Wells Fargo & Company (NYSE:WFC) Bernstein's 40th Annual Strategic Decisions Conference Call May 29, 2024 8:00 AM ET
Company Participants
Charlie Scharf - Chief Executive Officer
Conference Call Participants
John McDonald - Bernstein
John McDonald
Okay, great. Welcome, everyone, to the Strategic Decisions Conference. Very happy to have everyone here and happy to have Charlie Scharf from Wells Fargo back with us again this year. Charlie, thanks for joining.
Charlie Scharf
It's great to be here, John. Thanks for having us.
Question-and-Answer Session
Q - John McDonald
So, to start with, we'd start off talking about deposits, loans, a little bit of NII. So, obviously, it seems like higher rates are going to be here for longer than most of us anticipated at the beginning of the year. How do you think that's going to impact trends on the deposit side, not just pricing, but mix shift and overall customer behavior?
Charlie Scharf
Sure. I mean, as you know, listen, we've been in this environment of rising rates and now the thought of higher longer for some time. And so, we've seen a lot of movement, a lot of migration. As we've talked about a little bit, there is clearly some moderation as those who are most active rate seekers have been doing that for a while. But we would expect some of that to continue as people continue to see the opportunities to move rates -- move their money to higher-rate products.
We're focused on building true operational deposits, whether it's on the corporate side or on the consumer side. And so, we've got this period of time where rates higher for longer will persist and rates will come down and that will have the movement. The issue for us over a period of time is we're doing all the things that we can to build the core deposits, which is the real value of the franchise. And so, we can talk more about the things we're doing in the consumer bank, but that's what's going to drive deposit balances over the longer term for sure.
John McDonald
Has anything surprised you in terms of your ability to hold pricing on the competitive side, anything?
Charlie Scharf
I don't think it surprised us. I think what you've seen is that the very strong names out there that have the stability to them, that have deep relationships with customers and strong physical footprints across the country have a value proposition. And that's why customers choose to do business with us over a long period of time. I mean, I've talked about this multiple times since I joined the company, which is, with all that we've been through, the reality of people continuing to do business with us is remarkable. It says a tremendous amount about those that have worked at Wells, but it says a tremendous amount about the brand. And so, that in combination with the quality of the services that we're adding, the digital capabilities, the updated capabilities that we continue to add across the different product set, there's true value in that. And so, you're seeing that play through certainly with our franchise.
John McDonald
So, how about on the loan front? You didn't go into the year expecting much in terms of loan demand and loan growth, and H8 has kind of played out that way, it's been weak. So, what are you seeing on the consumer and commercial front in terms of loan demand? Any change and things playing out kind of as you expected?
Charlie Scharf
Yeah. No, listen, I think you described our -- what we thought about the year very accurately. And we've seen very, very little change, both on the consumer side as well on the wholesale side. Loan demand is not particularly strong. We'll talk about the wholesale side for second first. I think certainly, higher rates are impacting people's willingness to go borrow at these levels. People are -- companies are certainly sitting there saying that at some point rates will come down. I have time. They have financed themselves pretty conservatively going into this rising rate environment. So, they've got a fair amount of flexibility, which we also see playing through in terms of just the quality of the credit performance that we see. And so that is something that we would expect to continue with these levels.
I would say that this is more anecdotal than factual, but when we do our business reviews with the folks that are out in the field and those that are running the businesses, there are some that are, I think, more actively looking for loan growth that seem to be a little bit more aggressive in terms of looking for it. We're not. We're not out there looking to do things beyond the terms that we would generally do them. And so, we're not expecting a great deal of change at this point forward. Hopefully, we'll see a little bit of loan growth as people get a little more confident that rates will start to come down and there's a little more confidence in terms of where the ultimate environment will end.
And then, on the consumer side, it's just continued more of the same. Consumer is generally strong, high spend levels continue. We can talk about credit some more, but short answer is not a whole lot of difference in terms of the trends that we're seeing.
John McDonald
So, you've talked about net interest income kind of coming down throughout the year as funding costs go up and then loans aren't really repricing up anymore. What would drive that to kind of trough towards the end of the year? A lot of variables out there obviously, so no crystal ball. But what are some of the factors that might lead that to happen? And how would that set up a trajectory from there?
Charlie Scharf
Yeah. I mean, as I said before, I think in terms of the trends that we're seeing in terms of people moving to higher-rate products, there has been moderation there. Obviously, at higher rates, our ability to invest at higher rates is different than we thought when rates were lower. And depending on where betas come out, that could certainly be helpful in an environment where you don't have a whole lot of loan growth or deposit growth. So, those things kind of playing off one another would suggest that at some point this year, as we've said, that that's what we'll see, and when there's more to talk about, we'll talk about it.
John McDonald
Yeah, fair enough. So, over the past few years, Wells seems to have transitioned from being a cost-cutting story to one where you're more on your front foot, investing for some revenue growth and starting to see that show up in a few spots. So, maybe we could talk a little about these areas of offense that you've been investing in. Let's start off with trading. Results have been strong now. How much of that is sustainable? What's driving the improved trading? Is there more upside and runway for that?
Charlie Scharf
Yes. Can I just rephrase a little bit of what you said John for a second, which is there is no doubt that we have been very, very internally focused because of when a bunch of us arrived back in late 2019 and 2020, what we had to do? But when you actually look at the results and where we're actually seeing growth in the franchise today, it's because of investment decisions and focus decisions that we made back in late 2019 going into 2020. So, when we see the trading results, when we see our investment banking progress, when we see our credit card results, it's not something that we just turned to very recently. It is because we identified those as opportunities and said we have to start investing in those things.
Now, the reality is we've spent far more time talking about things that we had to fix inside the company because that is -- that has been the highest priority, and will continue to be until we put all of these historical issues behind us. And from the regulator's perspective, we've embedded the kind of operational and compliance risk culture that they would expect inside the company. So that is an ongoing journey for us. But at the same time, we're looking at what opportunities we have in the franchise to serve our customers more broadly, and we're investing in those. And so, there's no doubt that we've been talking about those things some more, but it is not just one or the other.
Remind me of the...
John McDonald
Yeah. So, just on the investing front and where you have starting to see some benefits...
Charlie Scharf
Yeah. So, you're talking about trades?
John McDonald
Yeah.
Charlie Scharf
So, on the trading side, listen, I think we've looked at it and said -- let me step back for a second. What we've said is our corporate investment bank is a really important part of the company. We didn't talk about it publicly all that much historically. We talked about ourselves as a Main Street company, which is -- there's a tremendous amount of truth in it, right? A huge part of the company serves Main Street. We're very proud of it. But at the same time, Main Street is supported by companies in this country, and the reality is that the wholesale side of our company is roughly half the company and has been for a long period of time. And when you dig into that half, the bigger part of the half is the corporate investment bank. It is traditional lending relationships that we've had. It's treasury services. And historically, we've started -- we've built out capabilities to help people access public markets through our high-grade bond, underwriting businesses and things like that. And so, what we said to ourselves is we want to -- we're not afraid to talk about it. We are -- as a company, we're here to support consumers, and we're here to support businesses predominantly in this country. And so that means both on the financing and advisory side as well as trading because those things go hand in hand.
And so, on the trading side of the business, what we've said to ourselves is that we want to be very targeted in what our approach is. We do business with corporates and asset managers in multiple fronts across the company. And as long as we are very smart about where we're choosing to compete and we're investing appropriately in things such as our electronic trading capabilities, in our own technology and talking to customers about wanting to be more important in terms of their flow business, then people will trade with us in the places where we can be competitive.
And so, that's where we've been investing, and you start to see that in a very, very targeted way. Foreign exchange, for us, is a very obvious place for us to compete, again, because when you look at the operational accounts that we have, when you look at the different services that we provide companies to be there to support them for foreign exchange, something that makes a great deal of sense. Historically, that sat over in the commercial bank. It wasn't even in our trading business. So, just doing very basic things by making clear to ourselves in terms of where we think we compete, investing in capabilities that where we don't have to take outsized risk to be part of our customers' trading flow, you're starting to see that. Now obviously, markets have helped us, but in terms of our investments paying off, that's what you're seeing. And we'll continue to do that without dramatically changing the risk profile of the company.
John McDonald
And how about on the investment banking front? You've seen a lot of hires made and maybe the cycle hasn't allowed the revenues to show up as much yet and maybe there's some -- also some timing issues there. How's that going? And what are the ambitions that you have for the investment banking?
Charlie Scharf
Again, I think those things go hand in hand, our investment banking franchise and our trading franchise. And again, listen, this is just -- we're trying to -- we got to be very, very realistic about what our customers' needs are, what our historical strengths are, but what we need to do to continue to serve them well going forward. And so, over a long period of time, we've served most of the Fortune 500, including the largest companies in this country for a long period of time through what people have thought of as traditional balance sheet products and treasury services products. And as people's financing needs have evolved and the ways for people to access the markets and the types of services they want, whether it's hedging services or accessing public and private markets, the opportunity for us to expand our capabilities to serve them, it's both an opportunity, but it's also imperative. That's just the reality of the way the world is going.
We also live in a world where lending is getting more expensive from a capital perspective. Our customers have other opportunities with all the private lending that's developed over the past five to 10 years. And so, it's a very natural progression for us to figure out how to serve our customer base on a much broader basis. And so, we've got this business opportunity staring us in the face, which for us seems painfully obvious. Our customers have a desire to do more business with us. I've talked about this as well. When we talk about the role that we play for corporations of all sizes in this company, they have a desire to do more with us. They look at it and say that there are a limited number of companies out there that can provide what we can provide with the scale and the scope. We've been important to them over a long period of time. They like doing business with us. And as long as we continue to build our credibility with our individuals that cover them and our ability to execute, then they're willing to give us a chance. And so, building our underwriting and our advisory capabilities, where we're already taking the risk, it's just -- it's a very obvious place to expand the business.
So, we've been -- well, I'll say a couple -- number one is we've seen this end badly for people that have said they're going to go and build this corporate investment bank and have done it the wrong way. And I think we have a pretty good understanding of what that means and what right means. So, right means being very, very targeted about where we actually have relationships, have exposure today and where we can add capabilities to actually support that existing business. So that's the very long way of saying that we take a lot of risk today and don't get paid nearly as much as others do. And if we have the capabilities, then our customers will pay us more than they're currently paying us. So -- but you've got to do it in a very, very targeted way, in a way that's very paced.
So, we've added 40 to 50 senior hires in our corporate investment bank over the last bunch of years since we've been here. We haven't stood up and said, our expenses are way up because of it. This is an investing cycle. We haven't said any of that. We've just done it as part of normal course investing, figure out where we can have efficiencies. And what you start to see is that when you do that, we can actually take share. But it's profitable share. It's not tracing share for share sake. It's actually providing additional capabilities, getting paid more for it than we're getting paid today. And you'll start to see us participate in a much broader set of transactions, getting paid in a much more diverse set of ways other than just being the desire to be the left lead on the lending facility.
And so that's the journey that we're on. It's multiyear. And what we've been able to see is you hire the right people, you'll get hired. And so, it's, as I said, very natural progression of what our historical relationships are. And one of the most exciting opportunities for us because when you are taking the risk, you've got the relationships, you build out the capabilities, there's a desire for people to want to do business with us.
John McDonald
Got it. That's really helpful. What about in credit card? Where are you in that journey to build out the credit card product offering? And when will we get to the point where kind of enough of the book is seasoned and the economics turn more in your favor in terms of the net interest income?
Charlie Scharf
Yeah. So, to your point and to the conversation earlier, we've been on this journey now for 3.5 years, 4 years in terms of rolling out new products. We've had -- I think we've introduced, I think, four or five new products into the marketplace, both spend-based products as well as lending-based products. What we have seen is that we're capable of upgrading not just the product set, but the supporting capabilities around it. So, whether it's fraud, line usage, add some real marketing dollars behind it, that when you have a quality product out there, you'll get positive selection both in terms of the numbers of people that actually want your products as well as just the underlying credit quality.
And so, when we look at the growth that we've had, it's because we have a better product proposition out there than a lot of competition. And between that and the brand recognition of Wells Fargo, those things work together. And so, we feel really good about where we are. But to your point, it's an expensive business from a GAAP perspective, because you have upfront costs in order to market, to onboard customers, as well as reserving levels and things like that. And so, this has been an investment that we view will pay over -- will pay out over multiple years.
When you look at where we are in that trajectory, we have another couple of products to launch. We just launched a small business card, which is starting to get some great traction. We feel really great about it at this point. And so, we're probably a couple of years away from being able to say that it's meaningfully contributing to the profit of the company. But it's something that we know is almost built in as long as we don't get credit wrong, which we have a high degree of confidence that we've gotten right at this point. And it's a meaningful product for our customers, both in terms of lending, but also in terms of being there as a core payments mechanism.
John McDonald
Yeah. You're way undersized relative to your deposit share.
Charlie Scharf
We're way undersized. And listen, that goes back historically, right? We had -- historically, we had made a conscious decision for whatever reason that we wanted to be much bigger in the mortgage business than in the unsecured lending business. And there's a lot of reasons why that made sense relative to interest rate cycles and the way the company was positioned. But the reality is when you look at how the world has evolved and the world has changed, the mortgage business has become far more competitive, much more difficult to run really efficiently inside of a large bank. Not that it's not possible, but it has brought with it a huge amount of risk, and we're still paying for that in terms of even the profitability of the business today. And at the same time, credit card has become a much more important payment mechanism as well as lending mechanism. And so, we've said to ourselves that we need to change the relationship of those two things inside the company in terms of the way we think about driving growth inside the company.
So, we've been very, very clear. We believe in the home lending business, but in a much more targeted way. We just don't want it to be the size and the scope of what it was historically. We want to be very, very thoughtful about where we're active in the marketplace. So, it is serving broader Wells Fargo customers and serving underserved communities. And our opportunities in the card business to integrate that product, that set of services into a broader customer relationship, we think is much more meaningful. And we do see that playing out.
John McDonald
Yeah. You've seen the card account growth, you start to see the volume growth, and expectations are that the seasoning will lead to balance growth...
Charlie Scharf
There's no question. Listen, I mean, you're seeing the balance growth. You see it in terms of consumer spend. Our spend on our credit cards on a year-over-year basis is up in the low teens week after week, month after month, quarter over quarter since we've launched these products, which is double the industry average. As I've said, we're very, very focused on credit. The credit looks to be as good as it was historically, if not a little bit better because it's a better value proposition. And all you need to do is go Google "best credit cards out there," and you're going to see our products. And that's the point is we're winning because of the value proposition, not because of credit and in terms of pricing or things like that.
And so, we see that growth, and it's the kind of quality growth that you want to see that's sustainable over a period of time. And so, we feel really good about it. We feel great about the progress that we've made. And we're on this journey to build something which will contribute much more meaningfully to earnings and returns than you're seeing in the numbers today. So again, as we look at the returns of the company, and I'm sure we'll get to conversation on returns, there's just a little bit of the reality of the decisions that we've made will season, meaning as our home lending business risk comes down, our expenses come down, that business will become more profitable than it is today and higher returning, and the same thing with our card business. And again, as long as we haven't made a mistake in terms of how we've gone about executing these things, and again, we feel very, very confident in terms of where we are in those things, then we do have built in return growth and profit growth just from the seasoning and the execution that we have underway today.
John McDonald
You stole my later question, but it's a good answer.
Charlie Scharf
Okay.
John McDonald
So, let's talk a little bit about the consumer bank. It's been about a year since Saul Van Beurden took over and you put him in charge of running consumer banking. How has that transition gone? And what are the key areas you're focused on to improve returns in that business?
Charlie Scharf
Sure. Yeah. Listen, I think we're on a journey in our consumer bank. When we think about just not to replay the history, but the reality of what we've -- the cards we were dealt when we -- those of us that arrived here at the company was that in a lot of ways was ground zero of the issues that we had, right, the sales practices set of issues and whatnot. And so, the most important thing for the company as a whole was to get that behind us. And so, when we look at what Mary Mack and the team had done prior to Saul taking over, they very, very effectively put the sales practice issue behind us in our consumer bank. And you've seen that with the OCC lifting the consent order recently, which is hugely important for us and is a sign of just the amount of work that was accomplished.
And so, the reality in order to do that, we actually had to strip a huge amount of things away from the way we ran the business. So, we stripped reporting away. We stripped incentive plans away. Anything which could create the -- either the feeling inside the company or a view of the regulators that we were putting ourselves in harm's way relative to sales, it wasn't worth taking the risk. And so, the fact that we're able to keep our share relatively stable given all the things that we took away from that consumer franchise is a feat in itself.
So, now that we have sales practices behind us, I should say, it's the consent order is behind us, but the mindset is not behind us. And so, we're very, very focused on making sure that we're -- as we implement things that put us in a position to grow in a way that we haven't grown over the past six or seven years to do it in a way that we would expect and our regulators would expect. And so, we are -- Saul and the team are looking holistically at all the things that take a consumer bank from just operating off of its historical strength to how we can be on more on our front foot.
And so, it's a combination of introducing reporting back into the branches to make it clear that we want to serve customers more broadly, creating plans for our bankers where they're rewarded for doing more, not just the same based upon what customers really want and need, which means not numbers of accounts, but quality of accounts, accounts that are being used, accounts that are primary accounts. We're spending more money on marketing than we've spent. And you'll see a lot more of that over a period of time. We've enhanced our digital capabilities. You're going to see more product bundling, and we become much more segmented in our approach to the customer base inside the branches. So, as opposed to just treating everyone who walks in the same, those that are more affluent will have a different set of products and a different way of being served with people in those branches than people that don't have that level of affluence. Same thing with small business.
So, when you look at the way you take a branch system from no growth to one that's growing, it's a series of things. We talk about this all the time. There's no silver bullet. It's not just incenting people inside a branch to do something. It's not just having a better product proposition. It's not just having disciplined financial metrics that get reviewed on a regular basis. It's not just having strong digital capabilities. It's not just marketing capabilities that make you first and foremost on people's minds in that community. I mean, it's all those things put together that actually let us take advantage of the size and scale of the brand that Wells Fargo is.
John McDonald
And as you're trying to grow primary relationships, how much is new market expansion playing a role? And then, how are you also kind of balancing that with...
Charlie Scharf
Yeah, it's a good question. I mean -- so today, the answer is very little. I mean we do have some efforts underway in Chicago where we're growing the branch count. Here in New York is a perfect place where we're just underpenetrated. There are some other places around the country where that's the case. But we also got to be very, very realistic of -- listen, I've been on this journey before. I go back to the days of when I started in the retail business at Bank One, and we were presented with a branch system when we got there, which was high-quality Midwest franchise, and -- but it wasn't growing. And you're not serving your customers as well as you can.
And so, before you take what you do elsewhere, you should actually feel like you're doing it really, really well, and you've got it all figured out. And so that's the predominant focus that we have. And so, the focus today is to take the footprint that we have, which we love, doing a better job in the existing footprint to expand our share in a profitable way, and as we get better at that, that creates the opportunity for the scale that we have to serve a broader set of markets in a broader way than we do today, but first things first.
John McDonald
So, rounding out the businesses, let's talk a little bit about wealth management. It's obviously an area that everyone seems to want to grow. What's attractive about Wells Fargo's business? Who do you compete against? And when you tell the team in terms of this what we're shooting for, what are the strengths of your model? And what's your kind of report card there?
Charlie Scharf
Yeah. So, listen, we love the Wells Fargo wealth investment franchise that we have. And when you look at it, it is one of the bigger opportunities that we have. I've talked about this that historically, it's one of the most impacted franchises that we've had, not just because of the customer base that actually reads about all the issues that we've had historically, but if you're an advisor and you're talking to your customers, at some point you're going to get tired of having to explain about all these things that are in the paper. Or if we're out recruiting an advisor or a group of advisors, it's a complicated story for them to have to go talk to their customers about why coming to Wells is the right answer. So, in a lot of ways, that issue is behind us, and we have been far more diligent about making sure that we're investing for the advisors. So, this is a more attractive place to be. So, we feel like our ability to both not just retain, but to attract advisors is completely different from what it was three or four years ago. And so, that sounds very basic, but it puts us in a very, very different position.
So, relative -- when you think about a report card, I think that's a very conscious set of things that we've done that we feel very differently about. When we look at what we have to offer, we've got incredible scale in the business. We have 12,000-ish advisors, which puts us up there with some of the largest wealth management firms in this country. We have a channel of those people that work for us, where we pay them directly. We have the opportunity inside of our branches, which we're hugely underpenetrated in relative to the ability to offer investment products to those that do business inside of the branch system. We have an independent channel, which we should talk about a little bit, which has -- was underappreciated both outside the company and inside the company, but it's a huge advantage for us today. And they've got a digital channel. And so, when we look at who we are and what we have, we have all of these pieces that fit together. We now have a team in place that understands these opportunities. We put a lot of these basic issues that we've had historically behind us. And we're in a position now to take advantage of that strategic positioning that we have. And when you look at what we have, it does make us somewhat unique relative to those that we compete with.
John McDonald
Now is the independent channel underappreciated because you're finding more advisors want to go to that or they come in one way and they want to switch to that?
Charlie Scharf
Yeah. Listen, it's underappreciated both because we haven't focused on it historically, but when you just step back and look what's going on in the business, more advisors want to control their own destiny. They want to employ themselves. They want to feel like they own the value in their franchise. And so, when you look at people moving away from these large wire houses into the independent channel, it's hugely significant, not something that's going to change over a period of time. Our view historically was we have it, but if I can keep 50% of the revenue, why would I possibly want to encourage someone to move to something where we only get 20% or something like that. And so, this idea of fear of cannibalizing your own business, it's something which makes you -- can make you feel better in the short term, but over a long period of time, you got to be very realistic about what the direction of movement is.
And so, we're investing in the independent channel to the extent that -- listen, there are people who have different approaches. When I say people, I mean our advisors. There are those that want us to get the facility for them, to get the technology for them, to do all those things that they just don't want to do on their own. And so, if they want to continue to operate in that environment, we're going to be the place for them to be. But if they want to go the independent way, then us making it easier for them to do that, not have to go find someone [completely different] (ph) to stay on the platforms that we have inside of Wells and to have the banking platform that we have, both from a deposit and the lending side, is something that we're actually looking to make easier for our advisors, not harder. So if you're an advisor that's coming from someplace else and you're not sure which direction you want to go, the optionality that we have is different than what other people have to offer. And -- but ultimately, we've got to be compete with the very best independents and the very best full-service providers out there, but that positioning is differentiated.
John McDonald
Great. Let me ask a couple of questions about regulatory. Risk and controls has been the primary focus since you've arrived. I guess kind of what's the report card on the regulatory progress? From the outside, it sounds like your tone has gotten a bit more positive and your willingness to acknowledge that you're seeing signs of progress in the internal metrics that you track. So, is that a fair observation? And maybe...
Charlie Scharf
Absolutely. It's a fair observation. And it's something you should expect, right? I mean, listen, the new management team that's at Wells Fargo was here because the primary mission was to put these issues behind us. And so, if we weren't sounding more confident over a period of time, you should be questioning, well, are you making progress or not? So, when we think about where we stand, the reality is we have closed consent orders in a way that we did not effectively close them historically. We see internal metrics that relate both to the work that we're doing to put us in a position to close the consent orders as well as just the operational metrics we look at. So, as we build these controls, we see the internal metrics improving. And so, when you actually see those things and you actually see deliverables happening, it puts you in a position to speak more confidently about both our ability to get these things behind us, but the fact that we're making progress.
I also want to be very, very clear, I say this outside the company, I say this inside the company, I say this to the regulators, I say the same thing to everyone, which is this is a journey for the company. This is not something that's a project. It's something that takes place over a long period of time. And we have to close these orders. We have to build the controls and make them part of the company, so we're not declaring victory and so on. So, people shouldn't interpret the confidence that you're hearing with anything other than very factual that we see ourselves closing consent orders, we see ourselves delivering things, but ultimately, the regulators are going to determine when it's done to their satisfaction. We still have outstanding consent orders, including the asset cap, and it's on us to do the work to the satisfaction of the regulators. But yes, we do feel like we're making progress that four years ago, three years ago, we didn't feel comfortable talking about, because we just didn't see it.
John McDonald
So, when it does happen at some point, you talked about a little bit of how the asset cap has held you back from some things, what are the growth opportunities that you could better execute on without the asset cap?
Charlie Scharf
Listen, the asset cap -- first of all, I think the most important thing about the asset cap is when the asset cap is lifted, is a clear statement from the regulators that we have -- that we run a very different company than we had historically. And so, it differentiates us in a negative way. And so yes, there are the economic consequences, but there are the reputational consequences. And the reputational consequences are extremely important, just as we saw when we had the sales practices consent order lifted. It does change the perspective on the company, and I think very appropriately so. So, that is hugely important for us. In a lot of respects, in the shorter term, that's more important than anything differently that we're going to do inside the company.
The reality is when you look at where we sit today and if you just separate out this over multiple periods of time, early on, the asset cap didn't impact us dramatically because it actually forced us to become far more efficient in terms of balance sheet usage. Then, over a period of time, as others were able to grow and we weren't, there were certainly significant opportunity costs that we were not participating in. When we sit here today, we're kind of comfortably running below the asset cap. The asset cap is $1.952 trillion. We're running around $1.9 trillion-ish, plus or minus. We have room to lend, we have room to take on deposits, but we got to be careful about it, because there is no remedy for violating the asset cap, which is it's a daily average over a period of time. It's not a spot number.
But when we look at what we've had to do to actually make sure that we comfortably stay below the asset cap, we have reduced our ability to finance folks in our trading businesses. We've reduced some inventory levels that are there. When we went through COVID, we were very nervous about what the drawdowns meant. And so, we had to be careful about where we are extending new credit. We've been very, very careful as we've gone through this journey not to limit our deposit taking capabilities on the consumer side because when you turn a consumer away, they'll remember that forever. When you turn a corporate away and you explain to them why and what our limitations are, they do understand.
And so, the reality is we have held back our ability to grow our trading businesses, and we've held back our ability to take on deposits on the corporate side. And those are the places that you'd likely see us kind of get back to where we were. And then, it's just an opportunity to grow kind of consistently across different parts of the franchise with we would say not any one place outsized relative to the others. It won't be exponential. It'll be more incremental. But first things first, we've got to finish the work to the satisfaction of the regulators.
John McDonald
So, switching gears, and just talking a little bit about the efficiency journey, you've continued to say there's more work to do on that. It seems that you've kind of been holding expenses flattish and self-funding your investments, generating operating leverage with revenue growth is the goal. Is that kind of the mindset you have now? Is that the way we should think about it?
Charlie Scharf
I think that's a good place to start the conversation. Listen, I'll tell you the way we've had the conversation internally, which is we sit around as a management team. We did this last week. We had the whole operating committee for a couple of days. And you ask the question, "Who amongst people on the operating committee thinks we're as efficient as we should be?" And you don't see any hands going up or you don't see any heads nodding. Now, we feel good about the progress that we've made. We've gone from 275,000 people to 225,000 people. We're spending a lot more money on the risk and regulatory work. We're spending more money on modernizing our infrastructure. We're spending more money on digital capabilities. And so, all of those saves that we've got are funding these things, and we feel better about where we are from an efficiency perspective, but none of us feel like in any one of our businesses or any one of our functional areas that we're as well run as we should be.
And so, we approach the conversation of, well, if you start there, then let's continue to have the conversation of where do we want to continue to invest to build out our capabilities. And the conversation around efficiency is less around saving money and it's more about how do we run a better company, right? The things that we have cleared out internally, the processes that we've simplified actually make it easier for us to get the risk and regulatory work done. They make it easier for us to identify what the right capabilities are to build out for our customer base. And so, that's where we'll start. And then, the conversation is, "On a net basis, should it be flat? Do we want to invest a little bit more?" And those things will be determined based upon the size of both of those opportunities and when it comes to investing, whether or not we're actually seeing the success paying off because we understand that we're in a position where we have to earn the right to invest. Some companies have done it really well over five, 10, 15, 20 years. We need to prove that's the case and we're starting to see that in some of these things, but we want to show people more broadly that's the case.
John McDonald
Okay. How about on credit quality? In the consumer business, you made some changes, tightened underwriting over the last year or two. What are you seeing in terms of the asset quality trends, maybe particularly in auto and credit card and seasoning versus kind of deterioration?
Charlie Scharf
Yeah. I would say -- so first of all, credit quality continues to remain very, very good. It is -- we know we've come from incredibly benign credit environment. The increases that we're seeing in terms of delinquencies continue to look like they are very much on top of the performance that we had seen pre COVID, so a more return to normal. There is a clear differentiation in terms of the health of the consumer between those that are more affluent and those that are less affluent. We see that when we look at deposit balances, we see that in terms of spend data. The averages are very deceiving. So, the averages overall look strong, but those with more affluence are supporting those that are struggling more. We don't have significant credit exposure to that group, but we're very conscious of what it means to the overall health of the consumer. And we're looking for any changes in those trends, and we just haven't seen much of it. Auto credit quality is still extremely strong. We made a bunch of underwriting changes a year-and-a-half ago. You see that coming through in terms of our improved performance. We're not chasing volume there. So, you'll see balances come down for a period of time. We're running that business for returns. And as I said, we feel very good about what we're seeing in terms of the credit card growth that we've had in the underlying credit quality.
John McDonald
And how about on the commercial side? Outside of CRE office, which we can talk about separately, are you seeing any other issues emerge in commercial real estate more broadly or in C&I?
Charlie Scharf
The short answer is not really. The things that we see in terms of things that have real loss content in them are very episodic. So, they're either specific companies, companies -- retailers that have too big of a physical footprint that are reorganizing. And so, where we have seen loss, that's pretty much where it's been driven. The broader quality that we've seen in terms of the underlying wholesale base that we have, whether it's on our middle market side or on the larger corporate side, is still very, very strong. People are nervous about higher rates. As we've talked about, they went into this environment more conservatively than in some other periods that we've seen and see that paying off.
Now higher for longer, it depends on what longer means, right? Longer, an extra couple of quarters, inside of a year, that still gives people a lot of flexibility in terms of refinancing needs. You look beyond that and there is risk out there for sure. And so, when we look at the performance that we see, it's strong. We feel good about it. Nothing suggests that anything is changing dramatically. But again, both in terms of rates as well as just other geopolitical risk, we run different scenarios, you got to be very conscious that those things are there.
John McDonald
And then, on the office side, you obviously started building your reserves about a year ago. We're starting to see some losses come out for everyone in terms of materialization of actual net charge-offs now. How are you feeling about the office portfolio, your reserves and how things play out there?
Charlie Scharf
So I mean, we don't feel good that we're losing money, which is the case. But we feel good about the reserve levels that we have and how we're positioned. Now I would say this is probably we're in we've been very actively reducing the exposures that we have for 3, 3.5 years in the office portfolio. The problems that we have are very much in the -- we refer to as our CIB portfolio, which is larger metropolitan cities, very often sponsor back, very, very different than what we have in our commercial bank, which where we have personal guarantees, very often owner occupied, performance there looks very, very strong. But when we look at lost content within the office portfolio, it doesn't look differently than what we had planned for several quarters ago. Our watch list is not growing. As we've seen losses materialize, they're very consistent with what we reserved at, more than the people who run the business certainly would have hoped, but as we've set reserve levels, we try to be very realistic about what those losses could look like and not a lot of new information there, which is good.
John McDonald
Yeah, for sure. Okay. Let's just round things out on the capital front. So, we still got to get through a DFAST exercise and results coming out in the next month or two, and then we've got Basel endgame in front of us. But aside from those, with those uncertainties in mind, how do you think about a reasonable CET1 ratio to anchor to kind of in the near, medium term?
Charlie Scharf
Yeah. I mean, our CET1 ratio is -- it's been around 11%-ish. I think our regulatory minimums, including buffers, are 8.9% at this point. And we've been a little over 11%, but that's where we would say is kind of the right place for us to be right now. We all know that changes are coming from Basel III. There likely will be something. We don't know what it is. And so, we just want to be smart and prudent about keeping our capital levels relatively conservative versus what we think the ultimate endgame should be. We're generating a lot of capital for sure because we have the asset cap. It puts us in a position to have flexibility, but there's no reason for us to want to rely on that in the future. So, kind of where we've been in that 11%-ish range is what our thoughts are in terms of where we continue to run the place until there's more clarity.
John McDonald
Okay. So that implies a pretty healthy capital return ratio relative between buyback and dividend. How about the mix there? I think historically, you've talked about getting to a 30% to 40% dividend payout. You're a little bit below 30% today. Is that 30% to 40% a good place for us to think about?
Charlie Scharf
Yeah. I think that's exactly where we continue to target the conversation. Now obviously, 30% to 40% is something -- you want it sustainable, you want it over a period of time. So, as we think about what that payout ratio is, you want to be able to maintain it through good credit environments, bad credit environment, higher rate scenarios, lower rate scenarios. And so, we've got to be very thoughtful about having a sustainable dividend through those different environments. And so, we're still thinking 30% to 40%. We'd like to grow the dividend as we increase the earnings and return capacity of the company. And as we generate the levels of earnings that we've been generating, it creates excess capital and you see it in terms of where we've been able to return capital to shareholders through share repurchases.
So, we've returned, I think, since 2020 over $30 billion through share repurchases; 2023, about $12 billion in buybacks; first quarter, we bought back a little in excess of $6 billion; this quarter so far, we bought back around $5 billion of stock. And so, we look at our capital generation and our ability to deploy it internally inside the company. We look at the earnings level of the company. We look at the stock price. We look at where we think the trajectory of the earnings, the return should be. And if those stars align as they've aligned, we'll continue to use buybacks as a lever to return capital to shareholders while we increase the dividend at a reasonable rate as we grow the earnings of the company.
John McDonald
Yeah, and stay in that 11% ballpark.
Charlie Scharf
Yeah.
John McDonald
Yeah. Great. Well, you kind of touched on this before, but just kind of go through the journey for the mid-teens ROTCE? You talked about some embedded business optimization that's a driver there.
Charlie Scharf
Yeah, for sure. So, listen, when we look at it, we started the journey, the company was -- we were at 8%-ish ROTCE. Now depend if you take out special charges and things like that, we're around 12% or 13%. So, we've made progress, not where we should be as a company. When we look at the different businesses that we have, when we look at the business mix of the company, there's no reason why our returns over a period of time shouldn't be as good as almost all the people that we compete with, but it's going to take a period of time. Some of it's easier in terms of driving efficiency in the company, others because you leverage the scale that you have and you're able to outperform the other folks that you compete with.
So, we've talked about the underlying return growth in returns and growth in earnings that we should have as we continue to rationalize our mortgage business. So, our mortgage business today is a drag on the company. It's not a plus. And when we get from where we are to where we should be, that's a meaningful improvement in terms of the earnings capacity of the company. We talked about the card business, the investments that we've been making as that business materializes. So, our consumer lending part of the business, just because decisions we made as we implement what we've said and time passes, that will change the dynamics of the company. And then, when we look at each of the businesses one by one, every one of them is underearning relative to what it should. And so, you can look at it that it'll either because we're becoming more efficient in what we do or because we're growing earnings faster and earning more relative to the amount of capital we have invested in the business. And so, the target of 15% is still very much what we're shooting for. It's not the ultimate target, but that's where we should get and then we'll talk about where we'll go from there.
John McDonald
Great. Well, Charlie, thanks so much. We'll leave it there. Appreciate it.
Charlie Scharf
All right. Thanks, everyone. Appreciate it.
