After reporting a record quarterly profit of $5.2 billion, Well Fargo's (WFC 0.64%) CEO John Stumpf and CFO Tim Sloan walked investors through the bank's various segments and answered several questions.
While Wells Fargo's management team doesn't receive the same level of press as the executives at Bank of America and JPMorgan Chase, Stumpf and Sloan offer some fantastic insight regarding where they see opportunity in the banking environment and what it means for investors.
On "too big to fail"
"We do not need additional legislation aimed at big banks. Important and significant regulatory changes have been made since the financial crisis, and we need to give existing regulations a chance to work, especially now, when all of our energy should be focused on creating growth and new jobs."
Stumpf is clearly communicating that he believe the steps taken by the Federal Reserve and the legislation enacted via the Dodd-Frank bill is enough to curb worries over too big to fail. Does too big to fail still exist? Most likely, but in order for the banking sector and the economy as a whole to move forward, less time needs to be spent on this issue.
On potential acquisitions
"The acquisitions that we have talked about being interested in would be mostly bolt-on businesses to our existing portfolio suite, of the kind of 80 different businesses we do here, and predominantly in the United States. So we have done some portfolios in the past. We are still interested in things around Wealth, Brokerage and Retirement. But I don't see that as a huge draw on our capital."
Since the bank is Warrenn Buffett's favorite financial institution, it is not surprising to hear Stumpf say the firm is open to bolt-on acquisitions that would not acquire a deposit base but rather add to other areas of growth. After deals dried after the financial crisis, it is encouraging to see strong companies, such as Wells Fargo, eyeing strategic moves.
On the housing market
"A year ago, our pipeline starting the second quarter was $79 billion; and now we're at $74 billion. And 35% of that $74 billion pipeline is purchase money activity. That is an increase from about 24% a year ago."
After around 75% of its 2012 mortgage origination volume was refinancing activity, that number is poised to fall as purchase volume increases. While refinancing undoubtedly benefits customers and the economy, as it results in more money in consumers' pockets, a healthy purchase market is certainly a huge positive for loan demand and broader U.S. economic growth.
On the end of QE
"We are actually positioned very well over the medium and longer term to benefit from an increase in interest rates again, as long as it is not such a large increase that it negatively affects economic growth. But we are positioned very well"
As deposits have rushed onto the bank's books, Wells Fargo has taken a cautious approach in the current low-rate environment. If economic growth picks up and rates begin to rise, the bank will be in a great position to achieve loan growth and wider interest margins.
Overall, Stumpf and Sloan remain very positive on the outlook for their business and the banking sector as a whole. Despite the mortgage volume slowdown, the bank seems well-positioned to potentially post record profits next quarter.