Earnings Call Transcript
WELLS FARGO & COMPANY/MN (WFC)
Earnings Call Transcript - WFC Q3 2024
Operator, Operator
Welcome and thank you for joining the Wells Fargo Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.
John Campbell, Director of Investor Relations
Thank you. Good morning, everyone. Thank you for joining our call today, where our CEO, Charlie Scharf, and our CFO, Mike Santomassimo, will discuss third-quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our third-quarter earnings materials, including the release, financial supplement, and presentation deck are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures can be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie.
Charlie Scharf, CEO
Thanks, John. I'll make some brief comments about our third-quarter results and update you on our priorities. I'll then turn the call over to Mike to review our results in more detail before we take your questions. Let me start with some third-quarter highlights. Our results were solid with $5.1 billion net income, diluted earnings per share of $1.42, an ROE of 11.7%, and an ROTCE of 13.9%. All were up from the second quarter. Our earnings profile is very different than it was five years ago, as we've been making strategic investments in many of our businesses and de-emphasizing or selling others. Our revenue sources are more diverse, and our fee-based revenue has grown 16% during the first nine months of the year, largely offsetting the net interest income headwinds we have faced over the last year. We have maintained strong credit discipline and driven significant operating efficiencies in the company while investing heavily to build a risk and control infrastructure appropriate for a bank of our size and complexity. Headcount has declined every quarter for four years and was down 20% since the third quarter of 2020. Our expenses in the third quarter were down from both the second quarter and a year ago. Average loans declined from the second quarter as we've maintained strong credit standards and our focus on returns over volume. We've continued to grow our credit card portfolio with balances growing for 13 consecutive quarters, and commercial loan demand remains weak, reflecting economic uncertainty and the expectation that rates will be lower in the future. Overall deposits declined slightly from the second quarter, but deposit balances in our customer-facing businesses continue to grow, which has enabled us to reduce higher-cost corporate treasury deposits. We've started to reduce deposit pricing in response to the recent Fed rate cuts and we're closely monitoring market conditions and will continue to make adjustments. Both our consumer and commercial customers have remained resilient. In our wholesale businesses, credit performance improved from the second quarter, with lower losses in both our commercial real estate and commercial and industrial loan portfolios. The office market remains weak, and we continue to expect additional charge-offs in our commercial real estate office portfolio and have accordingly maintained strong allowance coverage. Overall, customers in our consumer businesses continue to hold up relatively well, benefiting from a strong labor market and wage growth. Consumer charge-offs declined from the second quarter, driven by lower losses in our credit card portfolio, while our other consumer portfolios continue to perform well, reflecting the benefit of prior credit tightening actions. We continue to look for changes in consumer health, but we have not seen meaningful changes in trends when looking at delinquency statistics across our consumer credit portfolios. Both credit card and debit card spend were up in the third quarter from a year ago. And although the pace of growth has slowed, it is still healthy. We continue to see more pronounced stress in certain customer segments with lower deposit and asset levels, where inflation has partially offset strong employment and wage growth. The benefits of inflation slowing and interest rates starting to ease should be helpful to all customers but especially those on the lower end of the income scale. Our capital position remains strong with our CET1 ratio of 11.3% up from 11% last quarter. And we continue to return significant amounts of excess capital to shareholders. We repurchased $3.5 billion common stock in the quarter and $15.6 billion of common stock during the first three quarters of this year, up over 60% from a year ago. And we increased our common stock dividend in the third quarter by 14%. Shareholders have meaningfully benefited from our capital management actions as our earnings per share are up over 50% since the third quarter of 2019, benefiting from the 22% decline in diluted average common shares over the same period. Now let me update you on our strategic priorities, starting with our risk and control work, which remains our top priority. We continue to move forward with confidence and believe we have the right culture, team, discipline, and sense of urgency to complete the work that's required. That includes what is required under the recent formal agreement we entered with the Office of the Control of the Currency. We are also continuing to execute our other strategic priorities. We continue to build our credit card business and this past quarter, we launched two new co-branded credit cards with Expedia, which provide our customers a unique travel rewards program with instant discounts, enhanced perks, and accelerated rewards. Our broader set of credit card products continue to be well received by both existing customers and customers new to Wells Fargo with nearly 2 million new credit card accounts this year. Last month, we announced a multi-year co-branded agreement with Volkswagen Financial Services. Starting in the first half of next year, we will be the preferred purchase financing provider for Volkswagen and Audi brands in the United States. The investments we've been making in our consumer, small and business banking segment are starting to generate growth. After several years of no growth, net checking counts have now grown for three consecutive quarters. And we believe our debit card share has started to increase as well. Mobile active users increased by 1.6 million or 5% from last year. We are also investing in our branches and have refurbished over 460 branches during the first three quarters of this year. We continued to hire proven leaders in our corporate investment bank. In investment banking, we made several important hires, focused on key coverage and product groups to help us build on our momentum and grow the business. We also hired a new Vice Chair of corporate banking who is focused on helping us continue to expand and grow that franchise. We also continue to attract experienced leaders in other areas. And in the third quarter, Bridget Engle joined Wells Fargo as Head of Technology reporting to me. I've worked with Bridget in the past and know firsthand her deep experience leading large-scale technology transformations at large global financial institutions will benefit Wells Fargo. Our strategic priorities also include focusing on businesses that are core to our consumer and corporate clients, and when they aren't, shrinking or selling them. As part of this effort, during the third quarter, we announced we had entered into a definitive agreement to sell the non-agency third-party servicing segment of our commercial mortgage servicing business. We will continue servicing agency loans and loans held on our balance sheet. Looking ahead, overall the US economy remains strong with inflation slowing and a resilient labor market boosting income and supporting consumer spending. Company balance sheets are strong, contributing to both consumption and investment in the economy, but slowing demand for commercial lending. We continue to be prepared for a variety of economic environments, and we'll balance our desire to increase returns and grow while protecting the downside. We have one of the most enviable franchises of the industry and a top management team capable of delivering strong results. I want to thank everyone I work with at Wells Fargo for everything they've done to transform this great company. I'll now turn the call over to Mike.
Mike Santomassimo, CFO
Thank you, Charlie, and good morning, everyone. We are pleased with the results in the third quarter. We again saw good growth in non-interest income across most businesses, and expenses were well controlled. Net income for the third quarter was $5.1 billion or $1.42 per diluted common share. During the quarter, we took the opportunity to reposition a portion of the investment securities portfolio. Our results included $447 million or $0.10 per share of net losses on the sale of debt securities. This included the sale of approximately $16 billion of securities and reinvestment of the proceeds into securities with yields approximately 130 basis points higher than the securities we sold. The estimated earn-back period for this repositioning is a little over two years. Without the impact of the investment securities portfolio repositioning, earnings per share would have been $1.52. When looking at our results compared with a year ago, I'd remind you that our third-quarter results last year included $349 million or $0.09 cents per share of discrete tax benefits. Turning to Slide 4, net interest income declined $233 million or 2% from the second quarter. $128 million of this decline was due to the increased pricing on sweep deposits and advisory brokerage accounts and wealth and investment management that we highlighted on last quarter's call. This was the lowest linked-quarter decline in net interest income since the third quarter of 2023, as customer migration to higher yielding deposit products continued to slow, and the pace of deposit pricing increases also decelerated. Deposit costs were up 7 basis points in the third quarter, with approximately half of this increase driven by the pricing increase on sweep deposits in advisory brokerage accounts. The third-quarter increase in deposit costs was lower than the 10 basis point increase in the second quarter and the 16 basis point rise in the first quarter. In response to the Federal Reserve rate cut in September, we have reduced rates on promotional deposit offers in our consumer businesses. Pricing on sweep deposits and advisory brokerage accounts, which are aligned to money market funds, will continue to move in line with Fed rate cuts. Commercial deposit pricing is responding quickly to Federal Reserve rate reductions, just as it did when rates were rising. We are continuously monitoring competitive conditions and deposit trends and will adjust pricing, tenor, and new balance requirements based on our observations. We highlight loans and deposits on Slide 5. Average loans were down from both the second quarter and a year ago, with continued growth in credit card loan balances more than offset by declines in most other categories. I'll highlight specific drivers when discussing our operating segment results. Average deposits increased $1.4 billion from a year ago, and growth in our customer deposits enabled us to reduce higher-cost corporate treasury deposits. Average deposits were down $4.8 billion in the second quarter. This decline was driven by an $18.5 billion reduction in higher-cost corporate treasury deposits, while customer deposits grew $13.7 billion from the second quarter. All else equal, a reduction in corporate treasury deposits is a positive for net interest income in the current environment. Turning to non-interest income on Slide 6. We had strong growth in non-interest income up 12% from a year ago. As Charlie highlighted, this growth reflects the benefits of the investments we've been making in our businesses as well as market conditions. We grew non-interest income across most categories, including double-digit increases year-over-year in many of our largest fee-generating activities, including investment advisory, net gains from trading activities, deposit-related fees and investment banking. We also benefited from improved results in our venture capital investments. I will highlight the specific drivers of non-interest income growth when discussing our operating segment results. Turning to expenses on Slide 7. Non-interest expense declined from both the second quarter and a year ago. The impact of our efficiency initiatives helps reduce salaries and professional and outside services expense compared with a year ago. These declines were partially offset by higher revenue-related compensation predominantly in Wealth and Investment Management, as well as higher technology and equipment expense. Operating losses declined from a year ago and from the higher levels we had in the first half of this year. Turning to credit quality on Slide 8. Net loan charge-offs decreased 8 basis points from the second quarter to 49 basis points of average loans. The decline was driven by lower commercial net loan charge-offs, which were down $145 million from the second quarter to 24 basis points of average loans with lower losses in both our commercial real estate and commercial and industrial portfolios. While losses in the commercial real estate office portfolio declined in the third quarter, market fundamentals remained weak, and we still expect commercial real estate office losses to be lumpy, as we continue to actively work with our clients. Consumer net loan charge-offs declined $45 million from the second quarter to 83 basis points of average loans, driven by lower losses in the credit card portfolio. Non-performing assets decreased 3% in the second quarter, driven by lower commercial real estate non-accrual loans. Commercial real estate office non-accruals declined $164 million, which included paydowns and net loan charge-offs. Moving to Slide 9. Our allowance for credit losses for loans was down $50 million from the second quarter with modest declines across most asset classes, largely offset by an increase in allowance for credit card loans driven by higher balances. Our allowance coverage for loans has been relatively stable over the past year, as credit trends remain within our expectations. Our allowance coverage for our corporate and investment banking and commercial real estate office portfolio has also been relatively stable at approximately 11% since the third quarter of 2023. Turning to capital liquidity on Slide 10. Our capital position remains strong, and our CET1 ratio of 11.3% continued to be well above our new CET1 regulatory minimum plus buffers of 9.8%, which became effective in the fourth quarter. The increase in our CET1 ratio from the second quarter included a benefit of 28 basis points from higher accumulated other comprehensive income due to lower interest rates and tighter mortgage-backed security spreads. With the $3.5 billion of common stock repurchased in the third quarter, our share repurchases during the first three quarters of this year were $6 billion higher than the same period a year ago, and diluted average shares outstanding declined 7% from a year ago. Turning to our operating segment results, starting with Consumer Banking and Lending on Slide 11. Consumer Small and Business Banking revenue declined 5% from a year ago, driven by lower deposit balances and the impact of customers migrating to higher-yielding deposit products. However, the pace of migration continued to slow. The slight increase in Home Lending revenue from a year ago was driven by higher mortgage banking fees. Credit Card revenue declined 2% from a year ago, as lower fee revenue more than offset higher net interest income. Auto revenue decreased 24% from a year ago, driven by lower loan balances and continued loan spread compression. The decline in personal lending revenue from a year ago was also driven by lower loan balances and loan spread compression. Turning to some key business drivers on Slide 12. Retail mortgage originations declined 14% from a year ago, reflecting the progress we've made on simplifying the Home Lending business but grew 4% from the second quarter. We also continue to make progress on reducing the size of our servicing business. The amount of third-party mortgage loan servicing was down 16% from a year ago. Since we announced our new strategy early last year, we reduced headcount in Home Lending by 46%. The size of our Auto portfolio continued to decline with period-end loan balances down 14% from a year ago, driven by previous credit tightening actions. Origination volume in the third quarter was stable year-over-year and grew 11% from the second quarter. Debit card spending increased $2.3 billion or 2% from a year ago, and credit card spending was up 10% from a year ago with growth in all categories except fuel. Payment rates were modestly lower than a year ago but remained above pre-pandemic levels. Turning to Commercial Banking results on Slide 13. Middle Market Banking revenue was down 1% from a year ago, driven by lower net interest income, reflecting higher deposit costs, partially offset by growth in treasury management fees. Asset-based lending and leasing revenue decreased 4% from a year ago, driven by lower net interest income and lease income, partially offset by improved results from our equity investments. Average loan balances in the third quarter were down 1% compared with a year ago. Loan demand remained weak, as many clients remain cautious about investing in inventory buildup and capital expenditures due to economic uncertainty and high borrowing costs. Turning to Corporate Investment Banking on Slide 14. Banking revenue was down 5% from a year ago, driven by higher deposit costs and lower loan balances. Commercial real estate revenue decreased 1% from a year ago, reflecting the impact of lower loan balances, partially offset by higher capital markets revenue. Markets revenue increased 6% from a year ago, driven by strong performance in rates, structured products, and municipals, partially offset by lower revenue in equities. Average loans declined 6% from a year ago, driven by continued reductions in our commercial real estate portfolio and lower loan balances as clients continue to access capital markets funding. On Slide 15, Wealth and Investment Management revenue increased 5% compared with a year ago, due to higher asset-based fees driven by increased market valuations, as well as higher brokerage transaction activity, partially offset by lower net interest income, driven by the increased pricing on sweep deposits in advisory brokerage accounts. As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so fourth-quarter results will reflect market valuations as of October 1, which were up from both a year ago and from July 1. Slide 16 highlights our corporate results. Revenue declined from a year ago driven by net losses on debt securities related to the repositioning of the investment securities portfolio, partially offset by improved results from our venture capital investments. Turning to our 2024 outlook for net interest income and non-interest expense on Slide 17. We currently expect fourth-quarter 2024 net interest income to be roughly in line with the third-quarter 2024 level, which would imply an approximately 9% decline in full-year 2024 net interest income compared with 2023. Based on this expectation, we believe we are close to the trough. However, exactly when the securities will be influenced by a variety of factors, including the pace of Fed rate changes, deposit mix and pricing, and day count. Turning to expenses. We still expect full-year 2024 non-interest expense to be approximately $54 billion, which has not changed from our guidance last quarter. As a reminder, we have outstanding litigation, regulatory, and customer remediation matters that could impact operating losses during the remainder of the year. In summary, we had solid results in the third quarter, which demonstrated the progress we are making to transform Wells Fargo and improve our returns. We grew non-interest income by 12% from a year ago, with growth across most businesses. We achieved this double-digit growth even with the $447 million loss we took to reposition the investment securities portfolio, which will start to benefit our results in the fourth quarter. While this growth in non-interest income was more than offset by an expected decline in net interest income, the investments we have made in our businesses drive better fee income and diversify our revenue were evident. We continue to make progress on our efficiency initiatives with expenses down from a year ago and headcount down for 17 consecutive quarters. Our results also reflected our credit discipline and strong capital position, which has enabled us to return more than $23 billion to shareholders over the past year through common stock dividends and share repurchases. And while we are pleased with the progress we've made, we are even more excited about the additional opportunity we have throughout all the businesses to continue to improve our results. We will now take your questions.
Operator, Operator
At this time, we will now begin the question-and-answer session. The first question will come from Scott Siefers of Piper Sandler. Sir, please go ahead.
Scott Siefers, Analyst
Good morning, everyone. Thank you for your question. Mike, I would like to start by discussing net interest income. It seems that your fourth-quarter number will be similar to the level in the third quarter. Towards the end of your opening remarks, you indicated that Wells is nearing a low point. Could you elaborate on the key factors that could influence this outcome, and what might be needed for a more noticeable upward trend moving forward?
Mike Santomassimo, CFO
I appreciate the question, Scott. We're still seeing the same factors we've discussed in recent quarters. Deposits and their mix will be significant in the near term. Our trend shows that noninterest-bearing deposits are performing well. However, there was a product switch that impacted our net interest volume. If we exclude that, the percentage of noninterest-bearing deposits has remained stable compared to the third quarter, which is the first time we've observed this recently. This will be one of the aspects we need to monitor over a longer period. So far, the trend is unfolding as we anticipated. Deposit pricing will also be crucial as interest rates decline. On the consumer side, we've already adjusted promotional rates and CDs, and these will continue to change as rates fluctuate. We are experiencing the expected behavior from interest rate-sensitive deposits on the commercial side, with betas aligning closely with our forecasts. Although we haven't seen any loan growth, that was expected, and it will become a factor when we look further ahead. Additionally, looking at the first quarter, day counts and similar factors could cause some fluctuations in quarterly results.
Scott Siefers, Analyst
Okay, great. I appreciate your comments on loan demand. You have been cautious regarding that aspect throughout the year, and it seems that was the right approach. Hopefully, we are starting to gain clarity on some unresolved issues such as borrowing costs, especially as we approach the election. If possible, could you share some additional thoughts on the overall outlook?
Mike Santomassimo, CFO
Yes, you’ve highlighted some key points that are on people's minds. From the discussions our teams have with clients, it's clear that there is still a cautious approach to borrowing. While the 50 basis point rate cut is a positive step, it alone isn't sufficient to motivate people to borrow. A more significant reduction would be necessary for that. The uncertainties surrounding the election and the broader economic environment also play a role. However, as confidence grows that a soft landing is achievable, and as we move past the election with some decline in interest rates, it could encourage clients to start building inventories or making additional capital investments that they are currently postponing. I believe we need to see a combination of these factors come together. As we approach the end of the year, we should start to gain better clarity on this situation.
Scott Siefers, Analyst
Okay. Perfect. Thank you very much.
Operator, Operator
The next question will come from Ebrahim Poonawala of Bank of America. Your line is open sir.
Ebrahim Poonawala, Analyst
Hi, good morning.
Charlie Scharf, CEO
Good morning.
Ebrahim Poonawala, Analyst
I guess the first question, I think Charlie addressed this a little bit in his opening remarks around expenses. And I appreciate you're not talking about 2025 today. But big picture, looking at your Slide 7, personnel expenses flat 8.6% year-over-year; non-comp flat 4.2% year-over-year. From a shareholder perspective, and given what you've said, is it fair to assume we continue to see some of this flat-lining trend where there are enough savings to reinvest in the platform, grow fee revenues and do all the stuff that you're doing, but without seeing a meaningful change in these two categories as we look forward?
Charlie Scharf, CEO
Ebrahim, this is Charlie. I want to reiterate what we've stated before: we believe there are still significant efficiencies within the company. At the same time, we are committed to investing in necessary areas, particularly in risk and regulatory matters, as well as preparing for the future. When we reach the next quarter, we will discuss 2025, but we want to avoid jumping ahead of ourselves. We have historically managed to balance these considerations well, and we will continue to do so moving forward. When we have specific information to provide, we will share it.
Mike Santomassimo, CFO
And Ebrahim, I'll just maybe point out one other thing. As you look at things like personnel expense, obviously there is lots that go underneath that. So we are seeing the efficiency come through on salaries and other items. And that's offset by revenue-related expense, mostly in the wealth and investment management business. And so that's a good thing, right? So you may see that bounce around, but underneath that is the efficiency really coming through as headcount continues to come down, I think we both probably pointed it out that headcount came down again in the quarter. So we are continuing to execute on that part of the efficiency agenda, as well as all the other non-personnel expenses.
Charlie Scharf, CEO
But again, I just don't think our thinking has changed about efficiency opportunities, but also opportunities to invest. We just need to go through our own internal process as we think about 2025, and when we finish that, we’ll share.
Ebrahim Poonawala, Analyst
That's helpful. And just maybe one quick Mike, I'm sorry if I missed it on NII. It's an asset-sensitive balance sheet, because of September 50 basis points cut. I would have assumed fourth quarter NII would have declined and maybe there's about $50 million of bond book restructuring help. Just why then I not going down despite the 50 basis points cut? And is there more room for additional restructuring as we look forward? Thank you.
Mike Santomassimo, CFO
Yes. I mean, look, it's just a confluence of all the factors that come together right around sort of what's happening with the mix of deposits. Our mix is a little bit different obviously than others. I think the pricing actions we took across the deposit base help as you look into the fourth quarter as well. And then obviously, we've got assets continue to kind of reprice up. We've got the repositioning, but also just normal reinvestment as we've seen maturities roll. I think on repositioning, we've been sort of repositioning the portfolio for a while, and we'll continue to look at it. Nothing on the horizon right now, but we'll continue to look at it as we always do, and we'll let you know if we decide to do more.
Charlie Scharf, CEO
And the only thing I'd add is when you think about just rate movement, you need to look at the different points along the curve.
Ebrahim Poonawala, Analyst
Got it. And the steeper the better, I assume.
Charlie Scharf, CEO
Steeper is generally better overall, period of time, yeah?
Ebrahim Poonawala, Analyst
Thanks for taking my questions.
Charlie Scharf, CEO
Thank you.
Operator, Operator
The next question will come from Erika Najarian of UBS. Your line is open.
Erika Najarian, Analyst
Hi, good morning. My first question is, could you remind us based on your understanding, what happens next after you submit your third-party review to the Fed, as it relates to the asset cap work stream?
Charlie Scharf, CEO
Well, so just the way consent orders work, I'll answer it very generally because we don't talk about anything specific relative to where we are and what the timing is. We haven't and we won't, as you get a consent order. We need to do the work to develop a very detailed plan. The regulators then look at that plan and give us feedback on the plan. We execute on that plan. And whatever is required in that submission when we're done with the work, we submit it to them. And then they have done some work along the way, but they generally do a review after the submission. And then they've got a series of formal processes that they need to go through to make the decision on whether the work has been done to their satisfaction. And when that's done, we find out about it and you find out about it.
Erika Najarian, Analyst
Got it. Okay. And just as a follow-up, you bought back $3.5 billion of shares in the third quarter. Mike, is this about the — is the pace that we should expect until we get your next SCB in June? I'm just trying to think about framing the buyback opportunity over the next few quarters?
Mike Santomassimo, CFO
Yes, Erika, we don't really talk about quarter-to-quarter pace. But I think if you look at where we stand from a capital perspective, we're 150 basis points over the new reg minimum plus buffers of 9.8%. So we go into this environment with plenty of excess capital. We are going to generate more capital, obviously through earnings as we go. And then we go through the normal process that we go through every quarter to look at sort of the opportunities we have to help support clients. We look at the risks that are out there, and then we'll decide on the exact pacing sort of as we go. But we're happy that we were able to buy back $15.5 billion so far year-to-date. And continuing to give excess capital back to shareholders is something that's top of mind for us.
Erika Najarian, Analyst
Thank you.
Operator, Operator
The next question will come from Betsy Graseck of Morgan Stanley. Your line is open.
Betsy Graseck, Analyst
Hi, good morning.
Charlie Scharf, CEO
Good morning. Hi, Betsy.
Betsy Graseck, Analyst
Hi. I have a question about the potential removal of the asset cap. When that happens, what opportunities do you see for asset growth? I recall you mentioning before that the asset cap isn't hindering your plans, but I’d like to clarify what areas you might focus on once it is lifted.
Charlie Scharf, CEO
Sure. Mike, I'll begin and then you can add or correct me if I’m wrong. What we notice and have discussed is that we've been particularly cautious regarding our assets and liabilities. On the wholesale deposit front, we've been careful not to accumulate significant deposits because we need to ensure we have the capacity to serve customers in other areas, both concerning their borrowing needs and consumer deposits. Additionally, when commercial deposits increase, they bring more cash. Another area of caution has been in our markets business, where we have not only limited but reduced our financing capabilities for customers since the asset cap was implemented. These are the two areas where we would likely notice the impact right away. While the changes are not drastically significant, we've had to be extremely careful in these areas. Beyond that, we anticipate normal growth opportunities across various sectors of the company.
Betsy Graseck, Analyst
And on the expense side, you've talked in the past about the $2.2 billion that has been invested to address the issues in the consent order and to deal with them. When the consent order goes away, is there an opportunity to pull back on that at all?
Charlie Scharf, CEO
We are not currently focused on that. There is still more work to be done, which we have emphasized as the most important aspect. At some point, we may be able to increase efficiency in some areas, but what matters most is ensuring that what we've developed becomes ingrained in the company's culture. Therefore, when we consider efficiencies, we recognize that there are many other areas where we can pursue improvements without prioritizing those activities right now.
Betsy Graseck, Analyst
Okay. Thanks so much, Charlie.
Operator, Operator
The next question will come from Matt O'Connor of Deutsche Bank. Your line is open.
Matt O’Connor, Analyst
Good morning. I was hoping you guys could talk about the anti-money laundering KYC, the disclosure in the 10-Q and then there was some regulatory outcome on that, and given that it was in your 10-Q and so public. Wondering if you could just add some color around it? And then also just what it might mean to expenses and anything else we should be mindful of going forward? Thank you.
Charlie Scharf, CEO
Yes. I mean we put out something when we entered into the formal agreement with the OCC. And like other things that we find and they find, we take them extremely seriously. We're going to get the work done. As I've said in my prepared remarks, I think as we identify issues and we see that there are things that have to get built, we've got confidence that we've got the ability to do it. I would say, relative to the cost around it, I'd say, the two different pieces, which is just like all of the control-related work, we are going to spend whatever is necessary. At this point, as we sit and look at the $54 billion expense base, don't see it having anything meaningfully that we need to talk about beyond our ability to spend as we've discussed. And I would also mention that, and I think we've said something about this which is a significant amount of the work that is required in the consent order, we've been working on. And so as we think about what we are spending, we are spending a significant amount of money relative to what's necessary in that order already.
Matt O’Connor, Analyst
Okay. Can you comment if this is specific to Wells or if it's an industry-wide focus? The banks are responsible not only for monitoring their customers but also for tracking all the money flowing around. It seems like it could be a broad issue.
Charlie Scharf, CEO
We're not going to speak — we speak for ourselves and what we know. Beyond that, it's not right or appropriate.
Matt O’Connor, Analyst
Okay. Thank you.
Operator, Operator
The next question will come from David Long of Raymond James. Your line is open.
David Long, Analyst
Good morning everyone. I just wanted to follow up with the regulatory side. And can you remind us of the mechanics of the asset cap without providing any insight as to when you think it may come off. But can the asset cap be removed in your opinion without the consent order being removed completely?
Charlie Scharf, CEO
For anyone with questions regarding the 2018 Fed consent order, it's quite accessible, around 5 to 7 pages long, with one page specifically outlining our required accomplishments and how the Fed will assess our progress. I’ll provide a brief summary, but I encourage you to review it for more in-depth information. Our objectives include enhancing the effectiveness of the Board, developing operational risk and compliance within the company, and ensuring that the necessary work to lift the asset cap and the entire consent order is implemented effectively and sustainably. The Fed will interpret our progress accordingly, and we are committed to completing this work, feeling confident in our capacity to achieve our goals based on our previous accomplishments.
David Long, Analyst
Got it. Thank you, Charlie. I appreciate it. And then the other question I had was related to the trading gains line, and you've been putting up over $1 billion there per quarter in trading gains. What are some of the puts and takes in that line that can create some volatility on a quarter-to-quarter basis?
Mike Santomassimo, CFO
Yes, it's Michael, I'll take that. Obviously, volatility in the market is a big factor. So it's kind of the market conditions that we operate in. You generally have some seasonality to that line item as well in the third and fourth quarter as you get to the holiday season. And then I think where we've though been focused there is really just continuing to methodically improve the capabilities, make sure we got the right people in the right seats. We continue to improve all of our technology and e-trading capabilities. And we're seeing good results of that, but it's something that can move around based on market conditions quite a bit, but our focus is just to make sure that we continue to have the right capabilities to serve clients. And we've been pleased now that we've strung together probably seven quarters of pretty good performance there, and we’ll look forward to what happens going forward.
David Long, Analyst
Great. Thanks Mike. Thanks for taking my questions, guys.
Operator, Operator
The next question will come from John Pancari of Evercore. Your line is open.
John Pancari, Analyst
Good morning. Can you provide more details about the benefits to net interest income from the securities repositioning this quarter? Also, what is the expected full quarter impact for the fourth quarter?
Mike Santomassimo, CFO
Very little in the third quarter. It is all done. So it's in the run rate for the fourth quarter.
John Pancari, Analyst
Okay. And then have you sized up that impact and what it would mean for NII for the fourth quarter?
Mike Santomassimo, CFO
It's in my remarks where we did about $16 billion of repositioning. We picked up about 130 basis points on that. So, obviously, you need to account for day count and other factors to adjust, but it is pretty easy to model.
John Pancari, Analyst
Right. Okay. All right. Thanks. And then separately, just around the fee income commentary, I appreciate the color you provided around the trading outlook. Can you perhaps unpack the rest of your expectations there just on the fee side, how we should think about the trajectory of wealth management and possibly on the card side and IB as well. Just what you're seeing there in terms of underlying drivers?
Charlie Scharf, CEO
Well, first — it's a hard — I mean there are like 15 underlying drivers, right? And so you should look at each of the specifics and do your own modeling based upon what you think, right? We've got credit card revenues. We've got trading. We've got all these different pieces. It's just not one monolithic number.
Mike Santomassimo, CFO
Yes. I’ll provide some additional insights on that. In investment management, market levels are very important. As noted, about two-thirds of this segment comes from equities, while the remainder is from fixed income, which is typically priced in advance based on the end of the prior quarter. This can help inform expectations for this segment going forward. In terms of card fees, as mentioned by Charlie, we have both a debit and credit card business. With growth in the economy and our success in expanding our business, we expect that to drive this revenue line. Investment banking also depends on market conditions, but we are making significant investments in that area with the aim of gradually increasing our market share over time. Those are the main components to consider. I hope that provides some clarity.
John Pancari, Analyst
No, it is helpful, Mike. I appreciate you walking through the details there.
Operator, Operator
And the final question will come from Gerard Cassidy of RBC Capital Markets. Your line is open.
Gerard Cassidy, Analyst
Hi, Mike. Hi, Charlie. Can you provide some insights on the commercial real estate office portfolio? It seems like stabilization may be affecting the credit quality. Are there any signs that it's improving? Or when you look at market properties, do you find that the conditions aren't as severe as they were six or twelve months ago? Any additional details would be appreciated.
Charlie Scharf, CEO
I'll take it. It is an interesting question because it depends on — I think it depends on who you talk to and how you actually answer — how you actually ask the question. Meaning, when we look at what's actually happening, things aren't getting better, and it is kind of more of the same but it's impacting more properties. Maybe to some extent, there is a little bit of contagion to properties that are fairly well leased, but people are looking for better deals because they think there's weakness out there. So you see a little bit of that. But what you see is just more of the significant revaluation because of supply and demand that's going on as these properties kind of move through the cycle. So as we look at it, our kind of big picture is based upon what we expected there aren't material changes at all. We are actually seeing that play out, but things are getting worse because there are more properties being impacted. So it depends on whether it's versus your expectations or what you've seen in the prior period.
Mike Santomassimo, CFO
Yes. I would like to add one more point. We are observing a similar trend where new and renovated buildings in prime locations are performing well. Older office buildings are showing consistent performance across the U.S. However, as Charlie mentioned, this aligns with our expectations; we have been cautious about this sector for some time. It is unfolding largely within the parameters we anticipated. It's important to note that this will take time; it won't be resolved in a quarter or two but will extend over a longer duration. We are confident in our allowance for coverage ratio, as it is more than sufficient for what we expect to encounter. We will continue to support our clients to the best of our ability during this period.
Gerard Cassidy, Analyst
Very good. It's been less than a month since the Fed cut the Fed funds rate, and the forward curve suggests more cuts are anticipated. In your prepared remarks, Mike, you discussed deposit costs. Although it's still early, are you noticing any expected behaviors from consumers and corporate customers regarding their deposits in response to lower rates? Additionally, with your loan-to-deposit ratio being relatively low, do you have more capacity to reduce deposit costs without worrying about being over-leveraged?
Mike Santomassimo, CFO
Yes. In short, not much has changed in consumer behavior over the past three weeks. However, for nearly a year, we have noticed less movement towards higher-yield options and good stabilization of deposits across our businesses. These trends remain consistent, and we are not observing any significant shifts in any of the sectors at this time. Regarding deposit pricing and loans, we believe it's essential to maintain a consistent approach to credit underwriting over the long term, and we intend to continue this strategy. On the deposit side, we will make the right decisions product by product and client by client, based on our existing relationships. So far, this approach has been successful for us, and we plan to keep it going.
Gerard Cassidy, Analyst
Great. Appreciate the color and candor. Thank you.
Mike Santomassimo, CFO
Okay, we thank everyone for joining us, and we'll talk to you next time.
Operator, Operator
Thank you all for your participation on today's conference call. At this time, all parties may disconnect.