of panic at this point in the cycle. The problem loans are skewed towards retail projects, many of which were already struggling, and then also the hotel owners with lower capitalization. So I hope that's helpful.

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John G. Pancari, Evercore ISI Institutional Equities, Research Division – Senior MD & Senior Equity Research Analyst [71]

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Got it. No, that is helpful. So really, you're reserving within commercial real estate. Or you would say that, that represents the similar stance for your overall portfolio? In other words, you're pretty much finished building reserves there as well?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [72]

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For how we understand the world at the end of the second quarter, yes. And we think that's relatively — we think it's very realistic. We — I should also add that in commercial real estate and elsewhere, our teams have gone loan by loan, borrower by borrower and made an assessment of where we think we are and where we think things are going. So it's not just a model set of expectations but a real careful review of every borrower, every property in their circumstances.

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Operator [73]

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Your next question comes from the line of Brian Kleinhanzl with KBW.

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Brian Matthew Kleinhanzl, Keefe, Bruyette, & Woods, Inc., Research Division – Director [74]

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One quick question that's more of a clarification. You did mention that on Slide 16 that say that nonaccruals were current on interest and principal. Was that referring to the $1.4 billion increase? Or was that referring to the total? And I guess why nonaccrual if they're current on interest and principal?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [75]

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Total, the total amount.

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Brian Matthew Kleinhanzl, Keefe, Bruyette, & Woods, Inc., Research Division – Director [76]

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Okay. And then separately, when you think about the DFAST results, and you're saying that you may perform better than those results, I guess, where do you take exception with kind of how the Fed is modeling your stress losses versus how you see them coming through this cycle?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [77]

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Ja. Forgive me if I don't start a response by saying we take exception with the Fed's results in the following way because that's not really that will be helpful. But they draw from different models and have different approaches. And we draw from our own, as I said, bottoms-up, our own modeled outcomes, our own historical outcomes, changing the composition of the portfolio or changing the underwriting standards and whatever we're comparing it to. And we end up with the numbers that we end up with.

I'm happy to note that I think, in general, the Fed applies, in general, a lower loss rate for a variety of loan categories to Wells Fargo than they have for some other lenders not universally true based on the composition of portfolios. But we're — we like our numbers where a lot of work with a lot of very close inside knowledge of borrowers, properties, et cetera, goes into it, and it's being compared with something that's more statistically driven from a model that we don't have access to.

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Operator [78]

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Your next question comes from the line of Chris Kotowski with Oppenheimer & Company.

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Christoph M. Kotowski, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [79]

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One, just to follow up on Matt's question. I mean just from 2017 to today, I mean, your revenue runway went from $88 billion to roughly $70-ish billion. And your core operating expenses have kind of stayed flattish at $54-ish billion, let's say it. So I mean sitting here on the outside, it would look like it's primarily a revenue problem, not an expense problem. And I mean — when you put out a number like $10 billion, are you worried that, that is going to like forgo the optionality on capturing back that $18 billion in lost revenues? Or should we assume that that's kind of gone?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [80]

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Ja. I think you should go back and listen to the words that we used to describe what the $10 billion is and how we're thinking about this.

Listen, there's no question in our minds that we should have the ability to generate higher revenues in the future. No question that will help when it comes to an efficiency ratio. What we're talking about is, if you go back and look at where we were as a company versus the others, the others, the big companies that we compete with have been working on this for 5 to 10 years. And there is — and again, I'm just — we're being very factual about it, which you should go back and check yourself, which is there is this meaningful difference between what our expense base looks like and theirs.

And then I recognize you're on the outside, but what we're telling you is from one on the inside, that we, as a management team, continue to believe that the opportunities are substantial to improve the efficiency of the organization because we see it day in and day out. And we're going through a process to identify exactly what it is, where it is.

It's not just people. It's the third-party spend here is extraordinary. The things that we rely on outside people to do is beyond anything that I've ever seen. Our ability to reduce facilities is substantial. And so there's this long list of things that we will actively be working on. Whether that gets to $10 billion, whether it gets to more, whether it gets to less, we'll see. We're going to share more as we develop the plans. But I think it's just important for us as a management team to be very objective at what things look like for this company before we wound up in today's environment. And those efficiencies clearly exist in the company.

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Christoph M. Kotowski, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [81]

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Okay. And then just a small thing. I thought I heard John say that you're no longer accepting home equity and personal line of credit applications. And I mean I realize that those have been declining categories and that they are not the kind of product lines that today that they were before the great financial crisis and all that. But still, are those kind of sort of key products in a big consumer bank's arsenal? And doesn't it send the wrong message to not even take the applications?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [82]

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Well, I guess, let me — I'll talk about it piece. John can talk about. Because I guess the way I think about it is, first of all, we do offer personal lines in the company because we have a credit card business. And so for us, it's a question of making sure that we've got the right product in front of the customer. And so we think we have the ability to do that.

The home equity product, as you rightfully mentioned, has certainly declined in terms of the amount of production that was taking place. But we do have to make a determination in the uncertain environment as to what is a smart thing for us to participate in along with consumers as they add risk to their balance sheet.

As time goes on, if we feel differently about the environment and about real estate values, those decisions could change as well.

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Operator [83]

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Your next question comes from the line of Vivek Juneja with JPMorgan.

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Vivek Juneja, JPMorgan Chase & Co, Research Division – Senior Equity Analyst [84]

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Charlie, John, a couple of questions. Firstly, Charlie, are you still on track to be giving us some kind of strategic review or strategic plan towards the end of the year? Or should we expect that with the cost details that you're going to give us in the third quarter? How are you thinking in terms of timing of the 2 things?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [85]

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I think as we — between the third and fourth quarter, we're looking at getting both done to share the complete — our complete set of thoughts with you.

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Vivek Juneja, JPMorgan Chase & Co, Research Division – Senior Equity Analyst [86]

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Okay. So you'll do them — so you'll give it to us simultaneously so that we can see how the 2 fit together?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [87]

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Again, I think that's what we're targeting, but we'll have to see how it plays out and our work progresses.

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Vivek Juneja, JPMorgan Chase & Co, Research Division – Senior Equity Analyst [88]

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Okay. In that same vein, Charlie, as you're thinking about all of this, you talk about not having too much of an expense dollar relative to your peers. How much of this — where you find businesses where it's because you just don't have enough scale on the revenue side, are you thinking you're going to exit some of those businesses? What are you thinking there? Are you thinking about more business exits? Any thoughts on that?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [89]

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Ja. That's a good question, Vivek. I think we've talked about this a little bit over the last couple of quarters. There absolutely are some things that we do which either we don't have scale in or it just might not be big enough to have an impact on the company going forward, and it's not clear that integral to us being able to fulfill the primary banking relationships that we have from the consumer to the small business and middle-market up to the corporate. So I think as we think about what the company should look like, we absolutely are looking at those things. And so we would certainly expect that we would continue to, I think John has used the word, prune some of these some of these things that exist inside the company as we've been doing.

I don't think about them in terms of — say differently. The 5 lines of business that we've determined we do believe are key to the future of the company. But when you go below that, there's certainly some activities which might not meet our criteria for continuing to be here.

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Vivek Juneja, JPMorgan Chase & Co, Research Division – Senior Equity Analyst [90]

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Okay. And then when you give us these combined reviews, will you give us some sense of — we've been — we've heard about your need to spend more in technology, areas that you're behind in. Would you give us some sense also where that stands business by business and what you need to do and how that sort of dovetails with the numbers, too?

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [91]

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Listen, we'll see when we get closer to the level of detail that we go through with you. But certainly, the work that we're doing contemplates the fact that we don't want to stand still in our businesses.

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Operator [92]

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Your next question comes from the line of Charles Peabody with Portales.

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Unidentified Analyst [93]

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Two questions. One, and I apologize if you've already covered this, but I transitioned over late from the Citigroup call. What were the variables that went into your thinking on the level of the dividend? I mean was it — this is a level that you didn't have to worry about it again? Was it a function of what you think your core earnings power is going forward? Or is it a desire to build capital more? What were the variables that get you to that level?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [94]

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A handful of things, of course. And with the expectation that it's likely that the constraints on the calculation of allowable dividend hang around for a while, even though they may not but they certainly may, if we found a level that we believe is something that gives us more of an upside ability as the COVID environment clears up as the medium-term earnings power of the company becomes more known, both in terms of sources of revenue and what's happening with expense, et cetera, so that we don't — we wouldn't end up or have a low likelihood of ending up in an environment where we're making repeated changes to the dividend.

So not so much about — our capital levels are fine. We have $23-ish billion of excess on top of our regulatory capital requirements. And we feel it's gone up, as you may have observed. And that's even after building a $20 billion allowance. So not so much capital sufficiency. Although in the future could turn out differently than we and others are planning right now but really more about thinking about the core earnings power and a resulting upward trajectory when the time is right.

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [95]

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And Charles, I would just add, I know we certainly appreciate the multiple calls that are going on today, and it's a busy day for you all. I would encourage you to go back and look at the prepared remarks because we did walk through the thinking.

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Unidentified Analyst [96]

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Ja. And as a follow-up question, there's a June 22 letter from 40 or 50, 60 congressmen on both sides of the aisle, so bipartisan and addressed Mnuchin and Powell. And in this letter, they warn of a looming crisis in the CRE and — particularly the CMBS market. And they asked for help from the treasury and the Fed. I was curious what actions you think they might be thinking about taking to support the CMBS market? Or what actions would you like to see them take?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [97]

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I don't know if we have an opinion on what actions we'd like to see them take. I do think that, as between the risk owners and CMBS transactions and servicers and borrowers, people should be looking to maximize recovery value. But the contracts are pretty thoughtful. This isn't the first downturn that those market participants have been through. And my expectation is that a lot of decision-making power is going to end up in the hands of special servicers and I don't know how to — I don't know why it would be a good idea to impose some other regime on top of that, that changes those contracts. But I don't have a careful, thoughtful review of what's being proposed.

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Operator [98]

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Our final question will come from the line of Gerard Cassidy with RBC.

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Gerard Sean Cassidy, RBC Capital Markets, Research Division – MD, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst [99]

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I apologize if you touched on this already, but when you guys gave us in Slide 2 — or I'm sorry, Slide 3, the number of customers you have helped with deferring payments and waiving fees, can you give us some color on the trend in terms of the applications for these deferrals? I assume they were very heavy early on, and they have faded downwards. And then second, how many of the customers that have come up for renewal have actually asked for a second extension for the deferrals?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [100]

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Well, it's different by loan category. And yes, it's true that the people initially asking was sort of a high point. We peaked — our peak was the second week in April. I think, on average, we had about 60,000 or 70,000 accounts per day who were asking. We've dropped, well, almost entirely. I think we're at 4,000 a day for the week of late June. So if that's helpful.

And then, of course, the extension question is related to how long was the initial deferral to begin with. And in general, I would say that more people are getting comfortable with coming out the other side. But yes, we still have a good base of folks who are in deferral.

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Gerard Sean Cassidy, RBC Capital Markets, Research Division – MD, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst [101]

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And then second, John, have you guys got any color from the Fed on how long they're going to be supportive of the industry, yourselves included, in granting these deferrals without having to reclassify the loans and put more capital against them?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [102]

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I don't think we've got a specific conclusion on that. Although we do assume that there's going to be some point in time after which whether it's the regulators, not only the Fed, and/or our accounting convention is going to cause us to have to consider these as something other than a performing loan. It might be different by category. It might be different by regulator. But the longer we go on, the greater the risk of that.

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Gerard Sean Cassidy, RBC Capital Markets, Research Division – MD, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst [103]

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Great. And lastly, thank you again for the great detail that you guys given your commercial and industrial loan portfolio. And I noticed, as you mentioned, the increase in nonaccruals on Page 17, the different categories. Can you give us some color on the real estate and construction? The nonaccruals went to $290 million up from, I guess, it was $49 million in the prior quarter. But how much was construction versus loans to the nondepository financials?

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John Richard Shrewsberry, Wells Fargo & Company – Senior EVP & CFO [104]

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I don't think I have the breakout in front of me, but I can have the IR team follow up with you.

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Charles W. Scharf, Wells Fargo & Company – President, CEO & Director [105]

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All right, guys. Well, listen, thank you very much for the time. We appreciate it, and we will talk to you soon. Take care.

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Operator [106]

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Ladies and gentlemen, this does conclude today's call. Thank you all for joining, and you may now disconnect.

Transcription de la conférence des résultats du WFC ou présentation …
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