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Wells Fargo & Co. (NYSE:WFC)

Deutsche Bank Global Financial Services Investor Conference

May 28, 2014 08:15 AM ET

Executives

John Shrewsberry - Senior EVP, Chief Financial Officer

Jim Rowe - Director of Investor Relations

Analysts

Unidentified Analyst

Okay, thanks. I think we’re ready to get started with day two. Next up is Wells Fargo. We got John Shrewsberry who recently took over as CFO after serving eight years as Head of Securities. Jim Rowe from Investor Relations is also here in the audience. And as many of you know, Wells is fresh off their Investor Day from last week during which management echoed a lot of the same big picture stuff that they’ve talked about in the past. And I think that’s actually a testament to the strategy at Wells. A lot of peers I think have so much new to say every couple of years because they need to reinvent themselves, whereas Wells’ strategy has been consistent and has been successful and I feel like that feeds upon itself.

Anyway, we will try and touch on both in the big picture stuff and drill down into the more detailed areas. The format is going to be a fireside chat. So I will keep it going for about 20 minutes or so. You guys can start thinking about some questions. We will turn it over to the audience and then go from there.

John thanks a lot for joining our conference. I thought we’d start off on loan growth from my point of view as I think about banks such as yours and some of your peers. Really the key to driving earnings growth from here I think is going to be revenue with loan growth one of the keys. And last week you showed how your loan growth has been about 4% per year last couple of years has outpaced some peers, but what are your thoughts from here in terms of growing loans and what’s some of the key drivers will be?

John Shrewsberry

Sure. Well, it’s spread from loans accounts for about half of our revenue. So it’s obviously very important the loan that we make to both commercial and consumer customers are critical to them. We are in business to make loans. So we’re busy in each category, corporate, middle market, commercial real estate, on the consumer side and home mortgage and auto and credit card, getting out trying to compete and win as much as our customers business as we can. We’ve supplemented that by acquiring pools of loans here and there where it’s made sense. We done that in commercial real estate, we done that in the corporate space with some energy loans. We have announced recently the -- a private-label credit card program with Dillard’s, which will involve Wells Fargo picking up an existing portfolio of receivables as well. So the combination of organic growth in each category plus where it makes sense acquiring pools of loans is the program, and we’re absolutely open for business on the loan side.

Unidentified Analyst

In terms of the current environment, I feel like every year the first quarter saw a little sluggish for the industry. There is always a lot of optimism for the back half of the year. I know you guys don’t comment on your term trends, but last week you did say mortgage production might be a little bit less than what you’ve thought. So using that as kind of my crack in the door to get you to talk about the loan pipeline and what you’re seeing right now, if you could touch on that.

John Shrewsberry

Yes. So what we had mentioned is the loan pipeline is stronger than it was in the first quarter, but probably we’re not as strong as we might have imagined it being, given that this is the beginning of the so-called summer selling season or spring selling season when people tend to sell their homes. It’s still good. We are still a leader. It’s still registering appropriate profitability, but we might have imagined that there would be more of it a quarter ago and you see the bad news.

Unidentified Analyst

And is that just from mortgage or is that in general where things have been a little bit softer?

John Shrewsberry

That’s specifically in mortgage. I think everybody is feeling that its probably a little bit less optimistic in terms of the pace of business activity than we thought that it would be sitting here a quarter ago. Of course, the first quarter for a variety of reasons was a washout in terms of GDP growth. I think everybody imagines that second half of the last three quarters of the year will be stronger. Its part of that, I think people imagine that more business activity would be extant and it is going to be not quite what we imagined a quarter ago.

Unidentified Analyst

And in terms of loan pricing, we’ve seen in some of the publicly available data that C&I loan pricing has come in quite a bit, auto has coming a little bit depending on what area you’re looking at. What are you seeing in terms of loan pricing and its like Wells has always been disciplined in the past where if pricing get irrational, you step back so …

John Shrewsberry

Yes, its -- so it’s very competitive. There are banks looking for assets, but I don’t think it’s gotten to the point where pricing alone has caused us to step away from the table. If competition extends to advance rate and loan structure being compromised, I think those are the points where we’re very likely to step back from the table and while that may be happening in a couple of mix sectors. It’s not yet happening overall. It’s a little bit more frothy in some areas than maybe it was a year-ago.

Unidentified Analyst

So just putting it all together, the net interest income as you mentioned is a little bit over half of your total revenue. Obviously, loan growth is a key driver of that. Last week you touched on or reiterated that you’re hopeful of growing net interest income. Not asking for just one specific quarter, perhaps we think about the next several quarters, what is your confidence in being able to grow net interest income in kind of the environment that we’re seeing right now?

John Shrewsberry

It is our expectation. We might have imagined that rates would be a little bit higher which would have made investing activity a little bit more attractive, but it’s still our plan and our expectation to grow dollars of net interest income. And over the remainder of the year some of that will be by growing the size of the balance sheet as deposits come in and they get deployed in one form or another. Some of that might be from loan demand in the different categories that I mentioned earlier. Some of that might be from increased utilization of lines that we’ve outstanding. We grow credit commitments at a pretty rapid pace. So all in, it’s our expectation to grow interest income.

Unidentified Analyst

And obviously the loan volume would be one piece and then the net interest margin percent is the other piece, and you talked about some continued pressure there. We can all see the rate environment, having mentioned loan pricing remains under pressure. You did talk about some continued pressure in NIM, but does that eventually and then bottoms even if current rates stay generally here plus or minus?

John Shrewsberry

I think if the pace of our deposit inflows stopped which should -- it hasn’t and we certainly wouldn’t want it to because we’re enthusiastic about accepting new accounts and deposits from existing clients. If you were to hold that constant, you could imagine net interest margin bottoming out in some fashion. But the more deposit inflows we have, the more has to be redeployed, and to the extent that we’re holding more of our balance sheet today in high quality liquid assets or other short duration where we’re yielding fixed income assets, I think for a combination of reasons including what’s necessary under LCR and what’s appropriate to keep this dry powder if the investing horizon isn’t very attractive, that will have a little bit of incremental pressure. But in spite of that we still are focused on growing dollars of net interest income and think that we will.

Unidentified Analyst

And I guess sticking with the NIM theme, before last week I felt like rate disclosures may be a little less than some peers in terms of what’s in the Qs and Ks, but last week you put out a lot of detail in terms of what you thought your NIM may do if rates go up 100 basis points and, I mean, it surprised me how asset sensitive you think you’re and maybe you could just touch on that, I think you showed the first 100 basis point move would be …

John Shrewsberry

20 to 30 basis points of incremental NIM, yes. We consider ourselves quite asset sensitive. We’re happy with that positioning. We do believe at some point that there will be a -- I don’t know if you could call it a normalization anymore, but an increase in interest rates for one reason or another we stand to benefit from that greatly, because our assets will reprice more quickly than our liabilities, given the composition of our -- of the right side of our balance sheet.

Unidentified Analyst

And are there other -- so what we used to hear was if rates go up, its going to be bad for the mortgage business which will offset in expansion that you probably really taken the pain in terms of mortgage refis coming down. So that’s already played out. Are there other puts and takes within the Company that either are better or worse in a higher rate environment? Not just NIM, but there may be money market waivers or …?

John Shrewsberry

I do think on the asset management side there has been forgone revenue for some period of time, because it’s hard to charge the appropriate fee when the assets themselves are yielding close to zero, so there is that. What matters most from our perspective is what economic environment is giving rise to the higher rates to begin with. So if we’re in a scenario where rates are up 100 or up 200, then it’s because there is more economic activity that’s creating more transactional volumes, more loan outstandings, greater utilization of lines of credit, then that’s all upside from a revenue and profitability point of view.

Unidentified Analyst

And last question on NIM for me and maybe it’s a little early to talk about -- early in the morning to talk about purchase accounting accretion. By this you do …

John Shrewsberry

No, it’s never too early to talk about purchase accounting accretion.

Unidentified Analyst

Maybe it is just for me then. But you do still have very big book of accretable as well as the non-accretable or put another way, you’ve got this big book of loans that it feels like they’re outperforming from both a credit perspective and a cash flow perspective, how does that all work itself through in terms of the income statement?

John Shrewsberry

Sure. Well there is two parts of it. On the accretable side there is approximately $17 billion worth of, call it reserve out there that accretes into income over a period of time. It gets reanalyzed regularly based on the performance of the underlying loans. My assessment or our assessment is that it will be something like 12.5 years on average that $17 billion comes in over, it will be a longer period of time actually, but the average dollar will be outstanding for 12 or so years. So you can think about what that means on an annual or quarterly basis and it will be different than your arithmetic because of the performance of the loans. But the loan seems to be performing well compared to the reserve level. And on the non-accretable side it’s a -- it’s roughly $5 billion that sits outstanding in connection with a pool of loans that deserves that sort of an offset. And again, the loans are outperforming our original modeling and that amount is available to observe losses over the lives of those loans to the extent that they outperform and that will either -- that will come in to income. So it’s there, its incremental buffer against the performance of those loans.

Unidentified Analyst

And when I looked at the first quarter, if I could ask a detailed question, it felt like the core purchase accounting was a little bit low and there is some moving pieces there, but it seems like the, call it the core piece, not the cash recovery, it was a little bit low?

John Shrewsberry

It’s through the combination of events that are isolated to the first quarter and unlikely to repeat. In the case of purchase of the accretable yields of purchase accounting in the first quarter that actually came in higher than expected or higher than average, just as a result of the resolution of a handful of loans that make a difference from one quarter to the next, but tough to model.

Unidentified Analyst

That’s for sure. Maybe switching to some of the fee businesses, wealth management is an area that we hear a lot of other companies talk about as well as their being their crown jewel arguing for some multiple expansions as they better integrate that. You guys have been at this for quite some time, top three I think in terms of number of brokers. Last week you did highlight that there is still a lot of opportunity to better integrate it and maybe give some examples of what you mean there and (indiscernible)?

John Shrewsberry

Sure. There are two really benefit to that business. One is the referral from the 15,000 plus financial advisors and their clients into their regular banking channel for among other things, mortgage loans. These are -- generally speaking, very high quality customers, affluent customers, people to whom we can provide a lot more product and service, that’s working very well. It’s been an intense area of focus for the last few years. And then separately we’ve been referring I think on the order of about $1 billion a month of incremental advisor assets under management from the community banking channel into the wealth brokerage and retirement channel. And as I’m told that’s a less usual phenomenon in terms of the direction of those referrals and it’s working really well. It’s a big area focus for Carrie Tolstedt who runs community banking on a big area of focus for David Carroll who runs the wealth channel. The wealth brokerage and retirement segment overall has been performing very well over the last couple of years, acquiring new advisors, acquiring new assets, performing well on top and bottom line metrics. We’re very excited about it and its one of a handful of five or six revenue line items that we have that first quarter to first quarter it has been growing at an above 6% rate in terms of fee revenue, which is pretty exciting.

Unidentified Analyst

And can you remind us -- there has been a lot of focus on making that business more annuity revenue versus transaction, just for the industry at the whole. Can you remind us where Wells is in terms of that mix?

John Shrewsberry

Yes. I don’t have the number off the top of my head. It was spoken -- it was disclosed last week, so I can come back on that, but as a result of moving to a real plan based asset management activity as opposed to just transactional activity on the part of our brokers, under the theory that our client need somebody to sit down with them and talk about where they’re in their life, what their inflows are, what their outflows are likely to be and how to get from here to there with the plan. Once you’ve gone down that path, it becomes easier and more appropriate to put a managed package platform around that -- package of activity around that rather than just a transactional relationship with a client where it’s a series of executions on their behalf. And as a result, the revenue mix is changed from one of brokerage commissions to more of an annuity style of fee streams, which we think is attractive.

Unidentified Analyst

Maybe switching to your own area the security side of things, some of your bigger peers are looking at you as becoming a much bigger threat to them down the road. I think from a regulatory perspective while it’s been a burden for the firm as a whole, one could argue that its less almost for you than some of your bigger peers, say like the supplemental leverage ratio is less of a constraining factor, you have few adjustments that you’ve to absorb or make in fixed income trading. So just kind of a big picture if we look out the next three to five years, where could this business be as a whole and relative to Wells Fargo, which its being growing, but still relatively small piece for the rest of your firm?

John Shrewsberry

Sure. Well, I’d think about it in two halves. One would be the traditional investment banking fee streams and the other would be the sales and trading activity that we do in support of the clients whose securities we underwrite. On the investment banking front, we’re very U.S. centric. We’re likely to largely remain that way and we have on the order of 5% to 6% market share, which is similar to the four or five firms right around us if you would think about how league tables work in the U.S., and are we likely to pick up a couple points of market share and trade places with others, that’s not unlikely, its left to our own devices, it probably trends in that way without doing anything very different or changing our approach to risk. On the sales and trading side, the market has changed a lot in the last few years. As you mentioned, we’ve not been carrying around a burden of legacy assets like other people that, that are having capital or now even liquidity problems in terms of how to fund them and how to support them. So our business really exists to make markets and support the clients whose securities we’re underwriting or in the case of derivatives, the risk management activity that we’re doing for clients and in this regulatory environment I don’t see it getting or having to get a lot bigger to accomplish our clients goals over the next three plus years. Again, that’s also a U.S. centric business activity, which distinguishes us from people who have got multiple platforms around the world and are trying to reconcile each one from a capital and liquidity point of view and satisfy their local regulators at the same time. Ours is a much more simplified business model. So today it amounts to -- its in the public domain that each of those sets of activities is simply to get billions of dollars for a firm with $80 billion plus worth of revenue depending on what’s going on to the denominator, a lot would have to happen in order to really change the mix of what those people would mean to Wells Fargo. So I think it fits very neatly within our statements of risk appetite and that’s not likely to change.

Unidentified Analyst

I will touch on expenses before I open up questions to the audience. You’ve got this 55% to 59% efficiency target out there, I think you’re right in the middle in the first quarter. Maybe just talk about the thoughts of what needs to happen to get to that lower end, is it mostly revenue or it’s just still some expense opportunities either in mortgage or elsewhere to get you there?

John Shrewsberry

So we’re in the middle, and at least with respect to the most recent measurement period. Yes, I think that makes us just about best-in-class certainly for anybody our size, and so we’re happy with that range. If we ended up in a higher rate environment or we ended up in a higher loan growth environment than what’s currently imagined certainly that would probably move us into the lower end of the range just because some of those incremental revenues come about in a very efficient way. But we think of ourselves as always very efficient in terms of how we deliver and produce an incremental dollar of revenue. So there is less of a focus on driving ourselves to the bottom end of that range. We are always making investments in new people and new product and capability, that cost a little bit of money and we’re doing that well being best in class in that range. We are probably in a somewhat elevated period in time with respect to regulatory requirements in meeting the pace of change there, actually probably because that could have existed forever or it could go away at some point in the future, but it's in that number and it's still best in class. So we are comfortable in the middle of that range. We think that that is the right range to operate in, and we’re trying to be as thrifty as we can on behalf of our shareholders in producing dollars of revenue.

Unidentified Analyst

Any questions in the audience? Raise your hand you’ll get your mike.

Question-and-Answer Session

Unidentified Analyst

Yes, a question on utilization rates. It seems like they’re picking up, maybe can you shed some light on how you see corporations starting to deploy more money and what's your view for the next quarter?

John Shrewsberry

Utilization rate? I haven't seen that changing. In terms of our, the utilization rate of our lines of credit with corporate clients they’ve been in the same range which is to say in the 30s for some period of time and not very dynamic at the moment.

Unidentified Analyst

I would like you to comment on just how you think of the value of deposits in today's environment, and as how the senior management thinks about that inherent values that changed over time or going forward?

John Shrewsberry

We highly value deposits, both consumer and corporate deposits. We think of them as the operational connection to clients. We want to be the bank where their -- in the case of consumers the bank where their automatic deposits goes, the bank where they write them checks and conduct their life from. The bank that’s attached to whatever alternative payment devices that they might be using to live their lives, we think there’s great value in that. On the corporate side similarly we are very happy to have the growing number of relationships and the growing size of deposit relationships that we do. We invest a lot of money. One of the products that we featured in Investor Day is our corporate treasury management suite of products, and this is how we allow our clients to manage report. We use technology to manage their own liquidity, and it's a real point of connection between us and our clients. In a period of time like now when it's harder to deploy that incremental dollar of deposit, it produce lower return which is fine. They don’t consume capital. Of course marginal dollars are harder to deploy, they are deployed in activities that are very capital efficient. So while they may dilute the net interest margin in percentage terms we’re less sensitive to that, but they have positive carry on a fully costive basis and they are not consuming capital. So, it's really an option on the nature of that relationship going forward when those deposits become more valuable. But we want to be our client’s bank, and if that involves holding our excess liquidity today, then we’re happy to do that. I don’t think that’s changed, probably gotten even more important because it's allowed us to bring more clients in.

Unidentified Analyst

How big effect did you think the rise in student debt is in, in terms of weighing on the mortgage market and trading a very sluggish environment for mortgages currently?

John Shrewsberry

So the question, the overhang of debt on the part of consumers that makes it harder for them to qualify for a mortgage going forward?

Unidentified Analyst

Well particularly the student debt.

John Shrewsberry

It's a good question. I don’t see what the approximate price was of why somebody didn’t -- doesn’t qualify for a particular mortgage. Obviously in the QM Era they’re very careful about documenting the ability to repay every mortgage that we write. So to the extent that a perspective borrower has a big outstanding balance of what's competing for the same income that would have an issue -- good credit issue with the margin, so it's going to be a factor. It isn't talked about in our mortgage business as the [ph] [thing] that’s preventing the marginal customer from being able to afford and repay for a home.

Unidentified Analyst

And to touch on asset quality, lastly can you lower your long-term outlook for charge-offs from, I think it was a 100 basis points to 75 to 80 over time. I think you’re roughly half that right now around 40 basis points. How long can charge-offs stay at this low level? And I think a lot of us forget that they tend to be lumpy over time, when I look at the commercial they’re pretty close to zero or literally were zero in the first quarter.

John Shrewsberry

Net recovery.

Unidentified Analyst

So how long especially in that market can it stay that low and just overall before you’re getting to 75 or 80, how do you think about that?

John Shrewsberry

So that 75 to 80 is a number that we’ve generated in response to the question, what do we imagine that through the cycle losses might be. We don’t use that number for any other reason expect to help to guide people to a relative place that what we think asset quality and performance is likely to be like it's an estimate. We are in the 40s today. We’ve had the wholesale segment in Wells Fargo has been in the net recovery position for a little bit. So it's likely that loses under some normalized conditions gravitate somewhat higher. Asset quality is very good right now. We saw some metrics at last week’s investor that described a couple of things. One is that, if the percentage of our residential real estate related lending activity that is more post crisis to the new generation and how it's performed and of course that percentage creeps up every quarter, and those are likely to have a much lower loss content than old vintages. And that’s true in every asset class, so as underwriting criteria has gotten or behavioral activity in the part of borrowers has taken us to a safer place. So, they will creep up, if for no other reason that we won't be in the net recovery position forever on the wholesale side. If that gets to through 10, 20, 30, 40, 50 basis points of positive loss and that’s going to guide the weighted average up. I don’t see it happening quickly. We are bigger entry into the credit card business these days with our own customers. We are doing it in a very sober way, but the nature of unsecured consumer credit is such that that probably produces on average a higher charge-off rate as it seasons over time. So all things won't be equal going forward, it will look a little different. But we don’t have Wells Fargo Financial in the go forward model that was a discontinued line of business pre-merger, that would have had a higher loss content in it and there are other structural changes that have been made. So, it will go up and it’s going to go up slowly. And as you say particularly in the commercial world it will probably be a little bit lumpy whenever it is that we end up with the trough of the next cycle however farer out that is, but credit at the moment is not today's problem for Wells Fargo.

Unidentified Analyst

Are there any areas or pockets within the commercial side where you’re stepping back? We’ve heard some banks talk about leveraged lending as being an area that they don’t want to be as aggressive as some others are. Are there certain portfolios or areas within the commercial area that you’re pulling back?

John Shrewsberry

It's hard to say, I would say that from a leverage finance point of view there are, there are certainly plenty of deals that we see that seems to be happening at a multiple of cash flow that is, it's hard to get excited about from a lenders point of view. I am sure that it’ll work out fine for the people involved and -- but I wouldn’t describe us as stepping back because we weren’t really up at the table in a big way in the recent past in any event. But there are certain clients in those industries with whom we have big relationships and there are things that do make a lot of sense to us, but at the margin those are the things that stand out to me. And from a commercial or corporate perspective, I can’t think of anything else. Actually one area that hasn’t reeled us up yet but I do think that larger banks might begin to talk about larger unused facilities and the liquidity cost of maintaining those, that really hasn’t run through the system yet, but that’s likely to be an area of conversion as the LCR becomes finalized well understood and people begin to internalize it in terms of how they charge themselves for providing that service. It hasn’t happened yet but …

Unidentified Analyst

Is that an area that you could gain some share since you have less constrain on the supplemental leverage ratio probably more liquidity?

John Shrewsberry

By gaining share, you mean by doing something that’s uneconomic for other banks, that’s not likely to be how we regain share there. But if that business begins to make even shares on an economic basis then I am sure we will, but we do have a significant business there and are a big provider of credit to the investment grade universe in the U.S. so we’d always be enthusiastic to do more if it makes sense for us and the client, it wouldn’t be a seat change from where we sit today.

Unidentified Analyst

Other questions from the audience?

Unidentified Analyst

Yes, in the mortgage market can you give just a little more granularity on you and the industry on what's been underwritten in terms of down payment, FICO scores, et cetera like that and I said it is you and the industry.

John Shrewsberry

Well I can tell you that most participants in the industry including ours could be underwriting to in the case of conforming mortgages to something approximating probably a little bit tighter in credit than the minimums that are required by the agencies to accept the risk in the loans. And different originators may behave differently and I can’t -- certainly I can’t speak for competitors. But those guidelines are really being set by the agencies and the FHA. In the case of non-conforming loans from our perspective really means larger loan balance, client types of customers and there and probably in every instance each firm is underwriting to what makes sense for them because those loans are being held on their balance sheets in this environment because there is a meaningful secondary market for those loans. So, there’s probably more flexibility there, it's a small universe but higher credit quality and higher balance loans.

Unidentified Analyst

Did you give some numbers 10% down, 20% down, 3% down some of the percentages that you think?

John Shrewsberry

I don’t want to generalize, but I can tell you on average my guess is that it's harder to borrow with less than 15% down in the purchase.

Unidentified Analyst

I figured we would get a couple of capital questions but, so you put out those 55% to 75% in net deployment of capital, net of issuance last week. And I think even the low end of that might be a little bit higher than what people have been thinking.

John Shrewsberry

That’s okay, right?

Unidentified Analyst

It's pretty good. So, I guess the first question though is, I do cover the banks that are bigger than you as well as some of the ones that are smaller, and I think a number of firms have been tripped up with the CCAR process, and how have you been able to navigate that so well first of all, and then as you think about that 55% to 75%, it's a pretty big range given the dollars that we’re talking about, the confidence in getting closer to that 75% looking out for next year or so.

John Shrewsberry

So, on the first part of the question I would say that we have a big team of extraordinary people focused all year on working with our regulators through the mid cycle and the actual CCAR to manage expectations, to really understand what's being asked, to do all the complicated math, to satisfy a variety of qualitative rules and guidelines and to reduce the opportunity for a surprise. It's collaborative, it's iterative, it’s really hard work. So and we’ve been fortunate to have a nice dialogue and an understanding and of course good performance basis which helps a lot in the discussion about how you’re going to return any capital that you generate -- we have been generate a lot of capital, and we’re taking that same approach on a go forward basis and I had no expectation that it gets any easier, so it's a process. With respect to how to move from 55% to 75% it will be a function of what we think we need for growth, how we’re actually performing and of course this CCAR is coming every 12 months. So we’re giving that outlook is for the foreseeable future. It's subject to board approvals. Its recurring board approvals, it's subject to recurring CCAR approvals, so those things will have to go well also. But we hear our shareholder’s, they would like more capital return. We don’t want to hang on to excessive liabilities of capital. We can’t profitably deploy so beyond what our reasonable expectations for growth are, it's in our mutual best interest to get it back in the hands of shareholders.

Unidentified Analyst

And what's your thought about potentially using the [ph] [mulligan] or stretching a little bit saying that dividend is like a 40% payout or at least asking for that. We have seen some firms maybe have to use the [ph] [mulligan] from a disappointing perspective we’ve also seen some firms use it almost from a offensive or aggressive perspective and the market viewed those positively. So for you, it feels like you don’t need all the capital that you generate to support balance sheet growth, there’s not probably large out positions you’re going to make. So when I think about all the banks I cover who could be in a good position to have a higher payout ratio, you’re one of them.

John Shrewsberry

You’re distinguishing dividend from repurchase when you’re talking about 40%, is that fair to say?

Unidentified Analyst

Correct, correct, yes.

John Shrewsberry

So we have investors who would like 100% repurchase. We have investors who would like 100% of whatever our payout level is going to be coming through repurchase or through dividend. There’s a real balance, there’s a mixed point of view on that. It's not really our style to be very aggressive in the interactions that we have with our regulators. We have got great relationships. We both tried very hard at those to make them work and as a result I can’t think of anybody who is in a better position than we are right now, either in terms of the generation of capital or the distribution of capital. So, I am not sure why it would make sense to try harder or try differently.

Unidentified Analyst

Okay. Well we’re out of time, but please join me in thanking John.

John Shrewsberry

Thanks.

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