Wells Fargo Bank (WFC.US) Q3 Conference Call: Guidelines for Maintaining Overall Steady Annual Net Interest Income in Client Credit

The Zhitong Finance App learned that Wells Fargo Bank (WFC.US) announced mixed results for the third quarter before the US stock market on Tuesday. According to financial reports, Wells Fargo's Q3 revenue increased 2% year over year to US$21.87 billion, but fell short of market expectations of about US$22.32 billion; GAAP earnings per share were 1.87 US dollars, up 13% year on year, slightly higher than market expectations.

Q3 net interest income increased 5% year over year to US$12.52 billion, falling short of market expectations. The increase in net interest income was mainly driven by rising loan and investment securities balances, repricing of fixed-interest assets due to declining interest rates, and market business expansion, but was partially offset by lower returns on floating interest rate assets and rising costs of interest-bearing commercial deposits. Non-interest income was US$9.353 billion, down 1% year over year, mainly due to lower transaction income, lower rental revenue after the sale of railway vehicle leasing business at the beginning of the year, and declining venture capital income and mortgage bank revenue.

In terms of credit costs, the Q3 credit loss provision was US$1,029 million, far higher than the US$681 million in the same period last year. It mainly reflects an increase in reserves due to rising industrial and commercial loan balances, while commercial real estate reserves declined somewhat; net write-off of US$983 million, with an annualized net write-off rate of 0.38%, which is basically the same as the same period last year.

Wells Fargo management said during the Q3 earnings call that the company continues to advance its growth strategy and is making progress in terms of revenue, profitability, loan and deposit size, and return on capital. Management remains optimistic about the US economy and customer credit conditions in general, but also emphasizes the potential risks posed by inflation, interest rates, geopolitics, and the AI investment cycle. Overall, Wells Fargo is driving continuous improvement in profits and shareholder returns by expanding its customer base, strengthening investment banking and wealth management business, improving operational efficiency, and deploying artificial intelligence and digital payments.

Wells Fargo maintains a net interest income forecast of around $50 billion for the full year of 2026 and expects the fourth quarter to be around $13 billion, with a net interest spread the same as the third quarter. Management expects growth in loans and deposits in the fourth quarter, repricing of fixed-rate assets, and increased balance of investment securities to continue to provide support. Since the company's overall asset side is slightly sensitive to changes in interest rates, net interest income is expected to benefit from rising interest rates after excluding market business; however, the sensitivity of market business to interest rates is more reflected in the debt side, and the related negative effects are expected to be largely offset by non-interest income.

Here are the details of Wells Fargo's Q3 earnings call.

I. Management speech

Charles Scharf — CEO and Chairman

I'll start by talking about our performance and the growth momentum we've seen across all areas of our business. Afterwards, I'll leave the meeting to Mike, who will give more details about the third quarter results, and then we'll answer everyone's questions.

Please see page 2 of the presentation first. Third-quarter results reflect broad business growth, higher profit levels, and stronger returns.

Earnings per share rose to $1.87 in the third quarter, up 13% year over year. Our return on tangible common equity (ROTCE) rose from 14.7% in the first nine months of 2025 to 16.2% in the same period this year, and reached 16.3% this quarter.

Revenue increased 2% year over year, and all operating business segments achieved growth. However, as expected, revenue growth was partially offset by a decline in venture capital revenue and a decrease in leasing revenue after the sale of the railway truck leasing business in the first quarter.

Revenue from the wealth and investment management business increased by 12%, commercial banking by 6%, consumer banking and loan business by 5%, and corporate and investment banking by 3%. Among them, banking business grew by 8%, but this increase was partially offset by a moderate decline in the commercial real estate market.

The market business was expected to achieve higher revenue growth, but was affected by a slowdown in market activity in the last few weeks of the quarter. Despite this, our stock business continued to perform strongly, with revenue up 21% year over year.

In banking, we continue to achieve strong results in key areas where we continue to focus our investments. Revenue from mergers and acquisitions increased 30% year over year, while stock capital market business and investment grade bond underwriting expenses both increased 33% year over year.

Spending was slightly lower than in the same period last year. As was the case in previous quarters, revenue-related spending increased 15%, but non-revenue-related expenses fell 4%, with the latter falling more than the former. This shows that while we continue to invest, we are also continuously improving operational efficiency.

The number of employees continued to decline: 2% month-on-month in the quarter, 8% year-over-year, and 30% lower than the peak in the second quarter of 2020. The number of employees has been declining every quarter for the past six years.

Since 2026, we have experienced strong growth in both loans and deposits. The average loan balance and average deposit balance for the third quarter both increased 11% year over year. This growth covered a wide range, with both commercial and consumer business loan and deposit balances rising.

Next, please see page 3. All of our businesses have performed well.

Let's talk about consumer banking and loan business first. The growth in the number of major consumer checking accounts is a key measure of the progress of our business. This quarter, we continued to see growth and achieved the 14th consecutive quarter of year-over-year growth. Branches and digital channels have become more active, product supply has improved, and continued increase in marketing investment have jointly boosted the number of new account openings.

Our tiered service strategy for our affluent customers has also paid off well. Premier's high-end customer assets increased 10% year over year. We continued to increase our talent investment, and the number of bankers and financial advisors in our Premier business both achieved double-digit year-over-year growth.

We have been investing in the commercial banking business and have added more than 130 commercial banking personnel in the past year. We are already beginning to see initial results from these investments, including a 9% year-over-year increase in checking account openings and a 61% year-over-year increase in credit card account openings.

Importantly, we remain disciplined when it comes to credit, and our growth is mainly focused on customers we already have deep relationships with.

Credit card revenue increased compared to the same period last year and the second quarter, and balances and consumer transactions both increased. In the third quarter, we added over 660,000 new accounts. The branch channel's account opening performance was once again very strong, enabling us to reduce our reliance on third party channels.

The number of car loans issued increased 15% year over year, and the average balance increased 31% year over year.

Although our loan business continues to grow and our customer base remains strong, our underwriting standards take full account of the fact that the consumer credit environment will one day weaken. What needs to be clear is that we are not seeing any signs of this yet, but we know that changes in the economic cycle are inevitable.

Next, let's talk about wealth and investment management business.

Wealth and investment management clients' assets increased 11% year over year to $2.5 trillion. The average loan balance increased 16% year over year.

A few years ago, we identified this area as an important growth opportunity, and since then have continued to improve our products and processes to better serve our customers and expand our portfolio. We have invested heavily in technology platforms while expanding our investment capabilities to provide our advisors with a more powerful platform to better serve our clients.

These investments include the launch of new portfolio analysis tools and client proposal development tools for advisors, which utilize BlackRock's Aladdin Wealth technology.

This year, we've also increased the supply of alternative investment products on the platform by more than 30%. Additionally, we've just launched an AI-driven tool for financial advisors to streamline day-to-day workflows and help advisors get the information they need to better serve customers. This is the first of a series of features planned to be launched under our broader AI strategy for our wealth and investment management business.

Next, let's talk about corporate and investment banking.

In terms of banking, revenue increased 8% year over year and increased 13% so far this year. Our recruitment in the investment banking business has strengthened our customer coverage model and enhanced our competitiveness, which is reflected in improved market share. For example, our stock capital market share increased 84 basis points to 3.9%; based on the total number of US mergers and acquisitions announced, our ranking also rose from 9th place in the same period last year to 6th place.

It should be noted that although we are building an investment banking business and this business benefits from a strong market environment, it is still small compared to the company's other businesses. We don't think it will bring extraordinary returns at any particular time, but it has contributed and should continue to drive the company's return gradually in the future.

Market business revenue declined slightly year over year. The market environment was more difficult than in previous quarters, but we are still seeing the benefits of strategic investments. So far this year, market business revenue has increased 14% year over year.

Finally, I would like to focus on commercial banking. Our customer development strategy has driven strong growth in balance sheet size. The average loan balance increased 10% year over year, reflecting our continued success in attracting new customers and deepening existing customer relationships, as well as thanks to increased investment in our banking staff. The average deposit balance increased 16% year over year, reflecting the results of our deposit expansion initiatives. Even as we continue to adhere to prudent pricing discipline, we have managed to attract deposits from new and existing customers. We are also continuously increasing the proportion of commercial banking customers using our investment banking and marketing business, and the total related expenses increased 25% year over year. These results highlight the effectiveness of our investment in the commercial banking franchise system. These investments are driving customer growth and increasing the diversity of revenue streams.

More broadly, we're accelerating investment in traditional and digital payment solutions to serve consumers and businesses. We believe tokenized deposits can bring important benefits to the businesses we serve.

Last month, we launched tokenized deposits on our blockchain platform, providing a more efficient way for corporate and commercial customers to transfer funds. As the platform continues to expand, customers will be able to transfer funds across accounts and borders 24 hours a day, 7 days a week without changing the way they do business with us.

Currently, the application scenarios for stablecoins in the US market are still unclear, but we are building relevant solutions to prepare for potential opportunities as they arise.

We are cooperating with 20 other international financial institutions to establish a new company and plan to issue stablecoins starting in the first half of 2027. The product will support wholesale, institutional and retail application scenarios, and provide customers with a trustworthy form of digital currency that can not only improve cross-border payments, but also facilitate digital asset settlement.

We are investing significant management time and resources to build artificial intelligence capabilities and create value. This work involves many aspects. Internally, we use artificial intelligence to write code faster. Over the past year, this technology has evolved from a tool to assist programmers to be able to use autonomous agents where appropriate. We use these technologies to increase the branch's business carrying capacity and revenue, accelerate marketing campaigns; help identify, write, and test code to fix previously unknown cybersecurity vulnerabilities; and improve and simplify risk management processes.

Externally, we use artificial intelligence to improve the customer experience, including helping customers complete common banking tasks such as making payments, changing bank cards, and obtaining spending analysis; while speeding up credit approval decisions and responding to customer complaints. We will also evaluate whether third-party models and agents can provide added value to customers, and consider the potential risks these tools may pose to customers and Wells Fargo itself.

Our focus of work was recently recognized by the Competent AI Banking Index. The index independently tracks the artificial intelligence maturity of the world's leading banks. Based on the index's assessment of the four core pillars of talent, innovation, leadership, and transparency, our global ranking rose to 5th place and 3rd place in the US.

We're excited about the opportunities artificial intelligence can bring to our customers and companies, while managing the associated risks in a prudent manner.

Judging from the external environment, the US economy continues to be strong. Despite the uncertainty caused by stubborn inflation, the Middle East conflict, ongoing fiscal deficits, and volatile energy markets, strong labor markets and wage growth, corporate investment, productivity-related investments, infrastructure spending, and an unprecedented wave of technology-related capital spending have surpassed many expectations.

As a result, real GDP growth has maintained a good momentum, and the third quarter is expected to perform strongly. Consumers are still one of the most important sources of resilience in the US economy; however, rising prices are still dragging down consumer confidence.

I'd like to highlight our customer trends. Consumer spending remains strong. Debit card spending increased 8% year over year. All consumer categories generally increased, and the growth rate was higher than 5% in the third quarter of last year. Credit card spending increased 12% year over year. Driven by strong new account growth, our growth rate is among the highest in the industry. Meanwhile, consumer credit conditions remain stable. Our write-off rate declined from the second quarter and the same period last year, and our early overdue rate was at an all-time low.

High-income households continue to benefit from strong asset prices, decent net housing values, and stable labor incomes. Low-income households are still more vulnerable to financing costs, inflation, and higher living and fuel expenses, but the overall situation appears to have stabilized.

American companies also continue to show resilience. Our corporate and commercial clients are doing well, demand for loans continues, and credit quality remains stable. The loss rate for commercial loans in the third quarter was only 18 basis points. Non-accrued loans declined compared to the second quarter and the same period last year.

Despite our strong data, we are always aware of the risks. Inflation and higher interest rates remain a drag, and the longer these factors continue, the more likely they are to put more pressure on consumers and business customers. Despite strong market performance, in the event of unexpected or large fluctuations, the impact could be transmitted to the wider economic sector.

The AI investment cycle itself has also become a complex macroeconomic force. Demand for semiconductors, networking equipment, power generation equipment, data center infrastructure, cooling systems, storage equipment, cybersecurity, and advanced manufacturing equipment continues to surge. The scale of investment in this area is getting closer to the infrastructure construction boom in the past, creating both significant opportunities and risks. These construction projects use a large amount of leveraged financing, and have also put upward pressure on prices in some industries and supply chains.

Despite this, the strong performance of the economy and the positive effects of these investments have so far outweighed the potential negative effects.

Before I end my remarks, I'd like to thank Chief Risk Officer Derek Flowers. He has played an important leadership role in strengthening our risk and control framework and risk management culture, laying the foundation for Wells Fargo's continued growth.

As we announced last month, Derek plans to retire early next year. Before Scott Powell takes over as Chief Risk Officer, Derek will work closely with him to ensure a smooth transition. Scott currently serves as Chief Operating Officer.

Finally, I would like to share a few comments.

We continue to make progress in building a company that continues to grow and is capable of generating high returns. Our return on tangible common equity continues to rise, and we are now gradually approaching our target of 17% to 18%. Although the time to achieve our goals will be affected by the market and credit environment, we are confident that this trend will continue and that our goals should be further improved in the long run.

Like any management team, we need to balance many factors, such as growth, risk, changes in interest rate expectations, inflation, and the opportunities presented by artificial intelligence, to name a few. However, our core direction remains the same: focus on the long term and continue to invest in people, products, technology, and marketing; at the same time, continue to steadily improve revenue and return in the short term, avoid taking excessive risks, and not drive growth in a way that deviates from Wells Fargo's long-term vision.

Now I'll hand over the conference call to Mike.

Michael Santomassimo — Senior Executive Vice President and Chief Financial Officer

Thank you, Charlie. Good morning everyone.

Charlie has covered the key drivers and business highlights behind our financial performance, so I'll start with page 4 of the presentation.

Our third-quarter results reflect our progress in strengthening the company's financial performance. Strong balance sheet growth, continued revenue growth, prudent expenditure management, and steady credit performance all contributed to another quarter of continuous double-digit growth in earnings per share and continued year-on-year improvement in return.

Next, please see page 6.

Net interest income increased by US$567 million year over year, or 5%; up 2% from the second quarter. The month-on-month increase was mainly due to an increase in loan and investment securities balances, the current quarter being one day longer than the previous quarter, the repricing of fixed-rate assets, and the impact of rising interest rates on floating interest rate assets.

The net interest spread was the same as in the second quarter. Increased loans and increased returns on almost all types of interest-bearing assets, including the impact of repricing of fixed-rate assets, were offset by continued growth in interest-bearing deposits. This result was better than we expected at the beginning of the quarter due to slightly higher cash and securities balances, slightly lower financing costs, and further improvements in the efficiency of capital deployment on market business balance sheets.

As the overall size of our market business balance sheet continues to expand, we are becoming more and more efficient in deploying capital. Progress this quarter has surpassed our initial expectations.

As the stock financing business continued to expand, we obtained greater net settlement income. In terms of the fixed income business, we are implementing a more efficient financing structure, including sponsored repurchase transactions (sponsored repos) supported by sponsors and other balance sheet optimization solutions.

I'll talk about our net interest income expectations for the full year later.

Next, please see page 7.

The average loan balance increased by 11% to $105 billion year over year, mainly driven by growth in commercial and industrial loans, and demand for these loans remains healthy. Committed loan amounts for commercial banking and corporate and investment banking services continued to increase, while the usage rate of the credit was relatively stable. In terms of consumer business, car loans, securities mortgages, and credit card loans are still the main drivers of growth.

Next, let's talk about deposits. Average deposit balances increased by 11% to $143 billion year over year, up 1% from the second quarter. Commercial interest-bearing deposits continue to grow strongly, reflecting continued customer demand for high-yield products and the results of our targeted growth initiatives. Consumer deposit balances increased year over year, but declined slightly from the second quarter, reflecting seasonal outflows.

Next, please see page 8. Non-interest income fell 1% year over year. Growth in multiple categories, including investment advisory services fees, deposit-related fees, investment banking revenue, and bank card fees, reflects the continued growth of our continuing investment business. However, the decline in transaction revenue was even greater, offsetting this increase, although our market business revenue declined only slightly year over year.

After the sale of the railway truck leasing business in the first quarter, leasing revenue declined; at the same time, the decline in stock securities earnings also had an impact on non-interest income. In the third quarter, we achieved only a small amount of net income from stock securities. Currently, we expect this portion of earnings to remain at a low level in the fourth quarter.

As we've emphasized many times before, venture capital performance may fluctuate significantly from quarter to quarter, but we still expect long-term returns to remain strong. Notably, in the first half of this year, we achieved more than $1 billion in stock investment returns, which is in line with our historical annual average. Therefore, even with little return on investment in the second half of the year, we can expect steady results throughout the year.

Next, please take a look at page 9 and talk about expenses. Non-interest expenses decreased by US$103 million year on year, and the efficiency ratio improved to 63%, down 2 percentage points year over year. Personnel expenses have declined, mainly due to lower severance costs. The cost of dismissal for the same period last year was $296 million. There has been an increase in revenue-related compensation expenses, but this has been largely offset by benefits from efficiency improvement initiatives. Non-personnel spending increased year-on-year, mainly driven by rising spending on technology and technology and equipment.

Next, please take a look at page 10 to talk about credit quality.

In the third quarter, our credit performance continued to be strong, with an average net loan write-off rate of 38 basis points, lower than the same period last year. The net write-off rate of commercial loans remained the same year on year, but increased by 8 basis points from the second quarter to 18 basis points. We continue to monitor various macroeconomic and industry-specific risks, including rising interest rates, inflation, geopolitical uncertainty, and industry disruptions related to artificial intelligence.

So far, however, we have seen no signs of widespread deterioration in credit quality. Loan losses are still individual and are mainly driven by the specific circumstances of a particular borrower. Consumer credit performance was strong, and various loan portfolios performed well, and the net write-off rate of consumer loans fell to 70 basis points.

Compared to the second quarter, our overall loan provision coverage rate was relatively stable. The increase in the balance of commercial loans and auto loans drove a slight increase in provisions, but this was largely offset by a reduction in provisions for commercial real estate office loans.

Next, please take a look at page 11 to talk about capital and liquidity.

Our capital level remains strong, with a common share Tier 1 capital (CET1) ratio of 10%, which is significantly higher than the sum of the CET1 regulatory minimum requirement of 8.5% and capital buffer. Compared to the second quarter, the CET1 ratio declined, partly due to a decrease in cumulative other comprehensive income (AOCI) due to rising interest rates. We plan to continue maintaining the CET1 ratio within the target range of 10% to 10.5%.

In the third quarter, we raised our common stock dividend to $0.50 per share and repurchased $2.5 billion of common stock. Looking ahead, we will continue to consider the interest rate environment and the impact of interest rate changes on cumulative other comprehensive income when determining the scale of share repurchases.

Also, I would like to remind everyone that the Federal Reserve is expected to finalize the Basel III capital rules. Based on the relevant proposal, we estimate that risk-weighted assets may be reduced by approximately 7%; this will increase our CET1 ratio if other conditions remain the same.

On pages 12 to 15 of the presentation, we described the situation in each operating business segment.

Charlie has explained the main drivers of revenue growth for each business, so I'll add a few brief points.

Let's talk about consumer banking and loan business first. We achieved steady revenue growth while reducing expenses, and the return on allocated capital rose to over 32% in the third quarter. Commercial banking revenue grew well. Coupled with prudent expenditure management, its efficiency ratio improved from 48% in the same period last year to 43% in the third quarter.

Next, let's talk about corporate and investment banking. Banking revenue increased 8% year over year, with investment banking revenue increasing 10%.

I would like to focus on the market business because its performance fluctuates as the market environment changes. Although stock business revenue increased 21% year over year, total market business revenue was basically the same year over year, the third quarter's performance was not as good as the first two quarters of this year. At an industry conference last month, I stated that we expect the third-quarter market business revenue to grow by mid-single digits year-on-year. Actual results showed that the market environment in the latter half of the third quarter was more difficult than we expected. Interest rates fluctuated sharply in the last few weeks of September, putting pressure on fixed income valuations and significantly reducing customer activity, particularly strategic transactions, hedging activities, and activities related to the primary issuance market. At the same time, stock market volatility remains low, creating an unfavorable environment for our stock derivatives business.

Finally, let's talk about the wealth and investment management business, which has achieved strong results. I would like to remind you that most of the assets managed by advisors in our wealth and investment management business are priced at the beginning of each quarter. As a result, fourth-quarter results will reflect the market valuation as of October 1, which is higher than the level of July 1 and the same period last year.

Next, please take a look at page 17 to discuss our outlook for 2026.

Start with net interest income. We still expect net interest income for the full year of 2026 to be approximately $50 billion, which can fluctuate up or down. Net interest income for the fourth quarter is expected to be around $13 billion, and the net interest spread is expected to be the same as in the third quarter. We expect net interest income to grow faster in the fourth quarter than in the previous two quarters for several reasons.

First, we expect loan growth and deposit growth to continue to bring benefits. Second, the repricing of fixed-rate assets and the increase in the balance of investment securities will also continue to have a positive impact. As our asset side is slightly sensitive to changes in interest rates, we expect net interest income after excluding market operations in the fourth quarter to benefit from an environment of rising interest rates.

However, the sensitivity of the market business to changes in interest rates is mainly reflected in the debt side, so rising interest rates will have a negative impact on the net interest income of the market business, offsetting some of these gains. But this impact will be largely offset by non-interest income from market operations.

Next, let's talk about expenses.

We still expect non-interest expenses to be around $55.7 billion in 2026. Although annual revenue-related expenses are expected to be approximately $400 million higher than initially anticipated, mainly driven by strong growth in stock market business, our continued efficiency efforts are bringing more savings to the company, enabling us to offset the increase in revenue-related expenses.

The third quarter results reflect the strength of the company's business franchise system and the results of our continued successful execution strategy. We continue to drive profit growth, increase returns, and invest in our business while maintaining sound credit performance and prudent expenditure management. Strong performance in the first three quarters of this year highlights our continued gradual progress towards the goal of higher growth and higher returns.

II. Q&A session

1. John McDonald, analyst at Truist Securities

Mike, I'd like you to restate first the main drivers of the increase in net interest income you expect in the fourth quarter. Afterwards, I would like you to further clarify the statement about net interest income from market business and net interest income from non-market business.

I remember that your initial expectations for net interest income for the full year were that the market business contributed a portion of the $48 billion and the non-market business contributed $2 billion, thus reaching $50 billion. Does this expectation still hold true? Also, can you further explain the composition ratio between net interest income from market business and total net interest income in the fourth quarter?

Michael Santomassimo

OK, John, thanks for the question. I'll start with a brief review of what happened in the third quarter, then quickly transition to the fourth quarter.

In the third quarter, we saw an overall net interest spread stabilizing. However, if it is further split, it will be found that the net interest spread after excluding the market business has increased slightly; in other words, the net interest spread of this part of the business has increased.

As we enter the fourth quarter, you'll see this trend continue to play a role. In addition, our efficiency improvement efforts in market business balance sheet deployment have also brought benefits. I think this helps keep the overall net interest spread stable.

As a result, we still expect net interest spreads in the fourth quarter to be the same as in the third quarter.

Let me be more specific. Take our market business as an example; the fixed income financing business is a good example. Compared with the second quarter, the total financing balance of the fixed income financing business increased by about 18%, but the net financing balance declined. This is mainly due to our ongoing balance sheet optimization efforts, such as getting more customers to sponsor buyback deals, and taking other similar measures. We are very confident that we will be able to continue these optimizations in the future, and that the relevant results will be quite stable. As a result, this also lays the foundation for net interest spreads to remain relatively stable in the fourth quarter.

As was the case in the fourth quarter, we will begin to more fully benefit from many of the factors that were already initially evident in the third quarter. Look at the loan balance first. Entering the fourth quarter, the year-end increase in loan balances was clearly higher than the average balance for the third quarter. I remember entering the fourth quarter, the balance of loans at the end of the period increased by about $15 billion. Of course, it is necessary to take into account that commercial banking business has certain seasonal factors at the end of the quarter, but even so, the increase in loan balances is still greater. As a result, we will benefit from this growth in the fourth quarter. Deposits also continue to grow, so this portion of the increase will also contribute to the fourth quarter.

Furthermore, interest rates, yields, and the impact of repricing will continue to be reflected on the balance sheet. In the third quarter, with the exception of market business, almost all interest-bearing asset classes benefited from rising yields. This impact is expected to increase further in the fourth quarter.

As the fourth quarter progresses, net interest spreads after excluding market operations will expand further as a result. In addition, several other factors will also play a role, but these were the main reasons driving the growth of net interest income in the fourth quarter accelerated.

As for what I just said about net interest income from the market business, as the interest rate environment changes upward, our bank accounts are asset-side sensitive to changes in interest rates, so net interest spreads will expand, and the impact on interest rates will gradually become apparent. However, the market business is debt-side sensitive to changes in interest rates, so after entering the fourth quarter, the net interest income of the market business will be affected to a certain extent, but this impact will be offset by expense revenue.

As for the composition of net interest income of 50 billion US dollars for the whole year, our current best estimate is that net interest income from the market business will be slightly less than 2 billion US dollars, or about 1.8 billion US dollars. The remaining portion will be covered by net interest income from non-market operations, bringing the full year's net interest income to $50 billion.

John McDonald

Ok, that's very helpful. I know it's too early to discuss the 2027 net interest income guidance, but can you give us your initial views on next year's net interest income drivers? In particular, compared to the starting point of annualization in the fourth quarter, what factors are worth considering when planning? What factors are beneficial and which are likely to have negative effects?

Michael Santomassimo

First, judging from where we started at the end of the fourth quarter, the overall situation was positive. Interest rates appear to be rising, or at least remain high for longer than recently anticipated. This is a net positive factor. Our diverse loan portfolio continues to grow well. We expect that the credit card business, auto loan business, and commercial loan business will all continue to grow well, all of which will have a positive impact.

Furthermore, we have been quite successful in expanding the size of deposits, particularly with regard to interest-bearing deposits. I think all of these factors should continue after entering next year. Of course, these judgments need to be considered in the context of the macroeconomic environment. Despite some disturbing factors, the overall macro environment is still quite favorable.

We'll have a better start as we enter the new year. For example, net interest income for the fourth quarter is expected to be about 13 billion US dollars, which is about 700 million US dollars higher than the same period last year. Therefore, we will be in a better position to enter next year.

2. Scott Siefers, analyst at TD Cowen

Mike or Charlie, I'd like to ask you to talk about how your judgment on clients' financial status and economic resilience will change if interest rates remain high for a long period of time. Also, please discuss your views on commercial loan demand and how the previously well-growing portion of the consumer loan portfolio may change. Overall, I would like to understand the impact of continued high interest rates on economic resilience and growth dynamics.

Michael Santomassimo

Scott, I'm Mike. Let me answer that. You are also welcome to return to the conference call and begin your new role.

We've been living in this environment for a while: inflation has always been high, and interest rates have been high, despite recent increases in interest rates. The cumulative impact of these factors has been gradually being transmitted to the economy. But we see that some positive factors are offsetting some of these negative effects, particularly the continued strong performance of wages and the job market.

Overall, wage growth has largely kept up with inflation. Regardless of which customer group you look at, including customers with different income levels and wealth levels, the data shows that over the past few years, wage growth has basically kept up with rising prices. This supports the level of economic activity we are currently observing.

We haven't seen a deterioration in consumer credit conditions. Therefore, I think as long as the job market remains quite strong, we should be able to continue to see the consumer community maintain a high level of activity and steady performance.

Even if you look at energy and gasoline prices, their impact is certainly not negligible, but depending on the customer's wealth or income level, energy and gasoline expenses account for about 3% to 6% of total expenses. This is still manageable, and people are able to offset some of the impact by reducing other categories of spending.

Overall, we're seeing a pretty strong consumer situation. As long as the economy continues to grow and the job market remains stable, this situation should continue. Currently, we haven't seen any signs that this trend is changing, whether in terms of the overall sentiment of the commercial customer community or actual consumer metrics.

As for commercial customers, rising interest rates do matter. But for many of our commercial banking clients, they have been quite cautious about using leverage over the years. As a result, despite Charlie's earlier reference to the AI capital expenditure cycle, they are still carefully managing inventory levels and investment sizes. They were in a pretty good financial position when they entered the current environment.

Of course, higher interest rates will definitely affect valuations in areas such as commercial real estate, but it will take some time before these effects are gradually reflected in relevant asset classes. As a result, up to now, despite rising interest rates and some concerns about overall market sentiment, the actual situation still looks pretty good.

Scott Siefers

OK, very good. Next I'd like to change the subject. Currently, investors have a lot of discussions on issues related to artificial intelligence. I'd like to ask you to share the view that with the development of artificial intelligence agents, it may eventually become much easier to identify idle cash and transfer it to higher-yielding alternatives. From a macro perspective, will the stickiness of deposits gradually decrease as technology continues to advance? What does this mean for the value and behavior of the massive low cost deposit base that Wells Fargo and the rest of the industry has?

Charles Scharf

OK, I'm Charlie. I'll answer that, and Mike can add.

I think our views are similar to those of many others: high-yield alternatives exist today, and have been around for a long time. If you want to get a higher interest rate, just go online and you'll soon be able to complete the transfer yourself. So this is nothing new.

As for consumers to hand over the power of money management to smart entities, and let them act unilaterally on their own behalf, transfer funds to financial institutions they don't know, or even the terms and conditions of the target account, I think this will take quite a while.

There is no doubt that smart devices will be part of people's interactions with financial services. We also have our own smart bodies and are developing more related tools. But the fear that these technologies will lead to large-scale capital flows to high-yield alternatives is, I think, grossly exaggerated, especially within the time frame we can foresee.

Also, I need to remind everyone that the reason people keep their money here is far more than just maximizing savings returns. They chose us because we are their primary payment account. Funds are constantly flowing in and out of their accounts. Our wholesale customers are very concerned about the cost per basis point and are willing to pay for some of the services we provide.

As a result, it is clear that smart devices will be useful tools, but I think that they will cause large-scale transfers of funds in the near future is completely exaggerated. For us, the real opportunity lies in using intelligent devices to better serve our customers and make it easier for them to use the services we can provide.

3. Ken Usdin, analyst at Bernstein Autonomous Research

I would like to ask a question about the efficiency of the use of capital and balance sheets. I noticed an increase in cumulative comprehensive income (AOCI), while the CET1 ratio and tangible common equity (TCE) also declined slightly. Meanwhile, your risk-weighted assets (RWA) haven't grown as much as in previous quarters. I want to know if you have different considerations about the future direction of growth and what assets should be placed on the balance sheet? How will these factors affect your expectations for capital levels and return on capital?

Michael Santomassimo

OK, Ken, I'm Mike.

In terms of how we think about growth, it's not that different. However, as I said earlier, we can continue to optimize as we deploy our balance sheet. Even some optimization work carried out in the market business reduces balance sheet usage while maintaining the same customer activity. As a result, risk-weighted assets corresponding to some businesses will also decrease. Judging from the growth over the past period, the areas we expect to continue to grow in the future are still familiar businesses.

On the consumer side, we continue to expect the credit card and car loan portfolio to grow. I don't think there will be much growth in the home loan business.

On the commercial side, we are seeing very good loan growth. This can be seen in commercial banking as well as in some areas of corporate and investment banking. The exact rate of growth will vary from quarter to quarter, depending on the current business environment and opportunities that can be grasped.

As for the market business, we remain confident that we will continue to expand the scale of this business. We've seen many customers respond positively to our platform, and there are good opportunities to deepen existing customer relationships or attract new customers to join. Therefore, we still believe that the business has considerable room for growth, and we will continue to work to increase the level of return for the entire company.

Charles Scharf

Let me add one more point.

I think we have a lot of flexibility in terms of overall capital management. As Mike said, we're growing, but we're also very focused on risk-weighted assets and have the ability to manage them. Our quarterly profitability is around $6 billion. After deducting dividends, this portion of profit can contribute about 30 basis points to the CET1 ratio each quarter.

Furthermore, interest rates themselves will also change. Interest rates have fallen back from their previous levels. As a result, we have the flexibility to continue to drive business growth while managing capital and continuing to return capital to shareholders over time, as we have always done.

Kenneth Usdin

Understood. There is also a question about deposit beta. Considering that your growth structure has changed since the asset cap was lifted, and commercial deposits have apparently continued to grow, do you think that in this round of interest rate increases, the deposit beta may be different from the previous interest rate hike cycle?

Michael Santomassimo

Currently, we don't think the deposit beta will be much different from the previous cycle. I think the performance after the rate hike in September is a good example.

In the corporate and investment banking business, the deposit beta will be significantly higher than in other businesses. However, the actual situation is basically in line with our established plan to deal with rising interest rates. At least so far, the beta is even slightly lower than our expectations.

The deposit beta of commercial banking is far lower than that of corporate and investment banking, and is also largely in line with our expectations.

As for the consumer business, the key is how we manage interest rates on time deposits and launch high-yield savings promotion products through branches. The rest of the consumer deposit portfolio is actually quite stable and hasn't changed much in terms of interest rates.

Overall, everything is exactly as we expected so far. We currently don't think that the deposit beta for this cycle will be significantly different from the previous interest rate hike cycle.

4. Bank of America analyst Ebrahim Poonawala

My first question is about investing in a business. Charlie, you just introduced Wells Fargo's investments in commercial banking, wealth management, etc., but you didn't specifically mention payment services. These investments have been ongoing for several years. Looking ahead to the next 12 to 24 months, how should we view the monetization of these investments under the assumption that the macro environment remains stable? Which areas have begun to show return on investment, and which areas still need to be gradually realized in the future? Please help us sort out which businesses are likely to see stronger growth momentum as we enter next year, and which areas have been able to more clearly turn investment into revenue over the past few quarters?

Charles Scharf

Of course, Ebrahim.

Interestingly, when we review performance, we look at various indicators such as checking account growth, credit card account growth, commercial bank loan growth, growth in various loan products, and growth in the total assets of wealth management business customers.

I just tried to explain that in the entire business system, with the exception of the home mortgage business, these metrics are growing in almost all of our businesses.

Also, look at revenue growth, which I have already introduced in my prepared speech. Revenue from the wealth and investment management business increased by 12%, commercial banking by 6%, consumer banking and loan business by 5%, and corporate and investment banking by 3%. Within the corporate and investment banking business, we also achieved strong growth in our key development areas: M&A business grew 30%, equity capital market business grew 33%, and investment-grade underwriting business grew 33%.

So when we compare our past investments with the results we have achieved so far, we can clearly see that the investment is paying off. When evaluating the stage of investment and return, I think the consumer banking business is probably still in a relatively early stage, because over time, we have to solve some basic issues first. We're competing with competitors who have been investing continuously for 10 or 20 years, and we've only been investing in this area for 2 years. Therefore, even though the consumer business has grown, we hope that our core consumer business and small business will further accelerate growth.

We expect to continue to see similar growth in the credit card business; the same is true for the auto loan business; the same is true for the commercial banking business. As for corporate and investment banking, some sectors may continue their current performance, but market business is also likely to bring about broader growth.

Overall, we have achieved a 13% increase in earnings per share, our return on tangible common equity continues to rise, now exceeding 16%, and our return continues to improve as our extensive business grows. We expect this trend to continue. Therefore, we are confident that these results will continue to be achieved in the future.

Ebrahim Poonawala

This helps a lot. I have another curious question. I understand that tokenization is not a factor that can significantly change the overall performance of the company, but you also specifically mentioned tokenized deposits in your prepared remarks. Can you describe the potential size of the business involved? Do you expect tokenized deposits to be used significantly in the marketplace business or commercial payments business? Will this create a meaningful opportunity for Wells Fargo from the perspective of investing and expanding customer wallet shares? Please help us quantify as much as possible.

Michael Santomassimo

OK, Ebrahim, I'm Mike.

I would like to say that we are starting a tokenized deposit payment business, first of all to better meet our customers' cross-border payment needs. There are currently many discussions about the shortcomings of the current payment system, such as cross-border payments taking too long and not being transparent. I think this technology will allow us to completely transform the payment experience for our customers.

In the past, funds could take a day or two to reach their destination. Now, the relevant system has been put into production and operation. Although the transaction volume currently being processed is not large, we have been able to complete the entire process from initiating a payment to entering the payee's account within two minutes. This has completely changed the experience we are able to offer our customers.

From a broader perspective, we don't have the same extensive network of international branches as other large global financial institutions. This technology allows us to enter the cross-border payments market in a completely different way, and provides solutions that are comparable or even superior to many of our peers. As a result, over time, it can expand the markets we can serve without having to invest heavily in setting up local teams around the world.

Furthermore, this technology has given us blockchain infrastructure. As other application scenarios mature, we can develop more businesses, such as real-world asset tokenization, securities tokenization, cryptocurrency trading in wealth management businesses, and various other uses.

Therefore, this technology has brought us some real benefits, can expand the serviceable market for payment services, and also provides room for choice for a large number of potential future application scenarios. It remains to be seen when these scenes mature and become more meaningful.

5. Morgan Stanley analyst Manan Gosalia

I would like to ask about the deposit structure. As you mentioned before, interest-bearing commercial deposits will take the lead in deposit growth, while lower cost operating deposit balances will gradually increase over time. Can you help us determine when the deposit structure is likely to begin to improve continuously? Is the interest-free deposit balance also about to reach an inflection point?

Michael Santomassimo

I think you should probably not pay too much attention to deposit structures and pay more attention to the growth of total deposit amounts. We still believe there are significant opportunities for growth in interest-bearing deposits. As I said on this conference call and on other occasions, these deposits can provide good long-term returns, while also being accompanied by income from related business expenses such as payments. Therefore, these deposits are very valuable in the long run.

Interest-free or low-interest deposits will gradually increase as we expand our consumer business. As Charlie just said in his speech, the growth momentum of consumer businesses is increasing, and these businesses will bring in interest-free or low-interest deposits.

At the same time, as we continue to expand our fund management and payment business in our commercial business, customers will also keep interest-free deposits with us to meet their various payment needs. These changes will take longer to fully manifest and result in more meaningful growth. As a result, as we continue to deepen our relationships with many of our customers, I think interest-bearing deposits will continue to grow at a faster rate for some time.

Manan Gosalia

Understood. Next, let's talk about expenses. The annual spending guide means that fourth-quarter spending was around $14 billion, up from the current quarter. How much of this is due to timing of investments and other expenses? Can this level be an appropriate starting point as we consider spending next year?

Michael Santomassimo

Spending usually increases from the third quarter to the fourth quarter. If you look back at the situation over the past few years, you'll notice this pattern, so it doesn't mean that the fourth quarter included any special elements. I think we are currently making steady progress towards meeting the annual spending guidelines, which may even be slightly better than expected.

As for next year, without providing specific figures, I would like to emphasize that the fourth-quarter spending was not an appropriate starting point because it did not take into account the work we will continue to do to improve efficiency.

As we have emphasized time and again, we still believe that there are plenty of meaningful opportunities for improving efficiency. As a result, as we enter into next year's budget discussions, we will continue to use the same approach that has been the same for many years: requiring each business unit of the company to achieve meaningful efficiency improvements.

At the same time, we must continue to make the investments we hope to make, and we must deal with inflationary pressures on wages and other items. Ultimately, these factors will be comprehensively reflected in annual expenditure figures. As a result, we still expect significant efficiency improvements next year to offset some of the cost increase.

Charles Scharf

Let me add a few more points.

First, from the perspective of the company as a whole, we are very focused on driving business growth in a smart and organized way. We've talked about this many times, and also explained where we saw growth opportunities.

In terms of expenditure management and the measures we have taken, since we joined the company, we have continued to improve efficiency and put saved resources back into the business. Even during this quarter, revenue-related expenses increased — mostly commissions calculated according to the formula — and our total expenses remained generally flat or declined. This fully shows that we have a variety of management methods that can be used flexibly. Our focus is on building a company with a higher intrinsic return and a more efficient operation.

When we're asked about artificial intelligence, people often talk about intelligence and other similar technologies. I personally believe that the market may be underestimating the benefits that companies with the advantage of scale can obtain in the age of artificial intelligence. When it comes to serving our customers, we have a huge advantage, both developing tools for our customers and being able to deploy these tools on a large scale.

The same is true when it comes to spending. We can develop an agent that takes on part of the work in a call center or place of operation. Even if we spend the same amount of money to develop and operate this agent as other companies, we can deploy it to the company's wider business. As a result, in the age of artificial intelligence, scale is even more important than ever.

I know this might not be true, but I hope everyone can understand what I mean. I think this advantage is reflected not only in how we serve our customers and drive revenue growth over a period of time, but also in our ability to continuously improve efficiency. Greater efficiency allows us to control spending while reinvesting money in other areas. As these models evolve, this opportunity is gradually unfolding, and we are very positive about it.

6. UBS analyst Erika Najarian

I have a few follow-up questions. First, there is the issue of capital. When confirming your ratings on October 5, Moody's mentioned that according to the Basel III Endgame (Basel III Endgame), they estimate that your risk-weighted assets could be reduced by 7%. However, they also stated that if Wells Fargo maintains a CET1 ratio at the low end of the 10% to 10.5% target range, it will have a negative impact on credit ratings. I know they are making this comment in the context of the Basel III Final Plan.

But considering your current CET1 ratio is 10%, and the multiple growth opportunities mentioned in this conference call, how should investors view the priority of share repurchases and the absolute repurchase scale compared to the current CET1 level? Will this review by Moody's influence your capital management considerations?

Michael Santomassimo

OK, Erika, I'm Mike.

I think you've probably read this comment too deeply. I understand what they mean is that if risk-weighted assets drop drastically and you manage your capital ratio below 10%, this could mean a $13 billion reduction in capital according to their analysis.

I think the key is to understand this statement in context. From the perspective of rating agencies, a reduction in capital is clearly not as beneficial as an increase in capital. Moreover, from now until the relevant rules are finally implemented, there are many things that need to be developed. So I'm not going to overinterpret this.

Regarding our capital priorities and capital management methods, we have already reiterated in our prepared statement that we plan to maintain a capital ratio between 10% and 10.5%. Based on our assessment of growth opportunities and the risks of the quarter, we will decide whether to recapitalize through share repurchases. This is what we have been doing for many years. As Charlie said before, we believe the company will be able to buy back a fair amount of shares over time.

We've done a lot of buybacks over the past few years. However, in any given quarter, the size of the buyback will ultimately still depend on our assessment of growth opportunities and associated risks. Stock buybacks are the last reconciliation tool used after these assessments have been completed.

Charles Scharf

I'd like to further emphasize what Mike just said.

Obviously, we take the company's credit ratings very seriously, and we are also very concerned about the opinions of rating agencies. Based on our current situation, we believe we still have considerable flexibility in the use of capital and will not damage the company's credit rating as a result. As Mike said, we're happy with our proposed range of capital management.

Furthermore, we also look forward to risk-weighted asset adjustments that may be brought about by the Basel III Final Plan, which should benefit us. Our quarterly profitability was also strong. By taking these factors together, we are able to use our balance sheet to serve our clients and return capital to shareholders. Therefore, we don't think this review by Moody's would limit any steps we are considering.

L. Erika Penala

My second question followed John's question about net interest income. The exit operating rate of net interest income in the fourth quarter meant a growth rate of around 4% to 5%. Obviously, this growth rate is based on a net interest spread of 260 basis points in the fourth quarter of 2025. Can we consider 4% to 5% a reasonable growth range when considering 2027?

Also, Mike, sorry, my question is more complicated. I'd like to confirm the deposit beta calculation again. The last cycle we calculated, from the fourth quarter of 2021 to the second quarter of 2024, Wells Fargo's deposit beta was approximately 46%, compared to 55% for J.P. Morgan and 52% for Bank of America. I want to confirm that when you say that the deposit beta for this cycle should be similar to the previous interest rate hike cycle, do you mean that Wells Fargo will continue to be superior to its peers in terms of deposit beta?

Michael Santomassimo

OK. If I've missed one of your questions, Erika, please alert me. I'll try to answer as many questions as possible.

Let's talk about deposit beta first.

I think you have to look at each component of the deposit base separately. Our deposit structure is undergoing some changes. However, if we look at each deposit category one by one, we don't expect its beta to be significantly different from the previous cycle. If you compare this to the previous cycle, consumer deposits made up a larger share of our total deposits at the time, so the overall beta was lower.

Today, we're expanding the size of commercial deposits, so the overall deposit beta will be slightly higher. But this is a positive phenomenon because it reflects an overall increase in the size of deposits. As for how it actually compares to peers, it depends on the deposit structure and the respective proportions of consumer deposits and commercial deposits.

Therefore, I think it is necessary to standardize and adjust the deposit structure before making comparisons. However, we expect that the beta for each deposit category itself will not be significantly different from the previous cycle. As for how to look at the starting point of 2027, as always, we will provide more detailed guidance in January next year. However, strong performance in the fourth quarter will clearly put us in a better position to enter next year.

7. KBW analyst Chris McGratty

Mike, in your prepared statement, or Charlie mentioned in your statement, that market business and banking are currently not the main income statement drivers driving return on tangible common equity (ROTCE).

My question is: if you consider your long-term goal of 17% to 18% return, is this exactly what you want to achieve? Or might you consider investing more capital into these businesses to achieve this goal?

Charles Scharf

OK, I'd like to clarify what I meant.

These businesses are important to drive and improve our ROTCE. As these businesses continue to grow, we do expect them to contribute incrementally to the company's overall return. I just wanted to say that when you look at Wells Fargo, you'll find that our revenue is around $80 billion. However, revenue from expenses such as mergers and acquisitions and the stock capital market accounts for a relatively small proportion of the company's overall revenue.

Therefore, even if a major market event or major transaction occurs, the impact on our overall performance will not be as significant as it was for some other companies, since these businesses still account for a small share of our revenue in any given quarter.

Some competitors will participate in very large underwriting projects and receive very high fees; or achieve very strong transaction results when the market environment is extremely favorable. We are also involved in these businesses, but since these businesses make up a relatively small part of our overall business structure, we won't benefit to the same extent.

I don't want everyone to misunderstand me. These businesses are critical to our current return and future return improvements. I just wanted to emphasize that compared to some other companies, we don't think these businesses will have a particularly significant performance contribution in any single quarter.

8. Matt O'Connor, analyst at Deutsche Bank

I'd like to take a closer look at a few areas of the consumer business. The first is the credit card business. What stage in the credit card life cycle are the new accounts brought about by some of your previous promotions? Judging from the data, the yield is relatively stable, but overall revenue growth is good. How should we determine the maturity of these new account promotion accounts, that is, what stage in the credit card life cycle are they currently in?

Michael Santomassimo

OK, let me provide some details.

Looking back at our past business development history, our first new product, Active Cash Card, was launched in the summer of 2021. Over the past few years, the scale of newly issued card batches has gradually expanded. In particular, in the past two years, the number of new card batches has far surpassed any period before. The first card issuance batch is gradually maturing, and its performance is basically in line with our expectations. However, the recent batch of cards is larger, so their full profit contribution has not been fully reflected.

Looking ahead, I don't expect a sharp jump in the number of new cards issued. I expect that over a period of time, we will maintain the number of new cards issued each quarter at around 600,000 to 700,000. As the recent maturing of several wholesale cards, their profitability will be more fully reflected in the income statement, and their contribution will also increase markedly. I think this situation will gradually emerge starting next year, and will become more obvious in subsequent years.

Charles Scharf

I want to add one thing very clearly: this means that profits will increase, and so will return. We've been talking about this trend for a while. Now, as the number of new cards issued stabilizes and the relevant card issuance batches mature, we should begin to see these businesses have a more obvious impact on the company's overall performance. This is a very positive development.

Matthew O'Connor

Ok, this helps a lot. Let's talk about the car loan business again. Over the past few quarters, you've been quite active in scaling up car loans, while some of your smaller competitors have begun to shrink their business. How do you maintain a reasonable rate of return and spread in this environment, given that some competitors claim that spreads have narrowed to unacceptable levels?

Michael Santomassimo

This is a great question and we've spent a lot of time discussing it. I think there are a few factors that help explain our current situation.

First, about a year ago, or about 15 months ago, we established a partnership with Volkswagen and Audi. This partnership continues to contribute to our loan issuance volume, and the current returns from related businesses have basically met our expectations, and the performance has been quite good. We have also established partnerships with a number of other car manufacturers, which have generated good business traffic and contributed to core business returns.

Additionally, as we've said before, we're working to become a lender that covers a wider customer base. In the past, we mainly focused on high-end groups of high-quality credit clients. Today, our business scope is gradually expanding to marginal groups close to the premium customer level. As a result, we are also able to get good returns from these loan disbursements.

Charles Scharf

We are now issuing more loans to borrowers close to the edge of the premium customer tier than in the past.

Michael Santomassimo

Yes. If you look at this type of high-risk loan, it only accounts for about 5% of our total loan issuance, but it also contributes to the return we have achieved. Of course, we will continue to evaluate this situation. If interest rates remain high, returns may be squeezed further. Therefore, we evaluate the performance and risk of the relevant business on a quarterly basis. So far, though, we're happy with the new loan business this year.

9. Evercore ISI analyst John Pancari

Mike, with regard to trading business and investment banking revenue, this quarter's transaction revenue was slightly lower than expected. Fixed income, foreign exchange and commodity (FICC) business revenue was under some pressure, and investment banking revenue was also slightly weak. Can you further explain the potential trends and how do you view the subsequent performance of investment banking revenue given current trading reserves? Also, with the current interest rate environment likely to fluctuate, what are your views on the trading business?

Michael Santomassimo

Of course.

Let's talk about investment banking first. Our company-wide investment banking revenue for the quarter was just under $900 million. I don't think this is a bad result, given the developments of the past two years. Among them, revenue from the merger and acquisition business increased by 30%, and the stock capital market business also achieved significant growth. However, the contributions of leveraged financing and investment-grade underwriting business were not as prominent as in some other quarters.

Overall, we are still gradually increasing our market share, which is exactly what we expect from continued investment over the past few years. The specific performance of any quarter depends on whether individual deals can be completed. However, we believe there is still a lot of room for growth in investment banking business fee income. We continue to invest in multiple customer coverage segments, particularly technology, healthcare, and some industrial sectors. As a result, we believe there are still plenty of opportunities for further growth in the investment banking business.

Another aspect we are very satisfied with is that our efforts to reach commercial banking customers have begun to pay off significantly. Expenses and revenue contributed by commercial bank customers increased 25% year over year. Compared with the level where this work was first promoted three or four years ago, the increase is also quite impressive. Therefore, we believe that there are still meaningful growth opportunities in this area.

As for the market business, if you look at it separately, the net interest income portion is debt-side sensitive to changes in interest rates. As a result, when interest rates rise, net interest income will decline, and the corresponding revenue structure will shift more to expense income. Therefore, to judge the overall performance of the market business, it is necessary to observe its total revenue.

The total revenue of the market business this quarter was basically the same year on year, which also included the impact of the slowdown in market activity in September. However, looking at a longer time span, we still believe that the opportunity to expand the size of the market business and increase total revenue is as important as previously mentioned. We have always believed that this business has great potential for growth, and this is still the case.

We are progressing the relevant work in an orderly manner, including further improving the efficiency of balance sheet deployment, introducing new customers, deepening existing customer relationships, and expanding the scale of the financing business, and driving the growth of the trading business based on this. Therefore, we still believe that the overall revenue of the market business still has considerable room to rise in the future.

John Pancari

OK. Next, let's talk about credit. I'm happy to hear that the financial situation of consumers and business customers is generally stable. You mentioned that rising interest rates may affect commercial real estate valuations. Is there additional pressure on the commercial real estate sector with the recent sharp rise in interest rates? We've also received a lot of questions about the potential impact of multi-family real estate. Are you observing any new signs of pressure in the wider commercial real estate market?

Michael Santomassimo

John, as you know, this is a very direct mathematical relationship: with no other conditions changing, interest rates rise, and asset valuations must fall. However, it is still too early to determine whether substantial pressure has arisen. The relevant impact will be highly dependent on the circumstances of the specific property and whether the net operating income of the property can offset the impact of rising financing interest rates at the time of refinancing.

As a result, I think some properties will be in good shape, but others may be under more pressure. It will take longer for these changes to gradually become apparent. Up to now, the rise in interest rates has not caused any acute problems in the first few weeks.

Charles Scharf

Let me just add: As far as commercial real estate is concerned, we are very happy with the current Credit Loss Reserve (ACL) arrangement.

10. Jefferies analyst David Chiaverini

I want to keep asking about the loan business. How should we view loan growth in the next few quarters compared to the mid-single digit growth guidelines you gave earlier? You've talked about AI infrastructure financing before, but can you further explain how much financing you are willing to provide for this field?

Michael Santomassimo

OK, David.

Judging from the loan growth we have achieved and the level that may be achieved throughout the year, the actual growth rate will be higher than the guidance given at the beginning of the year. We've talked about this many times over the past few quarters, so this result is largely certain. As to how loan growth will develop after this quarter, we need to wait until the end of the year to make further judgments and provide relevant assumptions when formulating next year's guidelines. Overall, we are still seeing good demand for loans in many areas of our business.

As for the AI investment boom, we are very aware of the various layered risks involved in related investments. These risks include not only construction, licensing, and power supply issues involved in data center construction, but also risks associated with financing chips and other equipment within the data center. We take it very seriously to understand who the lessee is, what the guarantee arrangements are, and the various levels of risk that may affect the transaction in question.

We set very strict limits for the business we are willing to do and are unwilling to do, and we will stick to those limits. From management to business units, we are paying close attention to this issue, particularly those affected by AI infrastructure investments.

David Chiaverini

Very good. I have a follow-up question about net interest spreads. Does your guide to flat net interest spreads for the fourth quarter assume that the balance of market business will decline? Or should we expect the market business to continue to grow steadily? Also, is the net settlement effect brought about by the sponsored repurchase transaction fully reflected so far?

Michael Santomassimo

It hasn't been fully reflected yet. We anticipate continued growth in the volume of business activity in the market. As to how these activities will ultimately affect the size of the net balance sheet, I will not provide specific guidance right now. Still, I think we still have room for further optimization...

Charles Scharf

But we haven't cut back on our market operations to reach a certain net spread figure. Quite the contrary, we are continuing to expand this business.

Michael Santomassimo

Yes. As I said before, our total fixed income financing business balance increased 18% compared to the second quarter, but our net balance sheet balance declined. This means that the level of business activity is rising, and I expect this trend to continue into the fourth quarter. As to what level the net balance sheet balance will eventually reach, we still need to watch. However, business activity is currently quite strong.