WFC
#It was ---+ we had a $127 million gain in the first quarter and a $193 million loss in the second quarter.
And again, I just want to describe that as the accounting treatment for the hedging program that we have there.
But ---+ so think of this ---+ the delta between Q1 and Q2 as what creates the more outsized number.
No, normal would be around zero.
You would expect it to be zero over its life.
Sometimes it's a little positive, sometimes it's a little negative.
And it's driven by swap rates and currency movements in the currencies where we issue.
What we repriced in wholesale is deposits, and for a variety of customers, the ones who seem to have acted most strongly in the deposit area were FIs, which for all the reasons you can imagine, have relatively low value liquidity deposits.
And so, we have been paying less for those deposits, or in some cases, and in some jurisdictions, have been charging a little bit for those deposits, and that's what we were referring to.
Yes, you know, it's not as a result of Wells Fargo's specific pricing strategies.
It's just the chips falling where they did in terms of flows, volumes and other activity in the business.
And as you know, in our trading business, we have what you are thinking of which is market-making and customer accommodation activity.
But we also have the impact of our own deferred comp program, etc.
, which makes that line a little bit noisy.
But it's not as a result of any conscious business decision to price things differently, to do any more of this or less of that, it's just where the quarter fell.
I wouldn't say that pricing is getting any better.
You would think that pricing might be getting better in areas where other banks are pulling back from providing financing or liquidity to customers, which is part of the discussion around how some of the bigger trading oriented banks have been providing repo, providing securities finance, etc.
, and have limited their appetites.
But prices haven't gone up that much.
I think capacity has come out and people have had to figure out how to deal with that.
So at the moment, it's still very ---+ it's as competitive as it ever was, and the pricing reflects that, but not because of conscious strategies.
That's a good question.
We don't model loan growth necessarily as a reflection of prior quarter GDP, but it's an interesting relationship.
I think our point is that the areas where we've been experiencing organic loan growth all are still very active.
We're still very competitive.
We're getting more than our fair share in most of those categories.
We've got further to run in card I would say than other people because we are starting from a smaller base.
And then in some of our material businesses we've got customers who have been holding back on their borrowing capacity.
So in the corporate ---+ but in the commercial space in particular where we are a very big player, our customers are still very cash heavy, which is reflected in our deposits, and have maintained very low leverage profile.
So that if they got a little bit more enthusiasm around M&A, around organic growth or building a new plant, etc.
, expanding their businesses, they have lots of debt capacity to do that.
We would expect to see some of that in line utilization or demand for funded assets.
But, the real take away is that we're very well-positioned in all of our key lending markets and competing well today.
And in those areas where there might be incremental drivers of demand and we hope to benefit from it when it happens.
And then, of course, we're working on a few strategic or inorganic activities as well.
We didn't.
We indicated the size of operating losses in total.
The amount of the change ---+ and the amount of the change is reflected ---+ reflects increased litigation accruals, but we don't split that out from our other operating losses.
It's for a variety of matters, most of which you would already be familiar with.
Yes, that's ---+ as <UNK> was mentioning earlier, we are trying to repurpose our expense dollars to their highest value area.
And so, there's a collection of programs and ways of doing business, of thinking about how we spend our resources that are designed to do just that.
So it's an internal ---+ it's a relatively formal program and it's around some operational improvements, it's around some of our staff functional alignment, some of our technology spend, etc.
, and it really is designed to make sure that where we're spending money ---+ and of course we spend a lot of it, that we are ---+ we're putting it in the most impactful places.
Well, dollars are fungible, but the way we are thinking about it is we're directing those dollars toward places that are going to make a difference for customers, which would drive revenue, and you could see bottom-line improvement as a result of that.
But as I mentioned in response to an earlier question, it's not really designed to drive us down in the efficiency ratio, or to drive total dollars of expense down, all things being equal.
It's designed to make sure that we are spending the money that we are spending in the most impactful place.
Well, it's going to depend on what happens with deposits versus loan and other earning asset growth primarily.
So if we continue along the path that we are on right now, then you would think that it would probably stay in or about this range.
There is not much else ---+ deposit pricing is quite efficient here at 8 basis points.
So as we get more invested, as we add more loans and we ---+ if we convert cash to higher-yielding assets, then that should be an improvement.
Over the course ---+ if you fast forwarded a few years, we'll probably be layering in more senior unsecured in connection with TLAC, that will probably have a negative impact, although relatively modest in the overall scheme of things.
We still expect net interest income in 2015 to be higher than 2014, which is, frankly, the most important thing, all things being equal, and that's what we're driving toward.
Yes, let me just go back to the expensing just one more time so we're all on the same page.
There is talk on this call, and of course, we listen to what the chairwoman of the Fed has to say about rates.
But when we plan internally here, we don't consider rate increases as part of the ongoing justification for an investment in anything.
So in other words, we don't ---+ you would not hear language like I want to make this investment because when rates turn around and go back up, then this justifies ---+ this investment will be justified.
We don't know what's going to happen to rates.
And if rates do increase, either long-term or the short end or both, that's a benefit to us.
But for the last five, six years, you could've said the same thing, and it didn't happen.
So that's why there is a continual consideration here and pushing ourselves and our thinking to eliminate work that's no longer beneficial, taking out processes that don't add value and investing in places and things that do add value.
And make us more competitive, more nimble, more relative to the constituents that we serve.
Sure, so there's a handful of things.
It's the mix of the assets that we're adding to that portfolio from one period to the next, which reflects customer activity, customer demand, both in terms of what's rolling on and what's rolling off.
Also, you're seeing in that calculation, the impact of having swapped portions of that portfolio from floating to [fixed] because that impacts the yield.
And we've done that partially as the recognition that we think we're going to be in a lower long-term rate environment for a longer period of time than we might have previously thought.
So that impact is ---+ runs through there as well.
Still asset sensitive, but not waiting forever for rates to begin to move in that portfolio.
So on the first question ---+ remind me of the first question again.
Yes, it was predominantly all E&P.
The services credits have ---+ first of all, they don't go through the exact same ---+ there is no borrowing base redetermination to occur in services companies; it's more like any other corporate in terms of how they are reviewed.
But the impact has not been felt there in quite the same way as it has with E&P companies.
And then back to the shared national credit review.
It really ---+ in terms of the negative outcomes or the suggested downgrades, it really was primarily an energy set of conclusions this time around.
Yes, well, we've been ---+ as we've talked about, ahead of this end of draw expectation for some time now because it was pretty easy to schedule.
And we're going into a couple of years when those 10-year draw periods will be coming to a close from the heaviest periods of issuance right at the ---+ prior to the turn of the cycle.
And, frankly, I would say we are experiencing a better outcome than we originally imagined, in part because of our ---+ the focus that we've had, the team that we've had facing ---+ the proactive work that we're emphasizing, trying to get people re-fied into something that is suitable or more tolerable for them to repay.
So, things are going well.
And losses in that portfolio this quarter are in the 56 or 57 basis point range, so ---+
Very tolerable.
I don't ---+ on this call, our real estate group certainly knows, because that's how ---+ that's been managed so they'll know what they have left and what is gone already.
But what I'm focusing on when I say that there is a plan underway that's being executed that's working, of course, for the ones that are still there and then have it re-fied out.
So when we use the term duration, we're using it in that context but not to define a duration of the balance sheet, but really to think about using those tools, the investment portfolio and loan portfolios, to impact our overall asset or liability sensitivity.
And so the net conclusion of that is that, not terribly unlike where we were at our last Investor Day, we find ourselves still asset sensitive.
We mentioned a year ago May that we thought that we were ---+ we had probably 10 to 30 basis points worth of net sensitivity ---+ net benefit from a 100 basis point instantaneous parallel movement in rates, a very stylized example.
And where last we're less asset sensitive ---+ if we were at the mean then we're at the lower of that range today, we believe.
It's probably a conservative estimate.
That's how we generally calculate things.
But by adding securities, by swapping floating rates to fixed, and other actions that have occurred in the growth of the business, we've made ourselves a little bit less asset sensitive because of the belief that we could be in a lower rate environment for a longer period of time.
And we're earning today rather than maintaining all of that sensitivity for the future.
We still have plenty of it and we'll develop more of it as time passes, but that's how I would answer that question.
I would expect that we would continue to be adding securities to our securities portfolio, for sure.
There's nothing that I would point to.
We ---+ the production occurred the way we would have expected it to.
We ended with a relatively long ---+ relatively large pipeline as well.
So nothing different there.
Yes, it's tough to be that precise about it, although I'm sure there are people in Wells Fargo Home Mortgage who are thinking about it as granularly as the question that you are asking.
Certainly, in the first quarter, as rates rallied hard and that pipeline really, really grew, applications came in at an increased pace.
The capacity constraints to deal with that both at Wells Fargo and in the industry are supportive of higher margins, as people use their scarce capacity as beneficially as they can.
So you'd expect, if that's a high point, for things to slip a little bit from there.
In terms of where they've gotten to and where they are now, we expect them to continue to be in that range.
The full range, frankly, is a pretty attractive place to be operating.
And as long as we can stay higher in the range like we have, we will be thrilled for that to happen.
There's also, from one quarter to the next, a mix between what's happening in retail versus what's happening through others is going to influence our gain on sale and that might look different from one originator to another.
I think that's an important consideration.
But I mean, frankly, I would look at it quarter to quarter and then seasonally adjust it to think about what the steady-state is.
But the last thing I'd say is that we're ---+ again, we're pretty happy with where things have remained, given how competitive that market is, given how much capacity there is and we're happy to be operating here.
Yes, I think, just to support <UNK>'s comment, I remember when gain on sales years ago were 40, 50, 60 basis points.
So the pricing discipline, even with the capacity and the size of the market is a ---+ I think a good thing for Americans, good thing for borrowers, good thing for the originators because we're getting paid for the work that we're doing, the value add.
So ---+ what's been happening for a while.
We're talking about it a little bit more now and maybe it was a little bit starker in this quarter because deposit growth slowed also say you sell cash balances go down while both securities and loans went up.
But as you suggest, regardless of what's happening with short-term rates and over what period of time that normalization of policy occurs, it's our expectation that the longer end of the curve, that we're going to be lower for longer than we would have thought six months ago, a year ago or a couple of years ago.
And how we are managing the balance sheet is a reflection of that.
Well, in the last 6 to 12 months, I would say what's happened with rates around the world has been a big reminder that a 2.5% US tenure is a really attractive asset and could be for a really long time.
So that's why I say regardless of what's happening with Fed funds, we are preparing ourselves for a long march at the longer end of the curve.
And if we're wrong, we have to be prepared for that in terms of what it means to capital, etc.
, and we certainly are, and we sensitized that drastically to make sure that we've protected our balance sheet.
But in the meantime, we're getting our assets more productively deployed.
I'd point out, there's still $250 billion worth of cash in the bank, so there's plenty of short-term liquidity and dry powder for what happens if we are wrong and there are more attractive entry points on the way back up, if that were to occur, but it's a good question.
Always.
Hi, <UNK>.
Yes, about 25% of our production are jumbos and that includes, of course, many of our most valuable customers in terms of the breadth of the total relationship.
We carry them on our balance sheet, as you know.
And I think the total category right now for jumbos on our books is about $120 billion, $125 billion of the call it $1.7 trillion overall.
So, in terms of staffing, I'm sure it's true that we're probably a little bit heavy in some areas around loss mitigation and working NPA's and foreclosed assets through the system, versus where we might be in a completely normalized point in the cycle just because they're still elevated, so there's probably opportunity there over some period of time.
From a policy normalcy point of view, there are still other things happening, whether it's agency reform.
The relationship between the FHA and the industry is still not completely settled and that has to happen for people to feel good about things.
There's still no meaningful secondary market for nonconforming loans and there was a good one for prime, jumbo loans that existed pre-crisis, and so at some point that probably has to reemerge and that hasn't happened yet.
But we're just as committed to the business.
It's a very important part of the relationship between us and our customers because buying and financing a home is one of the most significant things our customers will ever do.
We enjoy our status as the largest mortgage servicer in the land and our status as the largest mortgage originator as well.
So we're working hard to try and shape good outcomes in those areas that are still unsettled and we're making the most of it during the period that we are in.
And, <UNK>, it's an insightful question because I think part of the distinguishing features of big scale players in this business whether your successful or not is how quickly you can scale up when business opportunities present themselves and how quickly you can scale down.
And we think we're pretty good at that, among other things, and some are surprised the mortgage market has not come back stronger, but we went through a pretty deep downturn.
This was the asset class that had the problem in 2008 and 2009, and it steadily ---+ it's improving and healing, but it's going to take time.
And so, like <UNK> said, we really like this business for a whole host of reasons.
Well, the Pick-a-Pay was probably the most problematic of that portfolio.
That came over let's say in the $120 billion range ---+ $120 billion or so; is $54 billion, give or take now.
And the average loan to value on that is in the [$60 billion's].
So ---+ and if you look at ---+ if you look at the overall servicing portfolio we have, it's 94%, 95% current.
And so we've ---+ still issues going through there, there are some judicial foreclosure states that we're still having to work through, but for the most part, it's performed above our expectations, especially with respect to the Wachovia part.
And we are ---+ I think were in the later innings of working on this.
And as <UNK> mentioned, there are some opportunities to take some costs out.
The cost of servicing a current loan versus one that's delinquent is such a big difference.
So when people look at these portfolios, you really have to look at the past dues because it really ---+ and the ones in foreclosure because that really skews the costs on those.
I know that this is clear in the materials, <UNK>, but we're ---+ our nonstrategic or wind down portfolio is ticking down at $2 billion to $3 billion per quarter and there's $50 billion-odd of it left.
So the tail of it will be here for a while.
Thank you.
Well, this concludes our call.
Thank you again for spending time with us.
It's always enjoyable for us to represent our 265,000 team members and the work that they do every quarter.
And <UNK> and I and <UNK> will see you next quarter.
Thank you very much.
