Good morning. My name is Katherine, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Wells Fargo Fourth Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Please note that today’s call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.

Thank you, Katherine. Good morning, everyone. Thank you for joining our call today where our CEO, Charlie Scharf; and our CFO, Mike Santomassimo, will discuss fourth quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our four quarter earnings materials including the release, financial supplement and presentation that are available on our website at wellsfargo.com. I’d also like to caution you that we may make forward-looking statements during today’s call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today, containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie Scharf.

Thank you, John, and good morning to everyone. I’ll make some brief comments about the operating environment, our fourth quarter results, and I’ll discuss our priorities. I’ll then turn the call over to Mike to review fourth quarter results in more detail before we both take your questions. I’m going to start by making some brief comments about the economy, based on what we’re seeing. The benefits from both, fiscal and monetary stimulus continue to provide important support for many, and the additional $900 billion stimulus is an important step in helping those who are still in need. Though there was solid economic growth in the fourth quarter, we continue to see an uneven recovery and increases in COVID cases towards the end of the quarter is negatively impacting the path to recovery. Overall, our customers continue to be in much stronger position than we would have anticipated when this crisis began. But unemployment levels remain high, inventory levels remain lower than pre-pandemic levels, and confidence to invest is dependent on an effective bridge until broad-based vaccination can be accomplished. Given this, we expect 2021 will get off to a slow start, but there’s great potential in the second half of the year for a strong 2021, especially if there is another significant stimulus package. Before turning to our performance this quarter, let me discuss our new business segments. One of my early observations when I joined the Company was that we were not managing the Company at the level of granularity necessary. As a result, we made significant changes to the management structure, most notably having more of our businesses report directly to me. That change also drove us to completely alter our internal reporting to provide us with more transparency into our performance and underlying business drivers and…

Thank you, Charlie, and good morning, everyone. First I’d like to thank John Shrewsberry for all his partnership over the last few months and wish him success in the future. I’m going to review our fourth quarter results and then I will provide some information on our expectations on a few additional topics. 2020 was a challenging year, and I’m proud of the support we provided to our customers, communities and employees, which we highlight on slide 2. We summarize our consolidated financial results for the fourth quarter on slide 3. Net income for the quarter was $3 billion or $0.64 per common share. Our effective income tax rate was 3.5%, which was lower than we expected due to discrete tax benefits related to resolving some legacy tax matters. We expect our effective income tax rate for the full year of 2021 to be in the mid single digits. Our fourth quarter results also included $781 million in restructuring charges. Similar to the third quarter, these charges included severance expense but the fourth quarter also included charges for software impairment and costs related to reducing our real estate footprint. We also had a $757 million reserve release due to the announcement that we are selling our student loan portfolio, which is expected to close in the first half of this year. Finally, we had $321 million of customer remediation accruals, primarily for a variety of historical matters, down $640 million from the third quarter. Our capital and liquidity remained strong. Our CET1 ratio increased to 11.6% under the standardized approach, and 11.9% under the advanced approach. Our liquidity coverage ratio was 133%. We continue to have significant excess capital with $31 billion over the regulatory minimum, and we hope to return more to shareholders this year. Turning to credit quality…

[Operator Instructions] Your first question comes from the line of John McDonald with Autonomous Research.

Hi. Good morning. Mike, if I could ask about the expense slide on page 19. Is the right way to look at it that you said you’ve identified over $8 billion of gross saving opportunities and you’re realizing -- you expect to realize $3.7 billion of that $8 billion or so in ‘21?

Hey John, thanks for the question. Yes. At this point, that’s where we are. We’ve got a little -- probably a little over $8 billion that we’re sort of working on as we speak and we’ll get $3.7 billion in the year. And as I said in commentary, those savings get bigger as you go throughout the year. So, that implies the exit rate’s better than the $53 billion.

Okay. And if you think about the gross to net, you’re realizing $1.5 billion of net saves for like $3.7 billion of gross, maybe 40% of the $3.7 billion you’re achieving. Is that ratio of gross to net -- could that improve in the out years based on what your investment spend forecast is?

Yes. You have to sort of think about it that you don’t get the benefit all day one. These things sort of take -- get executed throughout the year. So, that ratio of $8 billion to $3.7 billion, you can’t really look at it -- or I’m sorry, the ratio of 8 to the sort of net that you’re seeing, you sort of have to look at that over a couple year period as you get the full annualized benefit of all the saves coming into the P&L.

John, this is Charlie. How are you doing? I would also just add to that in that -- the $1.6 billion of investments that’s broken out on slide 19, that does include a significant continued increase in expenses related to the risk and infrastructure build-out that we have. And so, as we continue to move forward, there is a point at which that -- the increase certainly slows.

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

Couple of questions. One, Charlie, you walked through the businesses that you have sold or are in the process of contemplating selling. Should we take that to mean that that’s the full extent of what you’re looking to do with the business model at this stage and that there’s anything else beyond those areas are not being contemplated for sale, or maybe just give us some color on that? And then, how you identified what to keep, like what was the bar for sale versus retain?

Sure. Yes. I think the answer is yes. You should look at this as the complete list with the one aside that all companies should always relook at this on a regular basis to make sure that whatever assumptions you made are accurate. But, we’ve gone through an exhaustive review of everything that we do business by business at a level of detail well beyond the level that we report publicly. We’ve come up with these activities. We’ve thought about a whole bunch of other things. And so, this is the list that we’re actively working on, and we feel very good about everything else. As we think about the lens that we use, it starts with -- we look at the core customer base that we want to serve. And is it part of our capabilities that we have either targeted towards that customer base, or are they part of a package that’s logically offered to customers as one? Also look at risk returns. I would just make a comment on risk returns because I’ve heard a little -- people talking about this a little bit. It’s -- we’re not looking at the risk return of a given quarter. We’re looking at the risk return over a much longer life cycle of these businesses. And so, you add that together and the businesses that we’re exiting, they are perfectly good businesses and the things that we’re thinking about, there’s certainly -- the question is are they best housed within Wells Fargo? And so, we think the answer is probably best housed someplace else. There are different ways to get there and different arrangements that we can have with folks in terms of what that means. But again, I do feel very good at this point that we’ve looked across the enterprise.

And then, you’ve outlined where there’s been a pullback in loan balances or earning assets because of these exits. But what do you do with that opportunity there? I mean, there’s a lot of discussion, as you well know, about the asset cap and it’s hard to know when you get out of it, but are you creating room for your core businesses to grow into that space, or how are you thinking about that?

Yes. I guess, I would start with we did not approach this exercise with we have to sell businesses to create room under the asset cap. It was really the view was driven by what we think actually belongs within Wells Fargo for the long term. To the extent that it helps us with the asset cap, that’s certainly a benefit. But that was not the lens with which we view this. When you look at what we’ve done, the education finance business is roughly $10 billion or so in assets. The things that we’ve announced, that is the most significant piece. And so, sure, there’s no -- over time, creates the ability for us to redeploy that capacity elsewhere.

Okay. And then, just lastly, on the tax rate. I think you mentioned this year it’s going to be single digits. Can you speak to what’s driving that and what your sustainable tax rate is? And also, is there a difference throughout the year like how that tax rate? Is it single digits throughout, or is it just starts super low and then goes up to normalize by 4Q? Help us think through the seasonality there.

Hey Betsy, it’s Mike. Yes. It bumps around a little bit based on earnings and what’s in the quarter. But I think the simple way to think about why it’s lower than kind of the past is we’ve got a significant amount of investments that are multiyear investments in -- whether it’s low income housing, other renewable energy that create tax credits. And those tax credits are what’s driving -- what’s offsetting sort of the normal statutory tax rates that we’d have. It’s no more complicated than that. And so, as you’ve seen over the last couple of years, those have increased a bit over time. And so, as we sort of look for -- look at 2021, that’s the big driver.

The sustainability -- yes, go ahead, sorry.

I was going to say, so the dollar impact of those is up a little bit, but obviously has a much bigger impact on the rate when you’re earning less.

Right. So, I mean as you learn more, obviously your tax rate will bleed higher, but for a good reason.

Correct, correct.

Your next question comes from the line of Ken Usdin with Jefferies.

Coming back to your slide 20, just wondering, I know that that -- it’s a path and it’s a hypothetical and that long-term ROE is a long ways away. But on that interim step, the 10%, do you have a way of helping us think about what type of time frame might be possible to even get to that middle step, that 10%?

Yes. I think, -- hey Ken, how are you. I think, the way we’re trying to describe it is that is where we have clear line of sight. So, when we look at the impact of expenses, these are actions that we are actively taking. But, we’re also -- in order to get to 10% without any changes to the revenue equation at this point, we also have optimized capital levels, which means that the Fed would have to relax restrictions. And so, the reason why we’re not talking about the time frame is because we don’t know when that will happen. But, the amount of excess capital that we have, as you know, is extraordinarily significant. And we’re also in the position of not being able to use it because we have the balance sheet limit. And so, the timing is dependent on that. But again, in our minds, very clear line of sight when that occurs to be able to get there in a relatively short time frame. And then, on the longer term piece, which you didn’t ask about, again there are two, I think there’s some words off on the right hand side. But again, I would not describe this as a -- as just something that we’re dreaming about. When we look at what is possible with modest balance sheet growth, really moderate increases in the rate curve or steepening and efficiencies that we believe we can get, we really do believe that that is what we will achieve. It’s just -- we’re just not in a position to put timing around it because we don’t control the timing on most of those items. But when those things become clear, we should be in a position to be clear with you about timing.

Yes. And on a follow-up to the capital and then the potential business sales, how do we get a sense of what earnings might potentially go away with those business sales? And then, if you were to get gains on those business sales, is that capital also kind of contemplated in these ROE improvements, or would that be extra or incremental use to -- at that point, you’re able to do something with the capital generated to offset some of the lost earnings?

Yes. I think, a couple of things. So, it’s Mike, Ken. Thanks for the question. I think, we’ll give you more detail as sort of we announce plans for each of the businesses. But think of the revenue impacted by the four things Charlie sort of outlined as very low single digits, around a few percent of revenue. And we’ll sort of give you more clarity as sort of they come -- the plans come into focus with the timing. And I think, you’re right. As we -- if we book gains, as we sort of divest of items, that’s helpful from a capital perspective that can either get redeployed in the business or through buyback capacity.

And this is Charlie. Let me just add. Given what we’ve announced, those are announced transactions, not closed. So, it will take a period of time for these things to close. So, once you factor into certainly what will impact 2021, it’s a smaller amount. And we’re working hard at making sure that when we exit businesses, we get the expenses out. It obviously frees up capital that we have invested in those businesses as well as the games. And so, you put those things together. And that’s why we don’t think of the impact of these things as being material to either a plus or minus on what it means for our ratios. But, it cleans up the Company, it gets us focused on making sure that we’re putting resources towards the right things, and we’ve just got the Company set up properly going forward.

Your next question comes from the line of Steven Chubak with Wolfe Research.

So, I wanted to start off with a question on the NII guidance. What are some of the assumptions informing the lower and upper bound of the guidance range for ‘21? And maybe more specifically, where are you reinvesting today versus the back book yield of 196 basis points?

Yes. Hey Steven, it’s Mike. Look, I think, as you sort of think about the top end of the range, we’re assuming roughly the implied forward curve, even though that’s bumping around day by day, week by week here over the last couple of weeks. So, assume -- we’re not assuming much improvement from where it is relative to get to the top of the range. We’re assuming loan balances are, in total, roughly flat. We’ll see some declines we think on the consumer side, particularly in the mortgage book, as we go into this year. But we will -- and so, we’ll need to see a little bit of growth in commercial and corporate side to get there. And then, we’re assuming spreads are about where they are relative to the other asset classes that we would invest in, and then, a very modest expansion of the securities portfolio, but not very big. So further steepening of the curve kind of increases overall sort of are positive relative to our assumptions. I think, the biggest sort of downside risk is what happens to loans, loan growth, particularly on the commercial and corporate side. But, a lot of the activity we’re seeing from stimulus and what the potential could be in terms of the recovery, particularly in the latter part of the year should be constructive for that. So, I think it’s not a Herculean task to sort of get to the top end of the range, but it does require a little bit of growth from -- in the loan book from where we are today. And then, maybe just, I guess related, I’ll give you a little sense of how mortgage -- the mortgage market is sort of doing in the first quarter. We are -- we did have -- the last couple of quarters have been pretty strong for origination -- in the mortgage origination market. And as we sort of see the first couple of weeks of January, it’s still pretty strong relative to both volume and margin on that balance. So, that should be also constructive as we sort of look into Q1.

That’s great color, Mike. And just for my follow-up on capital, you mentioned that you’re running with significant excess capital. The strategic actions have been outlined should significantly derisk the overall loan portfolio. And just given your strong CCAR track record and these derisking efforts, is there room to manage to a lower target versus the 10.5% internal objective? I know you’re running above that. It just feels like that might be a little bit too conservative, given all the actions that you’ve taken.

Yes. I mean that’s certainly something we think about a lot, Steve, in terms of what’s the optimal level to run. I think, publicly, we said it’s around 10%. And as you noted, we’re running well above that target. So, that’s something we’ll keep in mind. But, as you know, we’ve been restricted from returning a lot of that back to shareholders at this point. And we always start the conversation first with ensuring that we’re allocating enough capital to grow the underlying businesses and invest in them with inside the Company. And at this point, we’re just restricted from returning. So hope that that will change over time.

And then, this is Charlie. If I could just add, when we think about the conservative capital position that we completely agree with and as we look at our performance over time, as CCAR does, that does allow us to rethink about what you’re talking about. You also -- we also think about just the position that we have with our allowance for credit losses. And so, we’re seeing what everyone else is seeing, which is that the performance is substantially better than we would have thought when we went into this, and when a lot of those CECL reserves were established. But we’ve also -- when asked -- we’ve been very clear in terms of what it takes to start to use that, which is we’d like to see something, which we really do believe is more sustained and more equitable recovery because so many uncertainties exist. So, everything that we see is extremely positive. But, we think the right thing to do is to be prudent there. And so, overall, the only -- really the only meaningful reserves that we reversed were because of the student loan sale, which we had to do. But that positions us from just a quality of balance sheet perspective even stronger going into 2021.

Your next question comes from the line of Scott Siefers with Piper Sandler.

I guess I wanted to revert back to that $8 billion plus of potential gross savings in the slide deck. Would you say, are you guys kind of completely done with the reviews that got you to that $8 billion number, or to what extent are those ongoing? I noticed one of the sub-bullets talks about formalizing a program for additional feedback. And I guess, the context of the question is, in the past, you guys have noted that $10 billion number as sort of a kind of a guidepost that would have gotten you towards peer efficiency. So, just trying to sort of square the two together, if $8 billion is sort of all there is or if there’s more as time unfolds?

Sure. This is Charlie. Thanks for the question. I think, we’re actually talking about slightly different things. And so, let me just try and walk through what I mean by that. The $10 billion that I referenced on the call was just the very simple math of our efficiency ratio versus our competitors, to say that that is the difference in efficiency between -- with which we run the company and they run the company. And when we look at what Wells is, we don’t believe that there’s any meaningful difference why that should be different. That doesn’t mean that we’re going to get to that number in a short period of time because these efficiencies take a long time to build in. They’re based upon both expense levels, but also the revenue levels that other people have. And so, that was what the math is. But it certainly served as a guidepost for us to sit and say, hey, why are others where they are versus where we are? And we didn’t look at it just overall. We looked at it by business. And again, as I mentioned in my comments, now you’ve got the ability to do more direct comparisons by business, so you can see a little bit more of what we’ve seen. So, the $8 billion reference is what we have -- are the list of initiatives that we have that are in progress of moving forward with. It’s a -- as these slides mentioned, it says they’re 250 and plus, there really are a list of 250 initiatives that we go through as an operating committee and each operating committee member is in the process of executing on which we believe we will be able to reduce on a gross basis, the expense base by $8 billion. Away from that, we’re not done. We still -- first of all, it’s like peeling an onion back. And so, once you get a series of efficiencies, it helps you look at everything else that’s left as well. And so, we’re confident that there’ll be more after that, which will help continue this multiyear drive to get to what we think is a reasonable efficiency level. Over a period of time to be comparable with our competitors, first of all, it took them years to get there. And so, that’s why it will take us a fair amount of time as well. We’ll accomplish a lot of it through expenses. But, we certainly need a higher net interest income, and some growth in our noninterest income expenses would certainly help us there. So, I still think of efficiency as something longer term that as we focus on just getting the expenses out and focusing on returns, our efficiency ratio will naturally become more competitive as opposed to a specific target in a specific year.

Yes. Okay. That’s good context, and I appreciate that. And then separately, just as it relates to the asset cap, so under the new business line reporting, a lot of this becomes a bit more self evident. So, I appreciate that. But just as you guys look at it on a day-to-day basis, what is the asset cap doing to your ability to retract and attain customers at this point? I feel like all this excess liquidity in the form of deposits that’s washed into the system over the past 9 or 10 months has just been such an embarrassment of money for the industry. But unfortunately, you guys have just a company-specific hurdle in having to manage that dollar amount. So, as it relates to sort of customer interface with existing ones and potential ones, how is the cap impacting things at this point?

Yes. So, let me start and then Mike can certainly pick up. I think, first of all, we -- I think, the way you asked the question is a good and interesting one, and we need to separate the conversation about the asset cap between impacting our financial performance and impact on the franchise. And there is no question that the impact on our financial performance is material in this environment, right? When you just look at -- well, I’d say when we look at actions that we’ve had to take to prioritize balance sheet usage in an environment where certainly early on, there were significant draws and then those were seated with people’s ability to refinance elsewhere. But deposit inflows or having to manage to those things certainly has been a cost to us. And then, I would certainly also add to that, as we think about additional stimulus, we need to create room on the balance sheet to be able to deal with that stimulus, be it fiscal or monetary. And so, even versus where our balance sheet was running when we went into the pandemic, just because of this environment, we have to manage it lower in addition to the specific actions that we’ve had to take because of the requests that we’ve had, both on the asset and the liability side for management of the balance sheet. Then, we also think about when we went through the crisis, the ability to add higher yielding assets when we were focused on staying below an asset cap is something that we were not able to do that others are able to do. And then, you look at our need not just to keep the balance sheet flat but to have it be incrementally lower to create the capacity…

No. I think that’s right. And just to kind of underline what Charlie said on the consumer side is that we’re not putting any kind of restrictions there. And I think that we’re seeing almost a 20% increase in deposit -- in consumer deposits. And I think that’s a good a good sign of how people feel about us and doing more with us. And so, I think that’s encouraging to see on the consumer business.

Your next question comes from the line of Brian Kleinhanzl with KBW.

Two quick questions. First one on the reserve. I noticed that you said they had the reserve release where they’ve related to student lending this quarter. But I guess if you think about the reserve and where it stands as of year-end, I mean if you could equate that relative, it seems like you reserve for something worse than the base case. I mean, if we move to a base case, we’re now seeing return to kind of a normal. I mean how much does that imply for potential reserve release relative to what you had at year-end?

Well, I mean, Brian, I think, as you sort of think about the reserve levels, I think for anybody, given the way the accounting standard works, you’re not necessarily reserved just for a base case, right? You reserved for a whole number of scenarios that could potentially play out that are far worse potentially than a base case scenario. And so, -- and that’s kind of where we are today. As you sort of look forward -- I think, as we sort of see the path of the recovery, I think we’re hopeful that all the stimulus and support that the government has been putting in, in its many different ways and potential for more of that should help provide a good bridge to the other side. And as Charlie said, I think if that’s the case, I think we’re -- we feel that we’re very conservatively accrued for that kind of positive outcome. But I think -- and we’ll see how it plays out over the next couple of quarters.

And the only thing I’d add, I mean, it’s just when you wind up quarter-over-quarter, our allowance to loans is -- as a percentage basis is the same. And we sit here today and we say the performance continues to be better than expected, which would suggest we feel even better about the level of reserving. But again, we’re just -- given the unknowns, we think it’s a good position to be in and a prudent thing to do, but we certainly feel better off quarter-by-quarter.

Okay. And then, just a separate question on those selected efficiency initiatives that you outlined on slide 18. Could you just kind of walk through, which ones are the biggest impact to the overall expense savings? I know you had five different ones kind of summarized there, but what’s like the number one, number two with regards to potential expense saves?

Yes. I would bring it back to page 17 in the presentation. On the right hand side, we’ve dimensioned the percentage that each of the categories contribute to the $8 billion, Brian. So, I think that will probably give you a good sense of where the most impact is coming from. And really, the things that we’re doing across the Company in terms of really streamlining the structure and finding ways to optimize are the biggest single piece, but it impacts many of -- most groups across the Company. And then, as you sort of look at the other categories, it’s -- they’re somewhat comparable relative -- on a relative basis in terms of their contribution. So, you can see what that looks like.

Your next question comes from the line of Matt O’Connor with Deutsche Bank. Matt O’Connor: One nitpicky question and one bigger picture. First one, the nitpicky. When we look at that path to the 10% short-term ROTCE, using the fourth quarter as a base, you obviously had a very low tax rate. I think, it’s about 3%. And if we strip out the reserve release, it’s about 25 basis points charge-offs. So, that 10% kind of ROTCE in the short term, whenever that is, is that kind of dependent on still unusually low tax rate and reserve release, or is that really driven by the incremental expenses beyond what you’ve laid out, and obviously, the capital too?

Yes. No, it’s a good question. Look, as we sort of look forward, I think, the -- as you think about the different components of what you walked through, I think, the -- as we said it for 2021, the tax rate is going to be sort of in mid-single-digits. And so, you get a sense of how we think -- how sustainable that is for a little while. And really, the big drivers here though are going to be driving the expense down as we sort of outlined and really getting the annualized benefits of all the stuff we’re doing today and the stuff that will have more impact in 2022. And then, obviously, we’ve got the restrictions lifted on the buyback. So, I wouldn’t over-index on sort of the one-timers that you see in the quarter because the reserve releases are offset by some of the restructuring charges and other things that you sort of look that are embedded in that 8%.

The only thing I would add is just being very thoughtful about it is, as Mike said, I think, there are lots of pluses and minuses, we could go through each of them, and we think -- and we do think it is a reasonable starting point. But, the thing I would add is, we obviously at this point have really detailed plans as we look into 2021 by quarter and for the full year and do feel very good about that as a starting point. Matt O’Connor: Okay. And then, the bigger picture question and there is probably no super tactful way to ask this, but you’ve assumed at least here for the targets and guidance, no lifting of the asset cap this year. And it seemed like that was being telegraphed by some of the media articles in recent months. But, I guess if we do kind of look out a year from now and the asset cap hasn’t been lifted, would that be disappointing to you, Charlie? And I appreciate that it will be a little over two years you’ve been here, but at the same time, it takes time to build a management team, and there’s been COVID, which your firm and the banks in general have done a lot of things for employees, a lot of things for customers, and that can be distracting. So, I know there’s some puts and takes, but a lot of us on kind of the investor and sell side obviously look at the asset cap being in place for quite some time. And I’m sure you’re impatient and we’re all impatient too. So, how would you feel a year from now if it’s still here?

Yes. Matt, listen, It’s a very, very tactful way of asking the question of when we think the asset cap will be lifted, which you know that I’m not in a position to answer. And so, I think, your sentiments are right about what it takes, it takes time, it takes a management team. I think what I’ll say, if you look at the remarks that we made in the prepared part of the call, the words are very carefully chosen. And so, we do believe that we’re making progress. As I even work broadly, I feel great about the team we have in place, our understanding of what has to get done for this consent order and for the others. As I said, I made the statement, I do believe that we’re making progress. But, if you look at the words that are required in the consent order, they’re really clear, which is execute and implement that, and we’ve got significant work to do. And I can’t share with you. I wish -- I believe and I understand why you’re asking. I said this last quarter, too. I really do. I wish I could share with you the specifics of what the plan is. I can’t do that. And ultimately, it’s up to the FRB anyway. So, I really -- I’m just not in a position to put the time frame around it, other than I feel very confident that we know what has to get done and we’re moving forward. And I wish I could be more specific than that.

Your next question comes from the line of John Pancari with Evercore ISI.

Charlie, sorry to hop right back to the asset cap. But one more thing on that. I wanted to see if you can let us know. I know part of that process is the third-party review. Are you able to let us know if you’re yet at that stage of the third-party review for the consent order that includes the asset cap?

I really can’t. I’m just -- again, we’re not in a position because of CSI to be able to talk about where we stand, the progress, where we are along that continuum. Again, I just -- I go back -- I wish I could say more, I go back to the words. I do believe that we’re making progress. As I said, it’s really clear what we have to do. I think, we have people that don’t just understand what needs to be done but are capable of adopting and implementing, which is what’s required for the third-party review once -- at the point at which the Fed ultimately accepts the -- or just chooses to accept. And that’s really all I could say at this point.

That’s helpful. All right. Thank you. And then, separately, on the expense front, the $8 billion in cost saves, does that already reflect the real estate rationalization, the 15% to 20% reduction that you mentioned? I know you cited on the slide around the expense efforts, but I’m not sure does it reflect that whole rationalization? Because that’s a fairly substantial cut to your real estate footprint.

Yes. The bulk of it’s included in the $8 billion number that we gave you, so.

Okay. One more thing on that. Regarding the cadence of the remaining $4.3 billion of that $8 billion beyond 2021, I know you indicated be over several years. Is that still going to be more front-end loaded, meaning could the savings realized in 2022 be higher than what will be realized in 2023? Is that how we should think about it?

Well, I think we’ll give you better guidance on 2022 as we get towards the end of the year. But it’s something, as you -- it’s something that will take a few years to sort of work our way through that list. And as Charlie said, we’re not done. There’s a long list of other items that are being bedded as we speak that sort of add to that list, so.

And let me just add to it, just so we’re not trying to be coy in any way, shape or form. What we’re trying to do is do what we said we would do, which is, we said last quarter that we would give you what we thought was our clearest line of sight to our expenses for 2021, which is what we’ve done. As we look beyond that, we do believe there are significant additional gross cost saves to take out. But, we’re also making sure that we’ve got the ability as we go through the year to understand what continuing investments need to get made, which include doing everything that we need to do on the risk and regulatory front. So, we don’t want to give a net number and box ourselves in and then believe we need to spend a different amount on the risk and regulatory stuff because that’s going to be what it ever needs -- what it needs to be. And so, what the prepared remarks laid out was the gross saves are significant. We expect to -- what we’re targeting is to continue to show net reductions year-over-year. So, we continue on this path to increasing efficiency, acknowledging that we’re not giving you the specificity beyond 2021 at this point.

Your next question comes from the line of David Long with Raymond James.

Charlie, you mentioned in your prepared remarks that the bank’s number one focus is building the right management team. Obviously, a lot of changes near the top and in your top operating team for the last 15 months since you’ve been CEO. Are there still additional changes needed on that team? And any specific positions that you would still like to fill?

Yes. Well, so just -- first of all, our number one priority is getting the risk and regulatory work done, which will ultimately resolve these consent orders that we have. The management -- building the management team is one of the key enablers in getting there. Yes, listen, I feel great about the management team that we have. I think that this is -- these are -- it is always an ongoing process where we’re always looking at once one level gets filled, everyone is looking to make sure that they’ve got the right members of the team behind them. And there’s no question that with all of the talent we brought in from the outside, given where we are, that enables us to leverage more of the talent inside the Company and put them in the right roles. So, I don’t foresee the pace and the dramatic changes that we’ve made. I think, most of that is done at this point, and then it’s just continuing to build the lower levels and recognizing that there are always some changes that happen here and there for different reasons.

Got it. I appreciate the color. And then, the -- you talked about additional costs still needed to improve the operations and your investments in 2021 to get out of all the remaining consent orders, where do you still think you need to spend? Do you have any areas earmarked at this point?

Yes. I mean, so, when we look at that -- what page is it? It’s the page 19 that shows the -- where we break out from the $54 billion going to $53 billion, and then we break out the net $1.5 billion reduction and we show you the gross versus the investments. Embedded in that $1.6 billion is a series of things. Roughly a third of it or so are specific adds that we’re doing to continue the work on building out the risk and control infrastructure. Those are everything from continued adds in compliance, independent risk and all the functions that are necessary to, for the most part, build the operational and compliance, infrastructure that’s required in Fed and OCC consent orders, but is the right foundational work to do. We have a series of increases embedded in there, which are investments in technology. Some of the expenses relate to things we need to build to get the efficiencies out, but we also have some net increases there, also to continue building out some product capabilities and things like that. So, I’ll just point you back to that $1.6 billion is on a gross basis, what’s embedded in our numbers this year, 2021 that is.

[Technical Difficulty] Your next question comes from the line of Gerard Cassidy.

Thank you and good morning.

Gerard, it better be a good one given the anticipation.

There you go. I don’t -- maybe you guys -- on your expense savings, you only paid for 90 minutes, and they cut you off short or something so. Anyway, thank you for taking the question. Maybe Mike, I know the net servicing income is always volatile quarter-to-quarter. Can you share with us the -- what went on with hedging this quarter? Obviously, it was a negative number. But again, I know it’s volatile quarter-to-quarter.

Yes, sure. And Gerard, I may take you up on that idea by the way of limiting the call, maybe next quarter. Look, I think, as you sort of look at the MSR asset, obviously there’s a bunch of things that sort of impact what’s happening, which sort of drives the servicing income in there. And I think a couple of things you saw was the higher prepays and sort of the velocity in the mortgage market impacting that. And then you also saw servicing cost as modeled. So, as you probably know, with these assets, like you’re modeling your future costs, which then reduces or increases your income in the current period. And you look at the -- that servicing income going up a little bit as you sort of look at the cost that you might have to incur, given some of the forbearance programs and the extensions of those. And so, there wasn’t anything outside of those items that was really driving the results.

Very good. And then, as a follow-up -- and I understand about the asset cap and the balance sheet, but in your net interest income expectations in slide 16, what kind of interest rate environment would you need to see for the drag that you give us in that slide for that to go away? If you had your druthers, if you could paint the interest rate environment, the sensitivity analysis, I’m assuming you guys do, what would we need to see for that to disappear?

Yes. Look, as I said earlier, to get to the top end of that range, we’re using sort of the implicit, the implied forward curve as it stands over the last week or so. And so, I think as you think about all else equal, any steepening from here or just overall increase from here, I think, would be helpful and additive to that.

And you have time for one more question, and that question comes from the line of Erika Najarian with Bank of America.

Hi. Thank you for taking my question. And Charlie, thank you for your patience on this long call. I just wanted to get back to the question on gross versus net. And I wanted to get clarity on the $1.6 billion of investment spend. I think, earlier in the call, you mentioned that it was still mostly related to risk and regulatory-related work. And as we go forward and we think about the potential for a higher ratio of net versus gross, how should we think about offensive, more offensive type of expense of investment? I think, one of your peers today laid out $2.4 billion in investment spend and $900 million of which was related to tech.

Yes. So just to be clear, because I don’t want to -- of the $1.6 billion that’s in the investment line, again, roughly a third of that is very clearly the risk and control build-out. But, the reality is there could be other things that we’re doing that’s in the remainder. Another big chunk of what’s in that increase are things that we’re doing to drive efficiency in the Company. And then, there are obviously things that we’re doing to build the future of the business. Your question of how to think about gross and net and the level of investments for the future, I think that is -- that’s quite frankly -- that’s one of the reasons why we’re just being very careful not to commit to anything beyond 2021. For 2021, we’ve been very, very thoughtful about what we believe we need to do, what we want to do and what do we actually have the capacity to do. And that’s what’s reflected in these numbers here. We’ve hired a series of new people, both from the business side as well as Ather on the digital side. And as we think through what the expense base could be in ‘22 and beyond, we don’t know at this point what we want that increase to be, which over time hopefully becomes more about building products and services that could beat more effectively in the marketplace. And so, I’m not sure again how to answer the question other than we expect to be doing that. We do have some of it embedded in the numbers today. But, we want to make sure that we understand what we might want to do. At the same time that we’re saying we believe based on everything we know today, that we still should be able to do best and drive the expense base down on a net basis. Just not sure what the net number is sitting here today.

And your last question comes from the line of Vivek Juneja from JP Morgan.

I’ll be -- so a quick one firstly to start with, which is expense reduction. That’s Charlie, Mike -- sorry, I jumped over and didn’t go with the pleasantries of saying hello because I know you’re squeezing me in. You said revenue digits down low single digits from the business exits. How about expense reduction?

Yes. Vivek, we’ll give you more color as we sort of announce those and we get to the closing of some of those transactions. But, it’s probably not that different I think relative to the revenue contribution.

Okay. And Charlie, since this is the only opportunity we have to talk to you, I have a question strategically just to understand because you are making a lot of changes. Three areas. Firstly, CRE. Since you are the biggest player, have been, what are you thinking there in terms of outlook for that business, including your UK commercial real estate mortgage banking since you’ve cut back disclosure, is that a sign that you’re pulling that back a little? And lastly, Charlie, also your outlook for trading since assets are down sharply year-on-year, or your plans for trading?

Yes. Listen, CRE, I mean, as you can see in our disclosures is an extremely important business for us. We think we have a great franchise, which is made up of -- it’s the customer base, but it’s also the people that we have. We’re not -- our portfolio is not immune to losses that will inevitably be taken because of this environment, separate that out from we believe that we are hopefully more than appropriately reserve for that, but time will tell. The devil is in the detail when you talk about commercial real estate, in terms of -- it’s a very broad caption. But, when you look at who you’re lending to, what the structures are, obviously a big difference between hotels, retail, office space, the level of security you have. And so, I -- we continue to believe that done properly, it will continue to be a really important part of what we do. And we’ve got a team that reacts appropriately and actions they’ve taken certainly going even into COVID will serve us well. Trading, listen, I think, as I said before, Vivek, I think, you’re expanding the impact a little bit. I think, there’s no question that when we look at our corporate investment bank in addition to our commercial bank, when we’ve asked people to take actions to reduce balance sheet, that’s a place where we’ve gone. And it’s true on the deposit side, but it’s also true on the trading side as well, both in terms of customer financing as well as trading assets where possible. Again, I would say the same thing here. I think, our customers understand what we’re doing and why we’re doing it. They understand the position that we’re in. And I think when we’ve looked at where we’ve had to make reductions, it’s been with an eye towards when the asset cap does eventually go away, and we have a latitude to continue building as we were building in the past. We would expect to see more resources put there, certainly to bring us back in line where we were and then to build the business like we want to build the rest of our businesses at Wells.

Okay, great. One last one was mortgage banking, Charlie. Any color on that, your plans for that? Obviously, you’ve been a leading player. It’s a much bigger piece for you than the other G-SIFIs. What’s your thinking on that? You’ve cut back on correspondent. What are you thinking as you look ahead, given that you’ve cut back? That was just making me wonder.

No. Listen, I think, it’s -- home lending is a really important business for us to be in. I don’t -- when we look at what we want to do to serve consumers across Wells Fargo, home lending -- when I say consumers, I mean, both in our consumer and small business bank as well as customers that they deal with directly through their own channels as well as our wealth segment. Home lending products are extremely important to that relationship. We’ve got a great team there. As you know, Mike Weinbach runs all of home lending. Kristy Fercho joined us as the CEO of our Home Lending business. And I think, for us it’s going to be going to that next level of detail, which is really understanding on the origination side by channel, what does profitability look like, how do we continue to drive more profitability, how do we compete more effectively in digital originations where the banks generally have not done a great job versus what others have done. And on the servicing side being more thoughtful probably than we’ve been about portfolio by portfolio, what are the servicing economics, where do we think it makes sense for us to service, where does it not make sense for us to service. And so, I think what you’ll see is, us becoming -- putting a finer point on what that looks like from a service perspective and driving more profitability on the origination side, but it’s important for us.

Thank you.

Okay. Listen, thank you very much. Certainly, we appreciate all the time that you’ve put in, not just on this call, but we know the revised disclosures create a bunch of work for you all. But hopefully, it helps us have a better conversation going forward as we talk about what the future of the Company is. And as I said, I think, we’ve got a lot of work still to do. I believe we’re making great progress. And when these headwinds abate and the actions that we’re taking are reflected in our performance, I continue to feel really good about what the opportunity holds for us. So, thanks again for the time, and look forward to talking to you some more. Take care.

Ladies and gentlemen, this concludes today’s conference call. We thank you for your participation.