Wells Fargo & Company (WFC) Morgan Stanley US Financials, Payments and CRE Conference (Transcript)

Wells Fargo & Company (NYSE:WFC) Morgan Stanley US Financials, Payments and CRE Conference Call June 13, 2023 8:00 AM ET

Company Participants

Mike Santomassimo - Chief Financial Officer

Conference Call Participants

Unidentified Analyst

Okay, great. Thanks everyone. I have a disclosure to read and then we'll get started. For important disclosures, please see Morgan Stanley Research disclosure website at morganstanley.com/researchdisclosures. The taking a photograph and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative.

Okay. With that out of the way, I'm delighted to kick us off here in this room today with Mike Santomassimo, CFO of Wells Fargo. Mike, thanks so much for joining us.

Mike Santomassimo

Thanks for having us again.

Unidentified Analyst

So, I did want to, kind of go through the balance sheet first, if you don't mind. There's been a lot of questions here about deposits so far in the conference. And maybe if you could give us an update on how deposit flows are trending this quarter, a little context around maybe deposit betas, retail versus commercial versus wealth, that kind thing?

Mike Santomassimo

Yes. I'd say in short, it's a little more of the same in terms of what we've been seeing over the last couple of quarters. And if you, sort of break down each of the businesses, I think we're largely trending in-line with, in aggregate, we're largely trending in-line with what you're seeing in the H8 data, but by business, when you look at the corporate investment bank and the commercial bank, those deposits have been pretty stable for the last couple of quarters.

So that's – it's good to see and I'm sure we'll dig in some of the beta questions later, but… And then on the wealth side, you're definitely seeing more movement into cash alts. The pace has certainly slowed over the last couple of months, but you're seeing still a little bit more move into cash alternatives, which again to be expected. And then on the consumer side, the driver there continues to be people spending. And so, I think it’s still very healthy in terms of the activity levels we're seeing.

We're not seeing big behavioral changes in people moving deposits around either within our accounts or outside. So, overall, it's a little bit more of the same in terms of what we've been seeing, so which is good to see.

Unidentified Analyst

Now on deposit betas, as of 1Q 2023, at least we calculated your cumulative deposit beta was somewhere around, your cumulative IV deposit beta was somewhere around 27%, which was one of the lowest in our coverage groups. So, just trying to understand how you're thinking about deposit betas from here for the rest of the rate cycle, where you think it peaks-out?

Mike Santomassimo

Yes. I'll give you a little bit of a view by business because I think that will help you, sort of maybe form an opinion on what you think might happen. But in the Corporate Investment Bank, those have been the most competitive from a pricing perspective now for a while. Again, that's largely to be expected, but for that type of client base. And that'll continue to be the case.

We're not seeing accelerations of trends in any way, but they'll continue to be competitive as we go. We're not seeing big shifts in like custom pricing or other behaviors there. And I think we feel really good about being able to compete for the operational deposits that we want to compete for. And as I said just a minute ago, those deposits have been roughly, kind of stable the last few quarters, which is good.

The commercial banks a little less competitive from a beta perspective. And again there, we haven't seen the shift with any real significant change over the last few months in terms of behavior there. And so, it's not, we're not seeing this pressure build in any way on pricing. And then when you start looking at the consumer side of the business, we moved pricing on the consumer side last year, at the end of last year in fourth quarter, and we haven't seen big shifts in pricing at all there since then.

So, overall, similar to what we just talked about on deposits, a little bit more of the same in terms of what we've been seeing over the last few months, not big accelerations either way.

Unidentified Analyst

Charlie did mention recently that you've barely grown deposits in your consumer and that's relative to what peers have done. Is that something that matters to you? Is there any – is that the outcome you're looking for?

Mike Santomassimo

Well, I think you have to remember, kind of what we've been focused on for the last few years. And we've been a little more inward focused, working on all of the risk and regulatory remediation. Plus, we've had the asset cap to deal with at different points in time, where it's been more constraining over the last few years. And so, we haven't been out there in a big way marketing like maybe others have done over the last 3 or 4 years. And so, that's what you see when you're not being as proactive there.

Having said that, we've been focused at the same time at improving our digital capabilities and you've seen that, kind of rollout over the last year and a half and it gets – we make it better every single quarter. We've been continuing to work on some product simplification and experience for customers.

And so, while we haven't been out there, proactively marketing in a big way, we've been working on all of the capabilities we think are going to be really important to stay competitive with folks. And over time, we'll do more and more proactive marketing. And I think we've started to do more of that this year, and I think you'll see that build over time.

Unidentified Analyst

And so last question here on deposits is, what about deposit durations? Are you thinking at all about that differently or?

Mike Santomassimo

Well, I think everybody – anybody that's in a position like mine at a bank these days needs to be think about those types of things. But again, we're not – I don't anticipate us significantly changing our points of view. When you look at each of the different kinds of deposits, the durations are a little shorter on commercial deposits. They're a little longer on consumer deposits. And I think you need to be really thoughtful in different rate environments and how those durations change.

And a lot of that's embedded in all of the work that we already do and have done for a long time around, sort of modeling that stuff. But I don't anticipate wild swings in terms of perspectives on that. I think that's not a great place to be if you start having to happen to do that in a significant way. And so, I don't anticipate that, but it's something we continue to think more about.

Unidentified Analyst

Yes, just – because it has implications for how you invested in the asset, so, that's where that comes from. Moving on to liquidity, recently, I think Charlie was mentioning that you're reviewing your liquidity assumptions. And so, I wanted to follow-up on that statement and understand what he meant by that, what you're doing because LCR ratio is already very high at 122%. So, trying to understand how you're thinking about that level?

Mike Santomassimo

Yes. In addition to what we have to do for the LCR or the NSFR, the [regulatory calcs] [ph], we also do a whole bunch modeling inside the firm, you call those internal liquidity stress testing. And those models are very granular and look sector by sector, deposit type by deposit type, business by business, etcetera. And you have to, sort of really, and you're using these models to look at different scenarios that, sort of stress the liquidity of the firm.

And given the environment we all just went through over the last three months or so, again, everybody should be, sort of looking at those models and say, okay, did I get it right? Is there something changing in the environment that might influence how you think about that? And again, I don't anticipate significant changes there, but you have to reflect in an environment like this to make sure you're getting it right.

For us, a lot of the experience that we use is actually real experience from the Wachovia issues back in 2008. And I think the big difference between what we saw there and what we saw now is the velocity of deposit outflows that some of the banks saw in March. And so, you have to reflect on that and say, okay, should I tweak things or turn the dial a little bit here or there? But I think we feel really good about those models and the Wachovia experience was actually quite severe when you really dig into it. But you do need to reflect on it to say, okay, should I tweak something at all? Again, I don't anticipate significant changes there, but everybody should be looking at that.

Unidentified Analyst

So, should we expect therefore a little more HQLA in the mix?

Mike Santomassimo

Maybe, maybe not, but it's not significant in terms of [Multiple Speakers].

Unidentified Analyst

You're on it. That's what you want to reflect.

Mike Santomassimo

Yes. Well, I think that's – everybody should be. Again, if you're running a bank these days, like that's part of the job is to take the experience is that you're seeing around you and really think about it, reflect on it and make sure you're incorporating what you need to and sort of the way you're modeling things.

Unidentified Analyst

All right. Let's turn to the loan book here, the asset side of the balance sheet. Sequential loans were flat in 1Q 2023, I just want to understand what your positioning is here? Is there an opportunity to lean in or is demand just so weak that there is, you know what we should expect that loans could go negative Q-on-Q this year sometime?

Mike Santomassimo

Well, I think the H8 data would say, loans are kind of close to that right now, right, when you look in aggregate across the industry. And so, I think that's certainly a possibility. In an environment like this, it's not really prudent to, sort of try to expand your aperture and your credit box in a significant way and try to go get share. It's not a real great way to manage.

And so, I think for us, we've got a pretty well defined risk appetite, and we're going to stick to that as we go through an environment like this. But as you look at each of the portfolios, you're definitely seeing a little less demand in some cases. But you look at auto, we've done some credit tightening there. So, and our originations are down, plus you're seeing a little demand shifts happen.

So, originations are much lower than they were a year ago in that business. We all know what's happening in the mortgage and housing market in terms of that impacting, sort of the volumes there. And then on the commercial side, there is still some demand on the commercial side in certain sectors, but in aggregate, it's not likely that you're going to see big growth in loans.

Unidentified Analyst

Maybe you could help us understand how cards is going for you? Because I know you've been leaning in there a little bit. Is anything you can share with us with regard to consumer spending that you're seeing in card, payment rate, and is that at all a bright spot on loan growth?

Mike Santomassimo

Yes. I mean, I think the card business is going really well for us. And as, we've talked about maybe in other forums, we started – we knew we had an opportunity when the management team got there to do a much better job running that business. And so the new management team came in at the end of 2019. We've launched five new products in that time period. We've seen really good growth in new account originations across those products. Still early days in the card – in the cycle that you go through when you're launching new products, but we've seen really good activity.

And if you look at what's happening in April and May, card spend is up double digits, close to 10% in April and May. And some of that is a result of the work that we've been doing in getting the new products out there and so we…

Unidentified Analyst

That's your own book?

Mike Santomassimo

That's our own book.

Unidentified Analyst

Year-on-year?

Mike Santomassimo

Year-on-year spend. Doesn't always translate into revolve, but that is the point of sale volume that's increasing. So, we would expect a little bit of growth in the card outstanding’s as we go, but and so we actually feel really good about that and it's performing well.

Unidentified Analyst

Okay, great. And then just lastly on loans before moving to securities, anything to speak to about loan spreads or loan betas?

Mike Santomassimo

It's still a little early. In terms of looking at spread widening, you're certainly seeing little bits of widening across different portfolios. I think if you go in the middle market business, you’re really not seeing a ton there. It's still a very competitive space, lots of demand for those clients.

If you look at the asset based lending and leasing in a commercial bank, you see a little bit more spread widening. You see in some portfolios in the corporate investment bank, you see a little bit of spread widening, but it's not massive at this point, but you're starting to see a little bit of it.

Unidentified Analyst

Okay. And then on securities, is there any change to how you're thinking about duration or composition?

Mike Santomassimo

Not a lot. I think we feel really comfortable about where we are. And the securities portfolio for us is an outlet for liquidity when we don't have enough growth in loans. And so that's certainly part of it. We've spent the last few years repositioning parts of that portfolio and in 2021, we sold a corporate debt allocation that we had.

We've upgraded some of the CLO exposure in there over the years. And so, we feel – so we've spent a lot of time working on that portfolio. And at this point, we feel really good about where it's positioned.

Unidentified Analyst

So then turning to asset sensitivity, putting this all together, are you tilting a little more asset sensitive because net-net card growth is up or…

Mike Santomassimo

Well, I think in aggregate as rates continue to increase, you get a little less asset sensitive as rates get higher, but we are still asset sensitive at this point. And you can see all – we'll obviously update all of the numbers in the queue when it comes out.

Unidentified Analyst

And then just on NII, maybe you could talk a little bit to, how you're thinking about that NII outlook in a higher for longer environment, compared to a sharply lower rate? That's obviously the two tails that people are thinking about.

Mike Santomassimo

Yes. I mean, you got to be prepared for both, right? And being asset sensitive, as rates rise, you still get some benefit as rates go up, but the longer rates stay higher, you're going to see deposit pricing increase with that. So, there'll be some offsets as you go up and you get less and less benefit. And then on the downside, you really need to be thinking about how to protect yourself there as best you can, but there are no perfect solutions there.

Unidentified Analyst

Hedges?

Mike Santomassimo

Yes, sure. We've done a little bit of hedging. Rates have been very volatile over the last, so that's probably the understatement of the year, but rates have been very volatile over the last number of months and quarters. And so, as we think we've got good levels to put on some swaps we've done a little bit.

Unidentified Analyst

And maybe at this point, you could give us an outlook for what you're thinking about NII. At earnings, you guided NII to be up 10%, I think year-on-year in 2023, given what we just discussed, how has the outlook changed at all, if any?

Mike Santomassimo

Yes. Maybe I'll broaden that a little bit, because I know there are a few outlook questions, so maybe I'll just kind of cover it once and be done. When you think about NII, as you said, we said up 10% in the beginning of the year and reiterate that in April. We still feel very comfortable with that number. And as we said earlier in the year, we were hopeful there was going to be upside in the second half depending on where deposit pricing and deposit levels ended up.

And I think as more time goes by, we're more and more confident there'll be some upside, some upside to that. And we'll put a little finer point on that as we get on our earnings in the next 4 weeks, but we do expect there to be a little bit of upside there. And then the other points, I know everyone's interested in are the allowance and expenses, and so I'll cover those as well.

On the allowance side, I think as you look at what's happening in the quarter, the economic scenarios aren't really changing that much in terms of the different scenarios that we've got to look at. A little bit on the margin. So, that's not really driving increases or decreases one way or the other. And so really there's two things that we're that we're thinking about for the quarter. And our work is not quite done yet.

So, I'll give you some directional view of where it may go. First, as we talked about card, we are seeing some outstanding’s in card growth. And so, given the way CECL works like it or not, you're going to book some upfront as card – as your card outstanding’s grow. So that will certainly be a driver there. And the other piece is commercial real estate, in particularly office that we're spending a lot of time on.

And as more and more time goes by, you get some more information and we can refine some of the dials in the models and those – as you refine those dials, you'll have to likely reserve a bit more to hopefully get ahead of whatever losses could come over time. And so, when you look at that in aggregate, we booked about a $650 million allowance increase last quarter.

It could be a little higher than that. It could be closer to a billion, depending on where it all shakes out. And so, and hopefully that helps us get ahead of things a little bit in terms of where that may go. Doesn't mean you lose money necessarily, but given the way the accounting model works we'll have to, you know there likely would be a little bit of an increase. And then lastly on expenses, as we look at the work people are doing across the efficiency agenda, we feel really good about all the activity that's happening.

The disciplines are there. We continue to execute well on all of that stuff. The one point that we're thinking about now is that attrition has slowed a little bit. And so in order to get some of our efficiencies, we may have some additional one-time expenses like severance to make sure that we hit our run rate that we want to get to by the end of the year in terms of people. So, that's something we're thinking about now. And then the other piece is, we're having some opportunities to accelerate some savings in places like our property portfolio, our own office portfolio, and so there may be a little bit there.

And so that could put a little upward pressure on the 50.2 billion, but we feel good about the core efficiency work that's happening there. And so, it's just a matter of like can we accelerate some of the things that we're trying to do to get the run rate where we want given attrition slowed. So, I think in aggregate, you look at the allowance and you look at expenses and then you look at the likely upside on NII. So, that's how I would think about overall where we are at this point.

Unidentified Analyst

Got it. And just one follow-up on your point on the work you're doing on your own real estate, you're talking about potentially exiting and taking some lease charges this year to prepare for a better run rate next year.

Mike Santomassimo

Yes, exactly.

Unidentified Analyst

Okay, all right. While you're on the topic of credit and reserving, maybe we could just talk a little bit about what you're seeing and thinking and doing with regard to standards. Is there any incremental tightening going on and maybe talk a little bit about how you're working with the consumers that are in a little bit of a tougher spot, the 660 and below?

Mike Santomassimo

Yes. Look, we've been on the margins tightening in different portfolios for the last year and a half or more. And that's an ongoing discipline that, I think we've talked about a number of times in different forums. I'd say it's all still on the margin. Generally speaking that we're sort of where we're looking to do that. But as you get more info and where there's risk pockets and different combination of risk factors then you're going to – you are going to look to do that.

In some markets where you've seen more price depreciation. In the mortgage market, you're going to have LTV caps that you put in place, in the auto business looking at different risk factors. And so, I think there's a number of things that we've been doing and that will continue to evaluate as we go. But I'd say for the most part, it's still somewhat on the margin.

We still feel really good about the core credit underwriting box that we've had for a while. On the consumers that have less – the FICO is less than 660, it's a relatively small piece of the consumer exposure that we have. But I do think those consumers are definitely feeling more stressed than others. And I think that's just to be expected given the cumulative impact of the inflation that we've seen over the last few years. And you're seeing definitely divergence in payment rates and other factors that are driving that.

Obviously, we continue to look for ways to support clients like that. We've introduced new products like Flex Loan. We've worked on many of the things we're trying to do around early payday and some of the overdraft changes that we've made over the last year and a half. And so, we'll continue to try to do that.

Unidentified Analyst

And one area we get a lot of questions on is on the non-bank financial exposure that’s in your C&I book. I think it's around a third of C&I loans. And I realize the capital call lending piece is relatively low risk and that's about a third of that book. So, maybe you could speak a little bit to the credit quality and the rest of the book there, Commercial Finance, Real Estate Finance, Consumer Finance?

Mike Santomassimo

Yes. I mean, look, so far it's been performing quite well. We've got really good attachment points in those portfolios. We've got very experienced teams, very low loss history over a very long period of time. And as you pointed out, about 40% of that is to asset managers with the biggest piece being capital call or subscription finance facilities, which have performed quite well.

Another third of that is, kind of commercial finance. Some of the asset backed lending that we do, including the corporate debt that we lend against. And we feel really good about the team and the way they do the underwriting there. And so far, it's been performing really well.

Unidentified Analyst

And then just lastly, you touched on reserves going up earlier in your comments about the outlook for the quarter and question here is on commercial real estate exposures. So, when you're thinking about the reserving you're doing this quarter and the SKU, I would expect as to the commercial real estate book, which already has a coverage ratio of around 6% I think as of 1Q. So, we're now looking forward to that going up a bit, I would assume as we go into 2Q?

Mike Santomassimo

Yes. I think that's likely going to increase a little. But I think that's normal given what we've been seeing like in that market. Now, keep in mind the book has performed quite well actually through the first quarter, but as Charlie said and we've said over and over, like we will see some losses in that portfolio.

And the accounting construct really, you've got to – you really think as you get new information and how that impacts where you think the losses could be. And so that's likely to be one of the drivers that brings that brings it up, as I said earlier.

Unidentified Analyst

And in your office space, you've got what, 80% in Class A, right?

Mike Santomassimo

Yes, in the commercial – in the corporate investment bank about 80% of it is Class A. I do think and I said this on earnings, I do think you have to keep that in perspective, right? So, that's one data point. You have to look at all the other data points around the Class A building. Is it new? Is it occupied? Is it renovated, and all the other factors that go in, where is it have to go into, sort of the calculus around how you think about each of the underlying properties that you got in the portfolio.

Unidentified Analyst

Okay, great. See if there's any questions in the room, all right. I'll keep moving on. So, do you want to just talk a little bit about fees. You've got some pretty important fee lines here in Deposit Services, Trading, Mortgage Banking, can you give us a sense as to how you're anticipating these fee line items are likely to be moving?

Mike Santomassimo

Well, I think a lot of the – if you take each one of them, piece by piece. On the deposit side, a lot of the changes we made on overdraft and non-sufficient fund fees and things like that all are in the run rate and have been in the run rate now for a couple of quarters. And so really, what's going to drive that are activity levels that we're seeing across the consumer base and activity has been pretty good overall.

The mortgage market is the mortgage market. So, I don't anticipate that changing in the next couple of quarters, but we'll see as rates go, and it's been pretty – it's pretty depressed relative to where it's been for a while. On the trading side, we'll – it's obviously somewhat dependent upon what's happening in the market, but we continue to feel good about the investments we're making there.

In places like rates and FX, where we've been just systematically investing in those businesses. And so, we feel good about the performance there. And you saw some of that in the first come through in the first quarter. And then the equity markets have been helping support what we're seeing in the advisory fee line as well, which is a big driver for our wealth business. So, we'll see how that ends the quarter.

Unidentified Analyst

In banking, I know you recently made some strategic hires, including a new Co-Head of M&A and Head of Financial sponsors group. So, I just wanted to understand how far along you are in your plans to add headcount to banking and where you're seeing some opportunities of growth? Obviously, right now, the environment is a little light year-on-year, but maybe your additions will change that for you specifically?

Mike Santomassimo

Yes, a little late. That's probably the most optimistic somebody who's talked about investment banking fees in a while, but the, look, I think, as you know, you have to really think about investment banking over a long period of time and you need good consistency of high-quality coverage and good people from a product perspective. And that will drive fees over a period of time.

The investment banking business is an area that we've talked about for a while now where we felt like we've got good opportunity to do a much better job covering not only our mid-corporate middle market clients, but the large corporate space where we play as well. We brought in a new leader last year. I think May of last year, we had a new leader join us Tim O'Hara. And then we've just been systematically going through each of the areas to make sure that we've got the right people in the right places.

And we've been really, really pleased with the quality of folks that we've been able to hire from really across a number of firms including the roles you mentioned. And so I think you'll see us continue to just systematically make sure we've got all the right people in the right places. And then over a long period of time, we'll see the – we will certainly see that fee pool recover at some point and hopefully, we'll be well-positioned to participate there.

Unidentified Analyst

Okay. And then on mortgage banking, obviously, the correspondent, you've exited, ED, it's already done and in the run rate of revenues or is there still some pressure there from that exit?

Mike Santomassimo

No, I mean, correspondent is largely done. There's a little bit of volume that will come through in the second quarter, but largely done.

Unidentified Analyst

And anything with regard to how your mortgage banking strategy is going to go forward from here? Anything else that you'd want to highlight?

Mike Santomassimo

Yes. I'll just kind of remind people like where – what we did. So, in January, we announced the exit of correspondent. And then we also talked about simplifying our servicing book, which means making it smaller over time and less complicated and really refocusing our efforts on our consumer and wealth clients, primarily, there'll be more than that, but primarily our consumer and wealth clients. And just providing a really high-quality experience and then making sure that we get the scale benefits on the servicing side.

I think over time, that business became too complicated. And so, our goal is to be – have a really well-run business with a great experience that's high returning and drives really good relationships across those businesses. And so, that's the plan. On the servicing side, it takes time. That's not something you transform in a day. And so, that will happen over a period of time. But as you said, the correspondent work is largely done.

Unidentified Analyst

Okay. So, let's move on to expenses, an area that investors are very focused on with Wells. I think Charlie mentioned recently, there's still a "huge amount of inefficiency" across the bank. Maybe we could unpack that statement a little bit and see where are those efficiencies, how you're addressing them and time frame for execution?

Mike Santomassimo

Yes. When we started this journey back a couple of years ago, it will be almost three years at the end of the year. We knew that there was a big opportunity. And I think we laid out some goals, and we'll exceed those goals by the end of this year in terms of the gross savings that we've got. And as you mentioned, we still think there's a real big opportunity to drive more efficiency. And I would say, there's almost no place in the company that's done and that is as efficient as it should be.

And so, I think to varying degrees, there's work to do everywhere. And I think largely, that will be the case for a while, right? This is not something that you solve in a quarter or two or even a year. And so, I think this is, and so what we've been equally focused on over the last couple of years is embedding the disciplines that we want to see come through from all of our management teams across the company to really every quarter, every month, they should be looking at, are they executing on their investments? Are they driving the efficiencies? What else is next? How do they continue to [unpeel the onion] [ph]. And so, and continuing to do that.

And so, I think it will be something that just is a continuous effort that happens over time. But I think we feel really good about what we've been able to do. We've taken our headcount from a peak of roughly [275 to around 240] [ph] last quarter. That's a significant change over just a couple of year period. We're continuing to work on all the third-party spend. And so, I think we feel good about that there's more to do, and it will just happen over a period of time.

Unidentified Analyst

And that's at a time when you were also increasing, what, around 10,000 people for regulatory and risk work?

Mike Santomassimo

Yes. And that's about $2 billion a year, as Charlie mentioned in his letter, in his shareholder letter. So, we've increased the spend that we've got there. And by the way, we continue to make investments across each of the businesses. You highlighted the people in the investment bank. We're also making investments in our digital capabilities and consumer and the commercial bank. And so, you really have to be able to do both as we go forward.

Unidentified Analyst

All right. So, two last questions, one on capital, one on strategy. On capital, you've got tightening loan standards, you're exiting some businesses, right, the MSRs shrinking. It seems like you're freeing up capital. You've got CET1 already well above regulatory management buffers. Can you give us a sense of room size to increase buybacks potentially from 1Q 2023 pace?

Mike Santomassimo

Well, I think first priority for capital is always to support clients, right? And so, we do want to make sure that we're always in a position to support clients as they need it. So that's always going to be the first priority. And then you have to look at all the things happening around us. We're in the – we're weeks away from CCAR results. We've got Basel III finalization coming at some point. You've got – and so there's a lot of things that you've still got a bit of an uncertain economic environment.

So, you do need to keep all of that in your thinking around what you're going to do for your capital. But as you said that, we come, we ended the quarter in a very good place. 160 basis points above where our reg minimum plus buffers is. As we've said a couple of times, [indiscernible] earnings in a couple of weeks ago, we have been in the market buying back stock this quarter. And so, we'll make the decision on a quarter-by-quarter basis as we go.

Unidentified Analyst

And what about the dividend? Your payout ratio is in the low 20s and pre-COVID it was 35 to 40.

Mike Santomassimo

Yes. I think we've talked about that a little bit. I think over time, we would expect the payout ratio to be higher than where it is today. That's got to be on what you think a normalized earnings number might be. And ultimately, it will be a decision for the Board, but it is an area that we spend a lot of time on.

Unidentified Analyst

Okay. And then lastly, as you think about how – not just the next 12 months, but beyond, as you get out of the consent orders, I'm not asking you when that's going to be, but as you exit from those, how would you think about leveraging the franchise differently?

Mike Santomassimo

Well, I have to start with, our first priority is like the risk and reg work. And that's going to be the case until we're done. And I think we're, we continue to do everything we can to execute well on that. And then I think for each of the businesses, we've got plans across every single one of them to continue to make sure that we've got the right people, we've got the right capabilities, and that we're systematically sort of investing across them.

We've talked about the investment bank. We talked about cards. We've got our wealth business where we've been making investments in the commercial bank, making sure we've got coverage in all the places we want and the product capabilities in all the places we want. And so, each business has a plan to continue to not only have really great products and capabilities, but grow over time. And I think that's just – that will take some time to see the results, but I think we feel like those plans are becoming more in focus for each of the businesses.

Unidentified Analyst

And as that happens, we could see the growth rate in those businesses accelerate potentially?

Mike Santomassimo

Well, that's a big what if, right? So, I think there's a lot that would go with that in terms of what the economic environment is and everything around it, but hopefully, assuming conditions are supportive, we would hope to be able to take advantage of the opportunity in each of those businesses over a period of time.

Unidentified Analyst

All right. Great. Mike, thanks so much for joining us this morning.

Mike Santomassimo

Thank you.

Question-and-Answer Session

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