Hello, I am so pleased to see you all here in the Lone Star State!
I want to welcome those of you in the room and those joining via broadcast.
Let me start by wishing everyone a slightly belated happy new year.
It’s been almost three weeks since we turned the calendar page to 2017, but I hope you were able to spend time with those closest to you over the holidays — so you could rest, relax, and recharge.
This past Monday was a special day as we celebrated the life and legacy of Dr. Martin Luther King Jr.
We cherish both his words and his actions in setting an example for all of us in how to bring about needed change.
This is reflected in our deep commitment to diversity and inclusion — one of our company’s core values — and we continue to promote these principles in every aspect of our business and at every level of our organization.
I also want to thank you for all that you do each and every day.
The past few months have been extremely challenging for our company.
In fact, it has been the most difficult period of my 29 years at Wells Fargo.
Fortunately, the time I spend talking to team members across the company continues to inspire me.
Thank you for your perseverance, hard work, and dedication!
As you’ve heard me say before, rebuilding trust is the No. 1 priority for me and all of the members of our Operating Committee.
That starts with restoring your trust in Wells Fargo.
We, the leadership of this company, let you down, and we also let down our customers, our community partners, and our shareholders.
So today I’d like to talk with you about our progress — some actions we’ve already taken plus a few of the many things that we are working on.
“The time I spend talking to team members across the company continues to inspire me.”
Today’s town hall, by the way, is the first of six I will host in 2017 – more than the four we normally do each year.
We also have expanded our CEO Town Halls to 90 minutes to allow for more Q&A and the opportunity to hear directly from you.
So here is our agenda for today:
- I’ll begin by talking about the external environment, including the overall economic landscape as well as the situation in Washington, D.C.
- Then I’ll recap the earnings we announced last Friday — for the fourth quarter and all of 2016.
- I’ll also share some business updates, including exciting news on the innovation front.
- And I will review the progress we are making to rebuild trust with our key stakeholders.
After my remarks, four members of the Operating Committee will join me on stage to answer your questions.
Hope Hardison, our chief administrative officer; Mary Mack, head of Community Banking; David Carroll, head of Wealth and Investment Management; and John Shrewsberry, our CFO, are here, so be thinking of the toughest questions you can ask them.
Let’s get started by talking about the external environment.
There certainly is a lot happening in Washington at the moment.
The new Congress is beginning its work on Capitol Hill, and the presidential inauguration happens tomorrow.
There is a lot of anticipation for what the new administration may do.
I am often asked what I think the new president’s focus should be.
My response: What is good for our customers is good for us.
For example, if the new administration focuses on reducing taxes, that obviously will be good for our customers and could boost the economy.
I also am asked a lot about the future of banking regulation.
“What is good for our customers is good for us.”
We favor balanced banking regulation that provides consumer protections and safety and soundness — while also allowing banks to continue to serve customer needs.
On the economic front, there will be a lot of speculation on how the Federal Reserve will act on interest rates.
In December, the Federal Reserve raised interest rates by 25 basis points — or one quarter of 1 percent.
That’s just the second time in 10 years that it has increased rates.
We expect the Fed will increase rates twice this year.
Of course, things could change during the course of the year — as we saw in 2016.
We also expect economic growth to pick up a bit in 2017.
On the upside, the U.S. labor market is close to full employment, supporting consumer spending and housing.
On the downside, a strong dollar and modest global growth are limiting business investment and export growth.
Inflation is expected to rise gradually toward the Fed’s 2 percent target, strengthening the case for more interest rate hikes.
So let’s talk specifically about Wells Fargo’s recent financial performance.
Last Friday, we announced our earnings for the fourth quarter and all of 2016.
I want to recognize John Shrewsberry and our Finance and Investor Relations teams — as well as the Legal and Communications teams — for their hard work and diligence in compiling the data, developing the materials, and communicating the results effectively.
As part of our effort to rebuild trust, we expanded the transparency we provided investors and included a lot of detail in the Team News that was emailed to every team member.
So today I will just hit on some of the highlights.
In the fourth quarter, we earned $5.3 billion, or 96 cents per share, marking the 17th consecutive quarter that our efforts have generated earnings greater than $5 billion.
This level of consistent performance demonstrates the benefit of our diversified business model and your outstanding work helping our customers with their financial needs. Thank you!
Overall, we had a solid quarter that included a record level of loans and deposits and strong growth in net interest income.
It’s important to note that our quarterly results included a loss of $592 million, or 7 cents a share, from an accounting impact associated with the hedging of long-term debt.
Hedging is part of our normal asset/liability management.
The accounting impact is expected to be zero over the life of these hedges, but periodic gains or losses can be recognized as interest rates and the value of foreign currency fluctuate.
In fact, the net hedge ineffectiveness loss for the year was $15 million, given the gains we experienced in prior quarters.
For all of 2016, we generated net income of $21.9 billion, or $3.99 per share.
We grew revenue by 3 percent, including 5 percent growth in net interest income.
Average loans grew $64.5 billion, up 7 percent, and average deposits increased $56.5 billion, up 5 percent.
Our businesses continue to perform well despite recent challenges.
Wealth and Investment Management total client assets reached a record high of $1.7 trillion, up 7 percent from a year ago.
David Carroll and his team continue to do an outstanding job building long-term relationships with our customers and helping them achieve their financial and investment goals.
Perry Pelos and his Wholesale Banking team led the company in loan growth, with average loans up $44.5 billion, or 11 percent, from a year ago — the Wholesale team’s ninth consecutive quarter of double-digit year-over-year loan growth.
Perry’s team also completed the final phase of the GE Capital portfolio acquisitions in October, and we continue to make progress in integrating these acquisitions into Wells Fargo.
Franklin Codel’s Consumer Lending team did a great job, as residential mortgage originations reached $72 billion in the fourth quarter, its highest quarterly production of the year — up 53 percent from the fourth quarter of 2015.
Many teams deserve credit for our continued strength in credit quality: Mike Loughlin’s Corporate Risk team, Perry Pelos’s Wholesale Banking team, and credit risk teams across all our businesses.
Net charge-offs remain low, at 37 basis points in the fourth quarter, and we had a reserve release of $100 million in the fourth quarter, reflecting continued improvement in our residential real estate portfolio and stabilization in our oil and gas portfolio performance.
Let’s talk now about some other news across our company.
You may have read on Teamworks about our decision to raise minimum hourly wages for our U.S.-based team members, effective Jan. 8.
This decision reflects the work that Hope Hardison and her HR team regularly do, as they review and compare our pay rates and compensation packages, including benefits, to benchmark our competitiveness as an employer.
Based on that evaluation, we moved our minimum pay range to between $13.50 and $17 per hour, based on geography.
This represents a 12 percent increase over the previous minimum hourly rate.
Here are some examples:
- We provide, on average, $12,000 of annual benefits per team member.
- 99 percent of U.S. team members are eligible to receive benefits, something we’re quite proud of.
- In fact, depending on U.S. team members’ base pay, Wells Fargo pays up to 87 percent of the medical premium.
- Wells Fargo’s health care benefits cover more than 515,000 individuals, including team members and their dependents.
- In 40 countries outside the U.S., Wells Fargo covers 15,000 team members and their 30,000 dependents, providing locally competitive benefit plans that support our people and business strategies.
- 81 percent of benefits-eligible team members in the U.S. participate in our 401(k) plan savings plan.
- And we continue to receive outstanding feedback from team members regarding the move in 2016 to provide paid parental leave, paid critical caregiving leave, and backup adult care to U.S.-based team members.
In other corporate news, we are very focused on one of our key obligations under the Dodd-Frank Act: resolution planning, otherwise known as the “living will” process that all banks of our size are obligated to conduct.
This is a feature of the federal Dodd-Frank Act that is designed to ensure all major banks have orderly plans for their possible failure, so no big bank is considered “too big to fail.”
Last April, we were notified of three deficiencies in our 2015 plan by the Federal Reserve Board and the FDIC.
We took important steps to address those deficiencies, including creating a program office dedicated to this effort and adding significant resources — and then we resubmitted the plan in October.
In December, we learned that one of the deficiencies — related to the governance and management of our resolution plan — had been satisfied.
However, we have two remaining deficiencies to address in a revised submission that we will make in March 2017:
- The first requires us to improve the criteria we use to ensure that the legal entities that make up our corporate structure are as easy as possible to resolve — with minimum impact to the economy and taxpayers.
- The second requires us to ensure that the way we deliver critical services within the company — such as finance, human resources, and other shared services — is optimized within our legal entity structure. The idea is to ensure these services will continue to be provided should a resolution become necessary.
We’re working closely with the Federal Reserve Board and the FDIC to better understand their concerns, so we can bring our resolution planning process in line with their expectations.
We also are dedicating additional resources to focus on the two remaining deficiencies.
Richard Yorke from Wholesale will lead Corporate Entity oversight on an interim basis, and Scott Zaret from Corporate Risk will lead Operational Resiliency oversight permanently.
Both will join John Shrewsberry’s leadership team while operationalizing these functions and creating forward-thinking, sustainable offices dedicated to effective resolvability measures for the company.
Richard and Scott will partner closely with Joe Rice, who leads the Recovery and Resolution Program office.
Together they will ensure all of our Resolution Planning efforts for the short and long term are designed to adhere to regulatory requirements.
While some team members at Wells Fargo are focusing on the important work of fulfilling regulatory obligations, many others are busy building our company’s future.
I was reminded of this last week, when I had the opportunity to speak at the Financial Services Roundtable FinTech Ideas Festival in San Francisco.
It was a great conference that featured world-class speakers, such as IBM CEO Ginni Rometty and Microsoft CEO Satya Nadella.
I reminded the audience that a lot of our industry’s most promising innovations come from major financial institutions, such as Wells Fargo.
For example, we were one of the original banks on the Internet, long before mobile banking existed.
And that tradition of innovation continues.
Last year, for example, we introduced FastFlex, an online loan product for small business owners who have short-term credit needs.
We built the platform in-house and are able to offer customers a credit decision in seconds — and fund the loan as soon as the next business day.
Last year, we also fortified our focus on the future by forming the Payments, Virtual Solutions and Innovation Group led by Avid Modjtabai.
This team is listening to customers and developing innovative technologies that will help customers connect with us in new and convenient ways — while also transacting business safely and securely.
The team is already making an impact:
- Last year we launched the proprietary Wells Fargo Wallet for Android customers, giving them a seamless mobile banking and payments experience.
- Recently, Wells Fargo’s mobile app launched a feature that lets customers send money to almost anyone in the U.S. This sets the stage for Wells Fargo and other national banks to roll out an industrywide payment network/brand — called Zelle — later this year.
- And this spring, we will become the first large U.S. bank with an entire fleet of card-free ATMs. Customers will be able to withdraw money at any of our 13,000 ATMs by using their ATM PIN and a one-time passcode from their mobile app.
I am really excited about our work in this area and look forward to our continued leadership in delivering innovation to benefit our customers.
Let’s now move into the important topic of how we are working to rebuild trust.
“Team members are our greatest strength and our No. 1 competitive advantage.”
At $13.50, our new lowest hourly wage is 86 percent higher than the national minimum wage.
Team members are our greatest strength and our No. 1 competitive advantage.
So we invest in you through market-competitive wages and a broad array of benefits and career development opportunities.
Rebuilding trust update
As I mentioned earlier, rebuilding trust with our team members, customers, communities, regulators, and shareholders is my highest priority.
To support that effort, we have created a Rebuilding Trust office that will organize and accelerate our efforts through one integrated program.
“Rebuilding trust with our team members, customers, communities, regulators, and shareholders is my highest priority.”
Our goal with this is to ensure we drive toward the best overall outcome.
The Rebuilding Trust office, led by Justin Thornton, will lead our overall plans, coordinate and integrate work across the company, drive actions and decisions on key objectives, and ensure the plan and outcomes can be effectively communicated to stakeholders.
This brings greater focus, additional leadership, and more accountability to help us achieve our objectives.
Now let’s turn to some updates that support our three-point plan for rebuilding trust:
- Making things right for customers and team members.
- Fixing the problems so that they do not happen again.
- Building a better Wells Fargo for the future.
We have made substantial progress in our work to make things right for customers.
We have reached out to 40 million retail and 3 million small business customers through statement messaging, mailings, and online communications.
To date, we’ve refunded a total of $3.2 million to customers, including the $2.6 million that was part of our original September agreements with the OCC, the CFPB, and the L.A. City Attorney.
We’re also going beyond these requirements:
- We are offering a nationwide, no-cost mediation program to customers with sales practices claims.
- We have expanded our reviews of retail and small business accounts to include the years 2009 and 2010.
- We are using a third party to review sales practices more broadly across Wells Fargo.
- And we’re researching how customers’ credit scores were impacted as a result of potentially unauthorized credit cards — with the goal of aiding customers whose credit scores might have been affected.
New Retail Banking compensation plan
Another important step in our work to rebuild trust is the launch of our new compensation program for retail bankers.
In collaboration with the Risk and HR teams, Mary Mack and her team did an excellent job collecting team member feedback and developing a plan that is consistent with our commitment to improving the overall customer experience.
There are five key principles to the new plan:
First, there are no product sales goals, which we ended in October.
Second, we will gauge success based on customer service, increase in primary customers, household relationship growth, and risk management — not simply opening new accounts.
Third, the new plan includes a strong focus on team performance, with more metrics focused on team and branch goals, not just individual goals.
Fourth, we have stronger controls in place to monitor behavior and ensure we’re doing things the right way, including more proactive monitoring at the regional and corporate levels.
And finally, we will be closely monitoring results for any unintended outcomes or behaviors prompted by the new plan, and we will make changes as needed.
As part of our new Retail Banking Compensation Plan and focus on customer experience, we no longer will report cross-sell metrics.
We have been moving away from the cross-sell metric for some time — in fact, we stopped reporting it in our WIM and Wholesale businesses early last year.
At our last town hall in Des Moines, I told you how concerned I was about reports from former team members who felt they faced retaliation for calling the EthicsLine.
I know that you are concerned about this, too, and here’s what I can tell you:
We reviewed all reports made to the EthicsLine over the past five years where the caller self-identified.
From there, we had a third party look into cases where team members were terminated within 12 months of the report.
We also looked at claims of retaliation from former team members who either reached out to the media or our Employee Relations team after the settlements were announced.
A few cases out of the hundreds reviewed raised questions, and we are following up on each of them.
Even though it’s a very small number, anything more than zero is too large.
And we are expanding our case review to include reports to the EthicsLine in the past five years in which team members received corrective action short of termination within 12 months of the report.
We have already taken strong actions and continue to take strong actions to ensure our processes work.
We have centralized several key functions and improved the processes we use to research, investigate, and track concerns.
Just this week, we announced an additional important step:
“We have already taken strong actions and continue to take strong actions to ensure our processes work.”
We created a new Office of Ethics, Oversight and Integrity to house many of the groups responsible for issues research and escalation.
This new group includes Global Ethics and Integrity, Sales Practices Oversight, Internal Investigations, and Complaints Oversight.
The Office of Ethics, Oversight and Integrity will be led on an interim basis by Theresa LaPlaca, a senior leader in Wealth and Investment Management, who will report to Mike Loughlin.
This group will be tasked with ensuring a consistent process for identifying, assessing, investigating, correcting, and reporting on practices that do not align with our expectations for high ethical standards and excellence in risk management.
Ensuring that we have a retaliation-free workplace is a huge priority for me and the Operating Committee.
I can tell you at this point that the EthicsLine is working.
We must ensure that you feel safe escalating concerns and that you have confidence that your concerns will be thoroughly looked into — and appropriate actions taken.
Anything less is unacceptable.
“Ensuring that we have a retaliation-free workplace is a huge priority for me and the Operating Committee.”
Your input as we continue down this path is very important, and we will continue to ask for it.
I appreciate the team members who have already come forward to share their concerns and ideas — unfiltered and not sugar-coated.
That’s exactly what we need!
I will stress again how important it is that you feel comfortable raising your hands and giving us feedback.
My goal is for Wells Fargo to be best in class in this area, and the Operating Committee is committed to making that happen.
I know we can get there.
An important part of our rebuilding trust program is meeting with you and getting your feedback.
Since members of the Operating Committee began the Conversations Tour in late September, for example, we have held 50 in-person sessions with team members in more than 23 cities.
This reached more than 23,000 team members, either in-person, on TeamTV or online using video streaming.
In addition to these in-person meetings, we have used innovation to host live online chats through Team Moments.
I had a great time hosting one of these chats in November, and Hope Hardison and John Shrewsberry also have hosted sessions.
In fact, our next Team Moments chat is planned for tomorrow, Jan. 20, and it will be hosted by Perry Pelos.
I want to thank all of those who have participated in our Conversations meetings.
Your input has been invaluable and helped as we have developed new programs and initiatives to rebuild trust.
Here are some of the suggestions we’ve heard, and we have already implemented some of these:
- Offer more training and continuing education classes, particularly on leadership, management, ethics, reputation, and risk.
- Promote “Raise Your Hand” more effectively. You’d like us to communicate how we are pivoting to a new culture in which “raising your hand” takes higher priority.
- Empower managers to extend the Conversations Tours and Town Halls. Once an Operating Committee member visits your market, you recommend we empower front-line managers to cascade the information and report recurring questions — both of which will help us on the road to recovery.
- Provide managers and supervisors with easily shareable information for their teams and other stakeholders.
- Ensure tough questions are asked and answered: Include a drop box to gather questions to ensure they are authentic and genuine and that team members can pose difficult questions anonymously.
This is excellent input that is helping us build a better company.
Thank you, and please keep the ideas coming!
Culture change is underway
Amidst all of the progress we are making on rebuilding trust, much of it with your support and input, I’m pleased to say that we are starting to see some evolution of our culture.
There are four areas I will highlight as examples:
First, we are having more candid and frequent dialogue about our challenges and opportunities.
“We are starting to see some evolution of our culture.”
Town halls have helped; so has our Conversations Tour.
These forums are providing an open venue for you to learn about our progress and to share your thoughts and perspective.
Second, we’re surveying team members more to collect feedback. Thank you for all your input.
The insights we’re gaining from you are helping leaders make better decisions.
Third, the changes underway at the Community Bank, specifically around the new compensation plan, are creating a new way to talk about the experience we deliver to our customers — one that puts our customers’ needs ahead of our needs.
And fourth, our decision to make rebuilding trust a top priority for the company, a commitment that’s inspiring a lot of good work throughout the company as we seek to rebuild our reputation.
“The insights we’re gaining from you are helping leaders make better decisions.”
Culture change takes time!
But I can assure you we will leave no stone unturned in our move to build a better Wells Fargo.
Now is our opportunity to take a hard look at anything else we want to change or make better.
Looking ahead into 2017
2017 is a new year and brings with it the opportunity for continued improvement and further progress on our path to rebuilding trust.
This is my highest priority, and also the highest priority for our Operating Committee and board of directors.
While we can expect continued challenges, I can tell you with certainty that we will accomplish our objectives and we will get back on a path to becoming one of the world’s most admired financial institutions.
“I can assure you we will leave no stone unturned in our move to build a better Wells Fargo.”
We will continue and complete our remediation efforts to identify all customer issues and make all affected customers whole.
Building on the new compensation program, the Community Bank, under Mary Mack’s leadership, will continue rolling out a new experience for customers to deliver the best we have to offer.
We will continue making changes to our organization and establishing new infrastructure and resources to ensure we are operating at the highest standards permanently.
And our independent Audit team, led by David Julian, will play a critical role in continuously evaluating and testing our programs to ensure that we uphold these standards.
We’ll also continue to strengthen our culture, so we emerge from our present challenges as a more resilient and unified workforce.
Finally, we will continue delivering for our customers across our company — giving them reasons to say good things about us to their friends and family.
We are making great progress, and I’m confident we are on the right path, on our way to building a better Wells Fargo we all can be proud of.