Wells Fargo 1Q16 Earnings Call Notes

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John Stumpf

The rest of the portfolio looks good besides oil and gas

“While deterioration in the oil and gas portfolio drove a $200 million reserve build, the rest of our loan portfolio continued to have strong credit results with our total net charge-off rate remaining near historical lows at 38 basis points annualized, reflecting the benefit of our diversified loan portfolio.”

The US economy continues to be resilient

“While signs of economic uncertainty remain in the global economy as well as volatility in the capital markets, the U.S. economy, which is the primary driver of Wells Fargo’s results, continues to be resilient. For example, while low energy prices have negatively impacted the oil and gas industry, the U.S. is still a net energy importer and the benefits of falling prices have outweighed the costs for consumers and most businesses.”

Texas feels like a much more diversified economy

“I lived in Texas for six years in the mid to late 90’s, so 20 years ago and there was a period of time there — there was volatility in the oil and gas space. And there was some challenges. And I’ve been back, I was just in Houston last week. And I’ve been back a number of times in the last year and things do feel different 20 years later. It’s a much more diverse economy. And if you take Texas generally but Houston specifically and it feels different this time around. Downturns are always heard. Volatile markets always have an impact. But this feels different this time because of what the state has done to diversify their economy.”

Consumers have been saving, not spending gas savings

” we’re still a net importer of energy and what’s interesting, Mike, is that much of that savings at the consumer level have been saved, if you will, and have not yet been spent. So not all the savings at the pump. What consumers have done and that not exclusively but they’re saving more of that what’s happening at the pump as opposed to spending it.”

Consumers have never been in better shape

“I have long stopped trying to figure out the market and why bank stocks or stocks seem to move in concert with commodity prices especially oil prices but be that as it may, the consumer, much of this economy, 60%, 70% is consumer based and in retail and the consumers have never been in better shape. I mentioned in my comments just the debt service requirements is 15% of their earnings and wage is certain of up a little that and we’re seeing savings rates go up. These are some of the strongest savings rates we’ve seen in some time. I don’t know if that’s a statement about confidence or whatever but there is — consumers are benefiting from filling your tank at the dollar something a gallon or two dollars a gallon versus three or four and not all of it has been spent.”

If we weren’t innovators, we’d have stagecoaches on the freeway

“I think our company specifically and our industry generally have been innovators for a whole long time. So if we weren’t we’d have stagecoaches on the freeway right now.”

John Shrewsberry

Loan growth was 10%

“we had continued strong loan growth in the first quarter, up 10% from a year ago and 3% from the fourth quarter.”

Allowance is 9% of total oil and gas loans outstanding

“our allocated allowance for the oil and gas portfolio increased $504 million to $1.7 billion. This portion of the allowance was 9.3% of total oil and gas loans outstanding. But as I’ve noted before, the entire $12.7 billion allowance is available to absorb credit losses inherent in the total loan portfolio.”

Are seeing some weakness in Houston

“In commercial real estate, which is where we have a big presence, we’ve recently done a deep dive in Texas in particular. And office vacancies are somewhat higher in the Houston area, no surprise, I think about 20% including sublease space. Multifamily is a little bit weaker. And so we’re looking at that first and foremost frankly with respect to what it means to our risk, to our own portfolio and we feel fine about what our exposures are there. ”

It still feels like we’re in a 2% environment

“More broadly speaking, I think we still feel we’re in a 2% environment. There are obvious pockets of strength around the country but when you move out of oil and gas, we’re in the same low growth, better consumer, strong employment environment that we’ve been operating in for a couple of years, not enough to make it feel like rates are going to move as a result of it but not enough to feel like we’re stalling either.”

The abrupt market volatility made us think twice about redeploying our liquidity

“But it was really the abrupt market volatility that happened after the first of the year that caused us to say, let’s take a pause here and figure out where this is going to settle out. It’s happened to have settled out not much above the low points, at least again on a ten-year from January, early February. But that is an earnings lever when and if we redeploy.”