The virus: Transcript - Center for Public Integrity

The virus: Transcript - Center for Public Integrity

The virus: Transcript - Center for Public Integrity

Posted: 15 Oct 2020 05:13 AM PDT


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Episode 5 of The Heist

UNIDENTIFIED VOICES: From the Center for Public Integrity, this is The Heist. 

SALLY HERSHIPS, HOST: The Roosevelt Room is right across the hall from the Oval Office. It's used for staff meetings and sometimes for big announcements.

DONALD TRUMP: We have a lot of media present. The room is loaded up with media as much as they can, considering we have social distancing. We're practicing social distancing. (fades out) 

HERSHIPS: Trump was wearing a grey suit with a little American flag lapel pin. Ivanka was there, in a bright red dress. 

IVANKA TRUMP: When we began making phone calls a couple of weeks ago…(fades out)

HERSHIPS: There was an oil painting on the wall with a fancy, flourish-y gold frame, big flags in stands, a bronze statue of a buffalo fighting off wolves. The whole effect was pretty patriotic. And Trump was there to make a patriotic-sounding announcement. 

TRUMP: We had the greatest economy in history, the greatest economy that we've ever had, the greatest economy that anybody's ever had. And then one day, they said, you got to close it down, close the country.

HERSHIPS: The coronavirus had hit. And for the past few weeks, members of Congress had been debating: What was the best way to save the economy? Small businesses were closing their doors. A lot of them probably for good. And millions of American workers were filing for unemployment. It was the beginning of the worst economic crisis since the Great Depression.

But finally, at the end of March, Congress had passed the CARES ACT. President Trump had signed it. It was part of a multi-trillion-dollar effort to save the country. And on this day, April 7th, 2020, Trump had gathered reporters to promote the law's signature element.

TRUMP: As you know, on Friday, we launched the Paycheck Protection Program to help small businesses keep workers on the payroll.

HERSHIPS: The Paycheck Protection Program, or PPP, was supposed to offer interest-free loans to small businesses struggling to stay afloat during the pandemic. The government had set aside 670 billion dollars.

STEVEN MNUCHIN: And we want to make sure that every single small business can participate. 

HERSHIPS: Steven Mnuchin, the Treasury Secretary, was instrumental in getting the bill passed. 

MNUCHIN: And we want to assure the workers that if you don't get the loan this week, there'll be plenty of money for you next week. 

HERSHIPS: The announcements were incredibly upbeat. Trump and the administration were making big promises — that PPP would save small businesses, the country would see a major economic turnaround. But that's not what happened. Instead, a program designed to help mom and pop businesses also ended up giving cash to companies that didn't necessarily need it. Big companies, companies with connections to banks and politicians.

I'm Sally Herships and this is The Heist, a new podcast from the Center for Public Integrity. We've been doing a deep dive into how power works in Trump's America. 

This is our final episode of the season. We started at the beginning of Trump's presidency looking at how his policies favored the wealthy. Now, at a moment of crisis, the same pattern is playing out again. In this episode we ask: What went wrong with PPP? And what can it tell us about how the system is rigged to favor the rich?


HERSHIPS: We're going to start our story today talking to the owners of a very, small business. They're a husband and wife team. They operate out of a storefront and a Ford minivan. We're in La Habra, California, a suburb of LA about 20 minutes from Disneyland.

LUIS RIVERA: Hi, how are you?

KATHRYN KRANHOLD: Hi Luis. Thanks for doing the interview. We appreciate it. 

LUIS RIVERA: Anytime, anytime.

HERSHIPS: The couple, Ana and Luis Rivera, run a heating and air conditioning business. And basically, Luis goes into people's homes. He installs heating and air conditioning units. Luis does the work pretty much on his own, he just has a few part-time contractors for backup.


HERSHIPS: Kathryn Kranhold is a reporter for the Center for Public Integrity. She's the one who visited the Riveras. Kathryn, tell me about the company and how it got its start. 

KRANHOLD: Well, Luis had been working for other people for about ten years. Then about five years ago he got his refund on his tax return and he used that to start his own business. So on the day I visited Luis, he was on his way to a job in Compton.

LUIS RIVERA: We are working on the air conditioning. We're putting in brand new systems and ductwork. 

KRANHOLD: This is a typical day for Luis. He's used to fielding dozens of calls like this a day from potential customers. 

HERSHIPS: But that was before the pandemic. 

ANA RIVERA: We didn't know how serious it was. We didn't know if it was a hoax. But when your family and friends are getting hit with the coronavirus, is when it makes it real. 

HERSHIPS: So Kathryn, you talked on the phone with Luis' wife, tell us about her.

KRANHOLD: Ana's the CEO. But she doesn't take a paycheck. She has a second job for that — she manages the apartment complex where they all live. She and Luis also have five kids, ages three to 21. Ana does not have a lot of free time on her hands.

ANA RIVERA: I was trying to answer the phone, trying to get to my customers. Learning how to balance the kids, the work and trying to take care of myself, now that I think about it, I was going a little cuckoo bananas, to be honest. 

HERSHIPS: Even though their business was considered essential and technically they could keep working the Riveras were hit hard by the lockdown.

ANA RIVERA: We did go from having work every day to three weeks with no calls. 

HERSHIPS: They went from making $20,000 in January to $5,000 in March.

KRANHOLD: Ana tried to cook more to save money. She even took her kids to get free lunches at school. 

ANA RIVERA: Nobody tells you, yeah, you could pay me later. I still had to pay our phones, you know? There is definitely a little struggle.  

HERSHIPS: There are more 30 million small businesses in the United States. So if you take the problems Ana and Luis were facing and multiply them by 30 million and you can see why the Riveras are exactly the kind of small business owners that Congress and the Trump Administration said it wanted to help with PPP.

Ana and Luis had a healthy small business and they would have one again when the pandemic was over. They just needed help getting through this rough patch.

One of the main criteria for getting one of these loans was having fewer than 500 employees. It's complicated, but generally speaking, that's one of the ways the federal government defines a small business. And Kathryn, this is where many small businesses, like the Riveras, had a hard time? Right?

KRANHOLD: Right, well what it meant is that you found some really surprising definitions of "small businesses." And really small companies like Ana and Luis's with one employee, or maybe two, they ended up competing against companies with many more employees for that same pot of PPP money.

HERSHIPS: The idea behind the PPP program is that the money would help small businesses keep paying employees for several months, even if there was no work. 

The way PPP was set up, it was easiest to apply through a bank. Back on March 30th three days after President Trump signed the CARES Act Ana Rivera reached out to her banks. She called Wells Fargo and she emailed Chase. She'd had accounts with them for years. 

ANA RIVERA: I thought I had a good relationship with them. I thought I was gonna be okay. I have a friend that works for the bank. I should be okay. But that wasn't the case. They were just so overwhelmed with people trying to get the loans that nobody reached out to me. Nobody helped me. 

HERSHIPS: We wanted to find out what happened. Why did a small company like the Riveras have so much trouble getting a loan? And we didn't have to go very far to find out. We looked into a company called Continental Materials, which had a lot more luck getting quick access to government cash.   

KRANHOLD: Continental Materials. It's been around for about 60 years. It's got factories all over the country. And one of the factories turned out to be right here in Southern California about an hour from the Riveras. It is also in the same business as the Riveras. It makes furnaces and air conditioning units. 

HERSHIPS: And like Luis and Ana's company Continental's factory is also considered an essential business, so it also did not have to shut down. But unlike the Riveras, Continental did not appear to be struggling.

KRANHOLD: I reached out to a union leader and he told me that the company had a few orders that were put on hold at the end of March. And they had to furlough some employees at the same time. But since then, they've been working 12 hours a day, six days a week, pretty much throughout the pandemic.

HERSHIPS: Still, Continental got a PPP loan for $5.4 million. For context you should know that the average PPP loan was just over 100 grand. And Continental got its loan approved within just three business days of when the loans were first available. 

Meanwhile Ana Rivera hadn't even heard back from either of her two banks. And all of this brings us back to our question: How did this happen?

KRANHOLD: Right, if you're a big company, it's likely you do a lot of business with your bank, mostly borrowing money. That's one reason big companies like Continental got access to PPP money so quickly — banks.   

HERSHIPS: There was a middle man in the process, something between the government and the business that applied for its loan. In Continental's case its bank is a global giant, CIBC.

KRANHOLD: Here's how it works. Banks often assign one person or maybe a team to take care of you And it's in the best interest of those banks, of course, to take care of their best customers.

HERSHIPS: So in the first days of the Paycheck Protection Program, banks were catering to their biggest clients first. But these loans were for millions of dollars, not a few thousand, like the Riveras. And in general, the bigger the loan, the more money banks made from servicing that loan.

But there was another reason that big businesses got PPP money. Remember that rule that required companies that applied for the loans to have less than 500 employees? Congress wrote a huge loophole into the law. It allowed some businesses like hotel and restaurant chains to apply as long as they didn't have more than 500 employees per location. 

CNBC CLIP: We are hearing from small business owners still in limbo over this funding and frustrated to hear of big name companies like Ruth's Chris Steakhouse and Shake Shack being able to access those PPP loans.

MAD MONEY CLIP: 13 public companies by the way all returning including Potbelly and Shack and Ruth's Chris, and Auto Nation. 

HERSHIPS: Which explains how all those big companies you probably heard about on the news got PPP loans. Some of these companies were getting millions. 

And here's a caveat to our story. A lot of journalistic outlets got PPP money too, including  more than 50 public radio stations, Newsday, The Texas Tribune, Prairie Public Broadcasting in North Dakota, and us. For full disclosure, the Center for Public Integrity got a loan for $658,000 back in April. 

But Kathryn, it's important we understand a couple of things,  right?

KRANHOLD: Right. Well, first, the guidelines to qualify were loose. And these loans were available, so all you had to do was apply, and you got approved somewhat easily. You know, most of these businesses didn't appear to do anything wrong. But there was a lot happening that went against the spirit, if not the intent of the law. And eventually some were shamed into giving the money back. 

CHRIS CILLIZZA: Like the Los Angeles Lakers. Wait what?

HERSHIPS: Steven Mnuchin was especially annoyed about that one. He told CNBC about it over the phone.

MNUCHIN: I never expected in a million years that the Los Angeles Lakers, which I'm a big fan of the team, but I'm not a big fan of the fact that they took a $4.6 million loan. I think that's outrageous, and I'm glad they've returned it or they would have had liability.

HERSHIPS: But unlike the Lakers, five weeks after she'd called and emailed her banks Ana Rivera still hadn't heard back yet from Chase or Wells Fargo. So she applied for a loan online, directly from the Small Business Administration. Ana tried to stay positive. 

ANA RIVERA: I did not let myself get to the place of fear and losing hope. I'm the type of person who, I'm going to pray about it. I'm going to grow through it. 

HERSHIPS: But after weeks of waiting with no money in sight, Ana hit a wall.   

ANA RIVERA: I was done. I was like, well, I guess maybe just PPP was just not for us. And maybe we just don't qualify. Maybe we're too small. 

MATT GARDNER: You know, there are a lot of anecdotal stories out there about small business owners, precisely the people we all care about the most at this time, simply not hearing back from the SBA after applying, waiting week after week after week to get any word about whether their applications were going to be approved.

HERSHIPS: We wanted to get a tax expert to weigh in on the rollout of the PPP. So we spoke with Matt Gardner. He's a senior fellow at the Institute for Taxation and Economic Policy. It's a left-leaning think tank. In other words, Matt is an expert on policies that give big corporations an edge over the little guy. And he says the CARES Act falls into that bucket, despite what the administration said it would do.

GARDNER: It's pretty clear that the PPP process was run in a way that pushed needy small businesses to the back of the line while prioritizing the influential, and that's not at all the way it was built. Certainly not at all the way Americans would want to see it work.

HERSHIPS: So here's what we've learned so far — Big companies that had close relationships with their banks got in line first for PPP loans. But there were other problems too. And to explain what those are we need to take a close look at a wealthy guy named Ronald Gidwitz. Robin Amer, in Chicago, has been reporting on him for a while.

ROBIN AMER: Yeah, Gidwitz is interesting and not just because of his money. I'll uh, I'll let him tell you about it.  

RONALD GIDWITZ: I'm Ambassador Ronald Gidwitz, the acting representative of the United States to the European Union. (fades out)

AMER: So Ronald Gidwitz, as you just heard, is America's acting representative to the European Union. He's also the U.S. Ambassador to Belgium. 

GIDWITZ: Now more than ever, we need to leverage this partnership. (fades out)

AMER: Before he became an ambassador, he was a businessman here in Chicago.  

HERSHIPS: Remember that company, Continental, we mentioned earlier? The one that got a $5.4 million loan within just days of when the money was available? Gidwitz's family owns the company.

So we had a lot of questions. First, did Ambassador Gidwitz's political connections have anything to do with this loan?

AMER: We did the obvious thing first, we reached out to the ambassador and were told by a State Department official that when Gidwitz was first appointed, he resigned the company's management and promised not to get involved in its financial matters. His son took his place. In other words, he's hands off. 

And, of course, we looked into his family too. The Gidwitz family is actually one of Chicago's wealthiest and most prominent up there with the family of Illinois Governor J.B. Pritzker. Back in the '80s and '90s, Gidwitz was president and CEO of Helene Curtis, a cosmetics company that his father built.

HERSHIPS: And, Gidwitz is also a big political fundraiser. During Trump's last presidential last run, he was Illinois finance chairman. He held a big fundraiser at Trump Tower in Chicago, the kind where donors pay more than 25 grand just to have their picture taken with the candidate, and he raised more than a million dollars. Gidwitz also gave hundreds of thousands of dollars of his own money to Trump and other Republicans in the leadup to the last presidential election.

AMER: Yeah, we pulled records from the Illinois Board of Elections and the Federal Election Commission and found that over the last quarter century, he and his wife have given more than $8.4 million to various political causes.

And as often happens in Washington, Gidwitz was handsomely rewarded for those efforts. In May of 2018, Trump appointed him to be the U.S. ambassador to Belgium.

HERSHIPS: So Gidwitz, an ambassador, is clearly rich and well connected. But, to be fair, that doesn't necessarily mean he pulled any strings to get this loan. So we also checked federal lobbying records. 

AMER: And we didn't see any smoking guns. In other words, we didn't see any direct evidence to show that Gidwitz or anyone else from Continental had officially lobbied the Treasury Department to get a PPP loan.

HERSHIPS: But one of the big questions we've been asking ourselves all along is how Trump's friends, family members, high level appointees, and even members of Congress were able to benefit from the PPP program. While Gidwitz wasn't actively part of the management of the company at the time the loan went through, his family and he own nearly all the company's shares, if not all of them. So he still profits from the company. In some ways it's like President Trump supposedly passed on the management of his family business to his sons while he's president. Trump is out. But he's still in.Congress actually tried to address this kind of scenario. 

KATHLEEN CLARK: The CARES Act prohibits businesses controlled by the President, the Vice President, members of Congress, and heads of executive departments from getting loans or investments from the program. 

HERSHIPS: We wanted to learn more about the rules around politicians and PPP money. So we spoke with Kathleen Clark, an ethics expert who teaches at Washington University in St. Louis.

CLARK: The Democrats didn't want Trump or Kushner to get any of this money. They wanted to make sure that didn't happen.

AMER: But that hasn't stopped prominent politicians or their family members from getting these loans. According to data the SBA released in July, Elaine Chao's family business got a loan. She's the U.S. Secretary of Transportation, and she's married to Senate Majority Leader Mitch McConnell. 

Businesses belonging to several members of Congress also got loans. Texas Republican Roger Williams got one for his car dealerships. And Oklahoma Republican Kevin Hern got more than a million bucks. His Tulsa company owns McDonald's franchises. 

And while Congress said it didn't want this money going to the president or his cabinet, Kathleen Clark says that it didn't explicitly ban all presidential appointees from getting this money, appointees like Ambassador Ronald Gidwitz. 

CLARK: And I just want to point out that this is just a typical example of Congress or any legislature trying to address an ethical concern and making, you know, a first cut at the problem. And it's not surprising that it's incomplete in its coverage because frankly, Congress's main concern was getting this money out the door. 

HERSHIPS: OK, so businesses are businesses, they are there to make money. It's practically their job to take advantage of tax laws and government money. From this perspective, Continental did nothing wrong. This was the system that Congress put in place. But looking closely at Continental can help reveal a pattern. What does it tell us about how the system is rigged in favor of big companies?

AMER: We spent a lot of time looking at the company itself to try and answer this question. Gidwitz's father and uncles started Continental back in 1954 as a uranium mining company. They owned these two mines in Utah. And for most of the last 60-plus years, the Gidwitz family has controlled the company.

HERSHIPS: And in looking at their recent records something became apparent. While the company did have financial problems, those problems had nothing to do with the pandemic. 

AMER: We wanted to be absolutely certain though that Continental didn't need that PPP money. So we asked our tax expert Matt Gardner, to look at documents we pulled from the Securities and Exchange Commission. And he confirmed — Continental had been facing financial difficulties long before the pandemic began.

GARDNER: In 2019, the company took a huge loss related to shutting down some of its mining operations and, you know, acknowledged pretty candidly that those operations just weren't financially workable anymore. 

HERSHIPS: When the PPP loan program first started, anyone could apply, as long as they had fewer than 500 employees. Continental just squeaked under the wire, with 445. But a month later, a second benchmark was added. Applicants needed to promise that they needed the loan. And importantly, they had to certify that if they did have access to other sources of cash than PPP loans, tapping into it would be "significantly detrimental" to their business.

And that brings us to our next big question: Did Continental have access to other sources of cash? So to find out we looked at SEC filings and learned that something really interesting happened around the time Continental got its loan. 

AMER: Just three weeks before that, the company got a $20 million credit line from its longtime bank, CIBC. And a credit line is kind of like a credit card with a limit and it gave Continental this nice cushion of cash if the company needed it. So when the pandemic hit, Continental had plenty of money to pay its employees and run its factories.

HERSHIPS: Now we want to be clear here. When Continental applied for its loan, this second benchmark had not been spelled out yet. That means that at that point in time it met the guidelines for a PPP loan. But there's another interesting wrinkle here. 

AMER: At the same time Continental was looking to get a PPP loan, Ambassador Gidwitz and his family were about to take the company private, buying up pretty much all the company stock that they didn't already own. It's called a management buyout, and to pay for it, the Gidwitz family got another credit line, this one for almost $9 million.

HERSHIPS: And just a couple of days later, Continental was approved for its $5.4 milion PPP loan. According to the records we reviewed, Continental got its PPP loan a few days before the Gidwitz family bought out most of the company's remaining shares.  The timing was interesting. Did the Gidwitz family end up using the money from one of its lines of credit to buy its shares? Did it use its PPP loan? 

AMER: Remember, the guidelines for companies that received PPP loans required them to use the money primarily for payroll. So if the Gidwitz family had used that money for the buyout, that would be a problem. Our tax expert Matt Gardner says that it's impossible to say for sure how the company management actually used its PPP money, but…

GARDNER: What I can say is that, you know, certainly getting the PPP loan made it easier for Continental Materials management to think about buybacks, to think about alternative uses of their money and made it more lucrative for them to do so. 

HERSHIPS: So, should Continental have received a PPP loan? 

GARDNER: The CARES Act and the PPP in particular, was supposed to be for companies that were facing existential threats due to COVID and that lacked access to capital. That didn't have a means of borrowing to keep themselves afloat, to get through the short-term difficulties presented by COVID, by the shutdown. And what seems pretty clear about Continental Materials is that neither of these things apply to them. 

HERSHIPS: And the fact that Continental got such a big loan so quickly, Gardner says that's a problem, too. 

GARDNER: Because every time a company like Continental Materials gets to the front of the line, it's pushing back smaller businesses for whom the threats really are existential, for whom getting that $5 million or $500,000 even, is the difference between keeping your employees on payroll with the hope that you can come back in a couple of months, and just calling it quits and letting them all go.

HERSHIPS: Continental declined to get on the phone with us, but in an emailed statement, the company said it followed all the rules in applying for a PPP loan. I'll quote the email. "Over the years, the company has dealt with and survived considerable industry and economic turmoil, none of those as drastic as what the COVID-19 crisis continues to present today."

But that statement is hard to reconcile with the company's SEC filings. In one of the company's last public filings in May, Continental explained that its businesses had not been severely impacted by the pandemic, but that it couldn't "predict" the impact on its finances for the remainder of the year.

LUIS RIVERA: As a matter of fact, yesterday we went to a call, a 90-year old lady, and she didn't want us to be inside her house at all. We had to do the work by sections, by hours.

HERSHIPS: Ana and Luis Rivera are still in business, though the pandemic is still making life difficult for them. And the PPP program? They did end up having a bit of luck. I'm going to bring back in Kathryn Kranhold to explain what happened.

KRANHOLD: Well, five weeks after Ana Rivera first reached out to Chase and Wells Fargo, she finally got another kind of lender to help her apply for the PPP loan. She says once the lender — they're called the Opportunity Fund — stepped in and helped her, she got a $7,000 loan, within two days. The lender, Opportunity Fund, is known as a community financial institution and it's a nonprofit that makes micro loans. A big part of what they do is help minority-owned businesses. These were some of the hardest hit by the coronavirus. 

ANA RIVERA: And honestly, I feel like they were heaven sent. I know it sounds weird and funny, but I feel like they were just angels that came to me.

HERSHIPS: What happened to the Riveras is important not just for their family, but also because it helps to explain why other small mom and pop businesses struggled to get access to PPP loans. Back in April, when the Small Business Administration first started doling out money, microlenders like the Opportunity Fund, the one that helped the Riveras, were shut out. That meant that many businesses owned by people of color had little chance of getting a loan. 

KRANHOLD: At the Center for Public Integrity, we did an analysis of SBA data for loans over $150,000, which was the bulk of the money that had been given out under the PPP program. We found that only 7% of the companies that received loans were Hispanic-owned, and worse yet, less than 2% of companies that received loans were Black-owned.

HERSHIPS: Both the SBA and the Treasury claim, correctly, that the PPP program has helped millions of workers hold on to their jobs. but their numbers are off. They've claimed repeatedly that 51 million American workers have been helped. But there's no way to really know that, because the SBA did a sloppy job collecting data about the numbers of employees kept on payroll with PPP money. We asked the SBA about those numbers and they didn't respond.

And of course this may not be the last federal stimulus package meant to help economic strain caused by the pandemic. Our tax expert Matt Garder says that the question for future stimulus packages is whether the government will fix the systematic unfairness that favored well-connected companies, like Gidwitz's, over the people it was meant to help like Ana and Luis Rivera.

GARDNER: What we can certainly ask for, and what would be a timely thing to think about is, when the next round of stimulus legislation is enacted, we can make sure that the terms of these loans, the terms of any tax breaks that are in the bill, meet up with the expectations of the American public. 

And that's that they're going to be targeted to the middle and low-income families who are threatened right now, going to be targeted to the small businesses who even now are hanging on by their fingertips just trying to keep their employees on payroll. And, that these provisions won't unfairly advantage the bigger businesses that already have access to capital. 

HERSHIPS: With both the CARES Act and the Tax Cuts and Jobs Act of 2017, the Trump Administration promised that "working people," the middle-class, would benefit. But in both cases a lot of money went into the pockets of the rich. These policies are not exceptions. In Donald Trump's America, they are the rule.

Our episode today was reported by Robin Amer and Kathryn Kranhold. Our editor was Curtis Fox, with help from consulting editor Alison MacAdam and Center for Public Integrity's Tax Project editor Allan Holmes. We had production help from Lucas Brady Woods, Brett Forrest, Camille Petersen, and Ali Swenson. Our theme music and original score by composer Nina Perry and performed by musicians Danny Keane, Dawne Adams, and Oli Langford. Our engineer is Peregrine Andrews. The Heist is executive produced by me and the Center for Public Integrity's Mei Fong. 

With special thanks to David Felsen, Janeen Jones, and Joe Wertz. Thank you for listening to the last episode of Season One of The Heist. 

Wells Fargo (WFC) Q3 2020 Earnings Call Transcript - Motley Fool

Posted: 14 Oct 2020 09:01 PM PDT

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Image source: The Motley Fool.

Wells Fargo (NYSE:WFC)
Q3 2020 Earnings Call
Oct 14, 2020, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wells Fargo third-quarter earnings conference call. [Operator instructions] Please note that today's call is being recorded.

I would now like to turn the call over to John Campbell, director of investor relations. Sir, you may begin the conference.

John Campbell -- Director of Investor Relations

Thank you, Regina. Good morning, everyone. Thank you for joining our call today where our CEO, Charlie Scharf; and our CFO, John Shrewsberry, will discuss third-quarter results and answer your questions. This call is being recorded.

Before we get started, I would like to remind you that our third-quarter earnings release and quarterly supplement are available on our website at I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings release and quarterly supplements. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings, in the earnings release, and the quarterly supplement available on our website.

I will now turn the call over to Charlie Scharf.

Charlie Scharf -- Chief Executive Officer

Thanks, John, and good morning, everyone. I'll make some brief comments about our third-quarter results, provide some commentary on the operating environment and our direction. I'll then turn the call over to John to review third-quarter results in more detail. Let me start by acknowledging that this will be the last earnings call with John, who announced his retirement in July.

John has served as an excellent financial and strategic leader for our company and has been incredibly helpful to me in my first year at Wells. John, thank you very much for all you've done. You will be missed. As you know, Mike Santomassimo will be joining Wells Fargo this week as CFO.

Mike has more than 20 years of leadership experience in banking and finance and most recently served as the CFO of BNY Mellon. And I'm looking forward to Mike hitting the ground running. I'm going to start by making some comments on the markets, economy, and operating environment that impacted us this quarter. Most market and liquidity trends are strong and continue to improve in the quarter.

Despite modest credit spread widening that followed volatility in the equity markets, market spreads have continued their steady improvement since the peak of dislocation and remain significantly tighter than the levels observed in March. Corporate new issuance volume remains elevated. HQLA bid/ask, a measure of the cost to transfer risk, and daily volatility have improved and are now below pre-crisis levels. And the Fed's pledge of unlimited support has improved risk appetite, tightened spreads, and deepened market liquidity.

The economy has materially improved due to the gradual reopening but also the significant monetary and fiscal stimulus, as well as the significant accommodations made by financial institutions and other businesses. Labor markets clearly reflect momentum with the third-quarter average jobless rate improving to 8.8% after posting a 13% rate during the second quarter. However, there's still a long way to go, and there remains significant risk to the recovery. The pace of job growth and the rebound in consumer spending have slowed, and the diminished pace of reopening and the end of some stimulus programs are presenting headwinds.

The powerful rebound in the third quarter still leaves the economy well below its pre-COVID peak, including restaurant sales 15% lower; real GDP 4% lower, and unemployment 7% below pre-COVID levels. Clearly, the recovery is in process. And while the gains we've seen this quarter are important, the path to full recovery for all remains uncertain. Let me now turn to our performance this quarter.

We reported net income after tax of $2 billion or $0.42 a share. Revenues benefited from very strong mortgage banking. And most other fee-related items also improved over the prior quarter, with the exception of trading, which while down from the exceptionally strong second quarter, still produced strong results. NII declined, reflecting the impact of the lower interest rate environment and lower loan balances, primarily driven by weaker aggregate demand across our commercial client base.

Expenses were elevated and impacted by two significant items: $961 million in customer accruals and a $718 million restructuring charge. Charge-offs declined from the second quarter, and our allowance was largely unchanged. Credit performance across almost all loan products was stronger than we would have anticipated a quarter ago. However, it's certainly too early to draw conclusions yet.

The actions from the Fed, our government, and financial institutions I referred to earlier have clearly helped consumers and companies of all sizes. But much of this is ending, and until the risks of COVID are behind us, these individuals and companies are still at risk without more support. Having said that, the fact that we are in a better place than expected is a good thing, and that shouldn't be lost. Our top priority continues to be the implementation of our risk control and regulatory work, though we're also taking targeted actions to improve the experience for our customers, clients, communities, and employees.

I will discuss this later. We continue to add talent to the senior management team and key roles to strengthen the foundation of the company. In addition to Mike joining as CFO, Ather Williams is joining Wells Fargo this month to lead our strategy, digital, and innovations group and will report to me. He will lead corporate strategic planning; define and manage digital platform standards and capabilities; and manage innovation priorities, opportunities, and companywide efforts to drive transformation.

We added other senior leaders, including a new head of Home Lending, and several key risk leaders as part of our enhanced risk model to further strengthen the independent oversight of all risk-taking activities and provide a more comprehensive view of risk across the company. In August, we announced that Mark Chancy was elected to the company's board of directors. Mark has more than 30 years of banking and financial services experience with an impressive combination of business, operational, and finance experience. He serves on the board's Audit Committee and Risk Committee.

In the third quarter, we also launched Clear Access Banking, a new low-cost, convenient bank account with no overdraft fees. Clear Access is off to a strong start with over 100,000 accounts signed up so far and is proving very popular with people under 25, a big part of its intended target population. This is part of our broader efforts to simplify our products and services and create clear, easy to use, and better experiences for our customers. As part of our simplification efforts, we will be reducing the number of different consumer checking accounts we offer, making it easier for both our customers and our bankers while also reducing expenses associated with supporting legacy products.

We continue to have over 200,000 employees working from home, and we don't anticipate this changing until at least December. Just under 20% of our branches remain temporarily closed, but we've opened more of our branch lobbies to enable our customers to come in and have conversations with our bankers instead of just using our drive-thru for transactions. And our teller and ATM transactions increased 8% from the second quarter. Wells Fargo was recently recognized as leading the U.S.

financial services industry in COVID-19 safety according to a nationwide study. This is great recognition for the work of all those at Wells who've worked tirelessly to keep our employees and customers as safe as possible. We've continued to make significant accommodations for our customers. Since March, we've helped more than 3.2 million consumers and small business customers by deferring payments and waiving fees.

The trailing seven-day average of new daily payment deferrals granted as of September 30 has declined 97% from their peak in early April. Debit card spend has remained strong since returning to pre-COVID levels in May, and in the last week of September, was up approximately 10% from the same week a year ago. Consumer credit spend improved throughout the third quarter but still is down approximately 4% in the last week of September compared to a year ago, an improvement from the beginning -- an improvement from being down approximately 10% from a year ago as of the end of June. This reflects steady improvement across a variety of categories.

But despite a rebound, hard-hit segments, like travel, entertainment, and fuel, remain significantly lower year on year. Commercial card spend remains significantly lower throughout the quarter and was still down approximately 30% in the last full week of September compared to the same week a year ago. Digital usage trends continue to be strong. As an example, mobile deposit dollar volume was a record high in the third quarter and was up 110% compared to a year ago.

Let me take a moment to expand on the conversation I started last quarter on expenses. We believe that our franchise is capable of earning far more than we're earning today. We continue to believe there's nothing structural in our business to stop us from having a competitive efficiency ratio, though we are far from it today. Prior to 2016, Wells Fargo had an efficiency ratio that was far more competitive with our peers.

As you know, we've had to make significant investments in people and technology to address prior underinvestment in risk and controls, and also have had outsized litigation and customer remediation expenses. This accounts for part of our elevated expense base. We also believe that we have significant opportunity to take targeted actions that are focused on improving the experience for our customers, clients, communities, and employees. These actions should also improve operational and financial performance.

We have also lagged behind our competitors in revenue performance, and we also believe we've got significant opportunities to make substantial improvements here as well. To be clear, our focus starts with running the company more effectively and efficiently. This includes reducing bureaucracy, simplifying our products, processes and our organization, reducing redundancy and manual work, and migrating customers and employees to digital solutions. All of this will also improve our control environment.

Lower expenses will be a byproduct of doing these things. We're taking an organized and structured approach to reviewing this across the entire company. We've established dedicated teams in each of our lines of businesses and functions. We're reviewing near-term, medium-term, and long-term actions.

We're already working on the near-term actions, including streamlining management ranks through spans and layers and other business improvements. Again, these are driven at making it easier for us to serve our customers and each other. These actions were the primary driver of the $718 million restructuring charge we took this quarter. These actions should reduce gross run-rate expenses by over $1 billion annually.

We also identified many medium- and longer-term actions that will take some time to fully implement. These include simplifying products in many of our businesses, optimizing operational and client service delivery, and continuing to downsize our corporate real estate portfolio. I understand that many of you would like more specifics on our plans. The reviews we're conducting across the entire company continue and we are in the midst of the 2021 planning cycle.

We need to be thorough in our work, and it's important that we understand three pieces before providing specifics to you: the magnitude and timing of the initiatives I've just discussed; where we think we need to invest to drive improved operational and financial performance; and most importantly, understanding the investments necessary to complete the buildout of our risk and control infrastructure, which will ultimately satisfy our regulatory commitments. I cannot stress the importance of this work enough. We cannot and will not do anything to jeopardize this work. It is also important that Mike have a chance to review our plans, which he will do immediately.

All that said, we should be in a position to provide more specificity regarding 2021 expense expectations on our call next quarter. While there is much work to do, and it will take time, our ultimate goal is to build a best-in-class business and hope to show progress along the way. This includes both competitive level of expenses and competitive revenue performance. Finally, I want to thank all of our employees for their continued hard work and dedication to making Wells Fargo better.

I will now turn the call over to John.

John Shrewsberry -- Chief Financial Officer

Thanks, Charlie, and good morning, everyone. We earned $2 billion in the third quarter, up $4.4 billion from the second quarter, driven by lower provision expense. We grew revenue, but our expenses remain too high. I'll be describing the drivers of our results in more detail throughout the call.

So let me just summarize a few items that impacted our third-quarter results that we included on Page 2. As Charlie highlighted, we had a $718 million restructuring charge, predominantly driven by severance expense, which drove the increase in noninterest expense in the third quarter and is expected to reduce our gross run-rate expenses by over $1 billion annually. We had $961 million of customer remediation accruals for a variety of matters. The increase of this accrual related mostly to previously disclosed matters and reflected an expansion of the customer population, the time period and/or the amount of reimbursement as part of our ongoing analysis of doing the right thing for our customers while resolving outstanding matters as quickly as possible.

We also had $452 million of noninterest income related to a change in the accounting measurement model for nonmarketable equity securities from our affiliated venture capital partnership. As you know, we typically have gains or losses from equity securities driven by market valuations, which we had again in the third quarter. Our effective income tax rate for the third quarter was near our expectations, and we currently expect our effective income tax rate for the fourth quarter to be less than 10%, primarily as a result of expected tax credits. Turning to Page 3.

Our capital and liquidity continued to be strong, with our CET1 level $28.3 billion above the regulatory minimum and our LCR 34 percentage points above our regulatory minimum. At the end of the third quarter, our primary unencumbered sources of liquidity totaled approximately $494 billion. Turning to loans on Page 4. Both average and period-end loans declined from the second quarter, with growth in consumer loans more than offset by declines in commercial loans.

I'll explain the drivers of commercial and consumer period-end loan balances in more detail starting with commercial loans on Page 5. C&I loans declined $29.2 billion or 8% from the second quarter, driven by higher paydowns, reflecting continued liquidity and strength in the capital markets and lower loan demand, including revolving line utilization, declining to pre-COVID utilization levels, particularly in our middle market business. Commercial real estate loans decreased $1.2 billion from the second quarter, reflecting weaker demand in commercial real estate mortgage, which was partially offset by growth in commercial real estate construction in categories that have not been negatively impacted by the pandemic. This includes multifamily projects and industrial facilities, including data centers.

Consumer loans increased $15.8 billion from the second quarter. This increase was driven by the repurchase of $21.9 billion of first mortgage loans from Ginnie Mae securitization pools. We had a high level of these early pool buyouts in the quarter due to COVID-related payment deferrals. We also reclassified $9 billion of first mortgage loans from held for sale to held for investment.

Credit card loans were relatively stable from the second quarter as consumer spending increased after declining over $2 billion for two consecutive quarters. However, balances were down $3.6 billion from a year ago, reflecting the economic slowdown associated with COVID-19. Auto loans declined $358 million from the second quarter, and originations declined 5%. We continue to take certain actions to mitigate future loss exposure while our spreads on new originations continued to improve.

Other revolving credit and installment loans increased $812 million from the second quarter as higher security-based lending was partially offset by lower personal loans and lines and lower student loans. During the third quarter, we notified our customers of our exit from the student loan business as part of our ongoing process of pruning certain businesses as we assess our strategic priorities. Turning to deposits on Page 7. We continue to have lower deposit growth than the industry due to actions we've taken to manage under the asset cap.

However, even after these actions, average deposits grew $107.6 billion or 8% from a year ago and were up $12.3 billion from the second quarter. The linked-quarter growth was driven by noninterest-bearing deposits which were up 8%, while interest-bearing deposits declined 2%. Period-end deposits increased $74.7 billion from a year ago but declined $27.5 billion from the second quarter. This decline was driven by actions we've taken to reduce nonoperational Wholesale Banking deposits, as well as pricing and other actions in our consumer businesses.

Consumer and small business banking deposits grew $9.9 billion from the second quarter, reflecting continued COVID-related impacts, including customers' preferences for liquidity, loan payment deferrals, and stimulus checks. Average deposit cost declined to 9 basis points, down 62 basis points from a year ago and 8 basis points from the second quarter. Net interest income declined $512 million or 5% from the second quarter primarily due to the low-interest rate environment which resulted in balance sheet repricing as earning asset yields continued to decline faster than funding liabilities; balance sheet mix shifts into lower-yielding assets, including the impact of lower commercial loan demand which resulted in higher cash balances; and $120 million of higher MBS premium amortization due to higher prepayment rates. These declines were partially offset by higher variable sources of income and one additional day in the quarter.

The first nine months of 2020, our net interest income was $30.6 billion. With the completion of the third quarter, we now expect full-year 2020 net interest income to be approximately $40 billion, which is lower than our previous guidance due to lower commercial loan balances and higher MBS premium amortization. Turning to Page 9. Noninterest income increased $1.5 billion or 19% from the second quarter, with growth in many fee-related businesses.

While we've continued to waive certain fees for customers impacted by the pandemic, deposit-related fees were up $157 million from the second quarter, driven by higher customer transaction volume. Trust and investment fees increased $163 million from the second quarter, primarily driven by higher retail brokerage advisory fees, partially offset by lower Investment Banking fees with fee accounts down from record second-quarter levels. Card fees increased $115 million from the second quarter, with debit card transaction volume up 12% and credit card purchase volume up 22%. Mortgage banking fees increased $1.3 billion from the second quarter.

The 2020 mortgage origination market should be the largest on record, and capacity constraints continue to increase margins. Total residential held for sale mortgage originations increased 12% from the second quarter to $48 billion, and our production margin increased to 216 basis points, up 12 basis points from the second quarter and up 95 basis points from a year ago. We currently expect fourth-quarter origination volume to be similar to third-quarter levels despite typical seasonal declines. And fourth-quarter production margins should remain strong.

Mortgage servicing income increased $1 billion from the second quarter due to $296 million of favorable net MSR hedging results in the third quarter and a negative valuation adjustment in our MSR model as a result of higher prepayment assumptions and higher expected servicing costs in the second quarter that did not repeat. Net gains from trading activities declined $446 million from a record second quarter primarily due to lower fixed-income trading results, partially offset by higher equity trading results. Turning to expenses on Page 10. Our expenses increased to $678 million from the second quarter, primarily driven by the $718 million restructuring charge that I highlighted earlier on the call.

Charlie highlighted in his comments the details we have on Slide 11 on the progress we're making to reduce expenses and build a stronger Wells Fargo. Many ideas have been generated with the fresh perspective from leaders throughout the organization. This renewed focus is critical to our future success, not only improving our efficiency ratio but also enabling us to become more streamlined and agile and better serve our customers while we continue to invest in our business and meet our regulatory commitments. Turning to our business segments, starting on Page 12.

We continue to make refinements to the composition of our operating segments and allocation methodologies. Additionally, we're still in the process of transitioning key leadership positions, including Mike Santomassimo, who will be joining Wells Fargo later this week. We now expect to update our operating segment disclosures, including comparative financial results, in the fourth-quarter 2020 and provide full-year 2020 results under the new reporting structure. On Page 13, we provide our Community Banking metrics.

We had 32 million digital active customers, up 6% from a year ago and 3% from the second quarter. Digital logins declined from record second-quarter levels but were up 11% from a year ago. And the number of checks deposited using a mobile device reached another record high in the third quarter and increased 36% from a year ago. With approximately 18% of our branches temporarily closed due to COVID-19 and more customers using our digital channels, our teller and ATM transactions declined 22% from a year ago but increased 8% from the second quarter as the economy began to reopen and we reopened more of our branches.

Turning to Page 14. Wholesale Banking reported net income of $1.5 billion, up $3.6 billion from the second quarter, driven by lower provision for credit losses. Revenue declined $969 million from the second quarter, reflecting lower net gains from trading activities and Investment Banking fees, both of which were at record levels in the second quarter. Net interest income declined from the second quarter primarily due to lower loan and deposit balances and lower fixed-income trading assets.

Average loan balances declined 5% from the second quarter. Revolving loan utilization in September of 36% declined 280 basis points from June. And unfunded lending commitments increased 2% from the prior quarter. Wealth and Investment Management earned $463 million in the third quarter, up $283 million from the second quarter, primarily driven by lower provision for credit losses and higher asset-based fees benefiting from improved market performance.

The decline in earnings from a year ago was driven by the $1.1 billion gain on the sale of our institutional retirement and trust business in the third quarter of 2019. WIM average deposits increased $4 billion from the second quarter and were up $33 billion or 23% from a year ago, driven by higher cash allocation in brokerage client accounts. WIM deposit costs in the third quarter were in the single digits and have declined over 50 basis points from a year ago. Turning to credit results on Page 16.

Our net charge-off rate declined 17 basis points from the second quarter to 29 basis points, which was better than we anticipated a quarter ago given the challenging economic environment. Losses improved across our commercial and consumer portfolios. However, customer accommodations we provided since the start of the pandemic could delay the recognition of net charge-offs, delinquencies, and nonaccrual status. So it's too early to draw any conclusions about future losses based on credit performance in the third quarter.

Commercial criticized assets declined 2% from the second quarter with broad-based declines in C&I, partially offset by an increase in commercial real estate loans. Nonaccrual loans increased $417 million from the second quarter, driven by higher consumer real estate, auto, and commercial real estate nonaccruals. On Page 17, we provide more detail on our C&I and lease financing portfolio by industry, including the declines in loans outstanding and total commitments from the second quarter. C&I and lease financing nonaccruals were stable from the second quarter as declines in oil and gas and retail were largely offset by increases in other industries, including healthcare and pharmaceutical and transportation services.

Of note, 39% of nonaccruals were in oil and gas, down from 47% in the second quarter. Turning to our commercial real estate portfolio on Page 18. Commercial real estate nonaccruals increased $126 million from the second quarter, with declines in hotel, motel, and agriculture, more than offset by increases in other categories with the largest increase in office buildings. Criticized assets were up $2.3 billion or 22% from the second quarter, with 92% of the increase driven by hotel, motel, shopping center, and retail sectors.

The percentage of our consumer loan portfolio that remained in a COVID-related payment deferral as of the end of the third quarter declined. As we show on Page 19, we had declines across our consumer portfolios. These calculations exclude first mortgage loans that are guaranteed or insured by the government, which we believe have minimal credit risk. On Page 20, we provide detail on our allowance for credit losses for loans.

Our allowance coverage for total loans was 2.22% in the third quarter with stability across most loan classes and an increase for credit card loans. Our allowance of $20.5 billion was stable from the second quarter, reflecting an improving economic environment and solid credit performance in the third quarter but with continued uncertainty due to COVID-19. In determining our allowance, we considered current economic conditions, which improved compared with prior expectations as unemployment levels decreased during the third quarter. We also considered that recent credit performance reflected the support of fiscal stimulus, lender accommodations, and borrowers' ability to access liquidity.

These factors drove lower loss expectations in our quantitative models. However, there is increased uncertainty in economic forecasts that vary widely, and future credit performance may deteriorate as stimulus effects that benefited recent credit performance come to an end. We increased our qualitative reserves, reflecting a variety of factors, including our exposure to significantly impacted industries, the limited transaction activity, and wide variability of market valuations for property types in our commercial real estate portfolio and the elevated default risk for borrowers as payment-deferral programs end. While the timing of the end of the pandemic and the eventual path to an economic recovery remain uncertain, we believe that our allowance captures the expected loss content in our portfolio as of the end of the quarter.

Turning to Page 21. As I highlighted earlier, our CET1 ratio remained well above our regulatory minimum, increasing to 11.4% in the third quarter. As you can see, our standardized and advanced approach ratios are now in very close proximity. We currently expect that internal loan portfolio credit ratings, which were also contemplated in the development of our allowance, will result in higher risk-weighted assets under the advanced approach and under the standardized approach in the coming quarters, which would reduce our CET1 ratio and other RWA-based capital ratios.

That said, we expect to maintain strong capital ratios that exceed both regulatory requirements and internal targets after considering this expected trend in risk-weighted assets. In summary, while our results in the third quarter improved from the second quarter, they were still down significantly from a year ago, reflecting the impact of the economic downturn. Even though we can't predict the path to a full economic recovery, we're focused on improving business performance by reducing our expenses while meeting our regulatory commitments and appropriately investing in our business. And we'll now take your questions.

Questions & Answers:


[Operator instructions] Our first question will come from the line of Betsy Graseck with Morgan Stanley.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi, good morning.

Charlie Scharf -- Chief Executive Officer

Hi, Betsy. Good morning.

John Shrewsberry -- Chief Financial Officer

Good morning.

Betsy Graseck -- Morgan Stanley -- Analyst

A couple of questions. One is on the $1 billion improvement in expenses that you outlined earlier in your prepared remarks. I realize that you're talking about a lot of investments that you need to make as well. But I'm just wondering, is this $1 billion expected to come through in net expense reductions as we look out over the next year?

Charlie Scharf -- Chief Executive Officer

Hey, Betsy, it's Charlie. Thanks for the question. I would say, like I referred in the remarks, it's gross reduction. It's real.

It will be there. We'll see it next year. But we're still continuing to go through our plan for next year, and we're looking at all of the investments that are necessary, both on the control side, as well as the investment side. And so it's too early to be definitive about what the net numbers look like at this point, but as I said last quarter, we want to show progress.

And progress is a combination of taking actions on the gross side but also showing you something on the net side. But I think the right thing at this point is to give you a much clearer guidance on next quarter's call after we finish our budget work and after Mike gets to review the work himself.

Betsy Graseck -- Morgan Stanley -- Analyst

Got it. Yeah. OK. I get that.

And then just separately, Charlie, you were mentioning how there's opportunities to get more efficient. There's also opportunities to get, I don't know, "your share of the revenue." I know it's early, but could you give us a sense as to what you're thinking about when you highlight that? Where do you see opportunities for Wells on the revenue side?

Charlie Scharf -- Chief Executive Officer

Sure. I mean, I would say when we look at our business, kind of put the trajectory of NII to the side for a second because of the low rate environment, just talking about building franchise and the opportunities that present itself. I think when you look at -- let's go business by business quickly. When you look at our consumer and small business banking franchise, we've been on the defensive now for a very long time, appropriately so given the issues and problems that we had.

A tremendous amount of work has been done by all the folks leading those businesses. Our franchise is still extraordinarily strong. And you see it, by the way, even in just the deposit growth that we've had in that segment, which says an awful lot about what our customers think of us. But while we had been investing in some of the digital capabilities, which you do see the marketplace tremendous opportunities to grow with the affluent customer base.

At the other end, we've rolled out a product for those that are far less affluent, which is very competitive and getting real traction. And so I think in the consumer and small business space, the opportunities are significant. In the consumer lending space, the mortgage business, the demand is greater than our ability to process at this point still, and that's still where we sit today. We have opportunities in the card space to leverage the customer base that we have, staying within our risk framework the way we've defined it, but just doing a better job at delivering card and other payments products.

The commercial bank, I think, is an extraordinary franchise. And both things that we do on a stand-alone basis there, as well as things we do in partnership with products we have in the corporate investment bank, are still huge opportunities for us. In our Wealth and Investment Management space, the wealth business, we're one of the few that have this sizable franchise in a space that we love. We've made progress at having the business work together across our private bank and across our brokerage business.

But we're just getting started there. And I think the opportunities, even with the very strong performance we've had this quarter, are still extremely strong. And then lastly, in the corporate investment banking space, again, I would have said as an outsider that Wells had been very, very smart at building the business where it has traditional strength in serving customers, and that's the path that we'll continue to be on. So when I look at all these businesses, I feel very good about our ability to grow the franchise.

And it's a question now of timing and prioritization.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. Anything in particular you'd think about maybe saving to make room for growth given the asset cap is kind of getting in the way of growth on the balance sheet, at least?

Charlie Scharf -- Chief Executive Officer

Yeah. I mean, I think -- so I mean, we're very actively looking at not below those five businesses that I just described. We're very actively looking at all of the portfolios and all the businesses below that. And we're going to continue to exit some things which aren't core to the U.S.

banking franchise that we are, not that it's U.S. only but supporting the core customer base that we have. And so I would expect, over the next couple of quarters, we will create some room on the balance sheet by exiting some things that aren't core.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. Super. Thanks. Thanks, Charlie.

Appreciate it.

Charlie Scharf -- Chief Executive Officer

I do want to just -- but I just want to be clear. We're exiting them because they aren't core to serving our core customer base on the consumer and large corporate side. We're not exiting them because of the asset cap. I think that will help.


Our next question will come from the line of Matt O'Connor with Deutsche Bank.

Matt OConnor -- Deutsche Bank -- Analyst

Good morning. That was a really good kind of overview of how you're thinking about the businesses just from a big-picture perspective. I think a lot of investors are looking for kind of this big rollout of the strategy that put some numbers and more meat behind kind of what you just said. And obviously, COVID is delaying that, I would assume.

Obviously, you're really focused on the regulatory issues. But is that something that you do plan to do? And is the timing of kind of getting out of the asset cap, driving something like that, say, like a virtual investor day or something similar?

Charlie Scharf -- Chief Executive Officer

Yes. Well, I think you said it very well, Matt. I appreciate what you said, which is that there's no doubt that in terms of the way we'd be thinking about the trajectory of the business and what the opportunities for us over the shorter and early medium term are different today that we're in this COVID environment than not. And so it's kind of hard to have a meaningful conversation that looks well beyond that when we're far from through this.

And so we are very focused on the things that we need to do in this environment to improve our performance, albeit with an eye toward making sure that we're building the company for the long term. The regulatory work, as you mentioned, again, I said it in my remarks. I can't stress it enough. It's a gating factor for us to be able to take advantage of all the opportunities that we have in the franchise.

We're putting a tremendous amount of time and attention and effort toward this. And understanding exactly what those resources look like and how that impacts the company is the work that we continue to go through. And as I said, by the time we get to the end of next quarter, we'll give you a clear look as to what we think that means for 2021. And then listen.

The asset cap, I wish there was more to say about it. But we're focused on controlling what we can control, which is doing the work that's been asked of us, which is totally appropriate. We're in the process of doing that. And there's no doubt that while the asset cap exists, that we do have a limitation that others don't have.

Others have other limitations with different ratios and whatnot. That is one that we have. And so it is fair to say we will not be able to extract the full potential out of the franchise until after the asset cap has gone. Doesn't mean that we don't have the opportunities to grow from where we are today, and we can talk a little bit about that if you want.

But that certainly does factor into our thinking about what the trajectory of the company looks like and the time frames.

Matt OConnor -- Deutsche Bank -- Analyst

And then just to be clear, in terms of kind of presenting kind of this, call it, while the asset cap is still there and kind of the post asset cap view, is that something that you're going to come out to investors and put some targets out there? And again, some more meat behind the strategic update, or we'll get the expense outlook in '21 in a little bit more kind of piecemeal as you think about giving guidance and strategic outlook?

Charlie Scharf -- Chief Executive Officer

I would expect that you'd get a -- that we'd be giving you not just an expense outlook but an update on how we're thinking about the different businesses and when we talk about the things that belong and don't belong, how that fits. And then we're also going to be giving you, at the end of the quarter when we report, not just the quarter but the full-year results based upon the segment looks, which will make pretty clear where we stand versus our competition. And we'll be able to talk through what those differences are and how we think about that.

John Shrewsberry -- Chief Financial Officer

They also reflect some strategic decisions that have already been made and will allow you to look at the businesses on a heads-up basis versus competitors, the way the current leaders are intending to run them going forward. So there's a lot of information in that.

Matt OConnor -- Deutsche Bank -- Analyst

And then just lastly if I could squeeze in on the asset cap. I think February is going to be three years, which investors ask me, like, how long I think it's going to linger. And I'm like, I don't really know, but there's four CEOs, three chairs, three years. There's obviously been like a lot of change, a lot of effort.

And I know there's only so much that you can share and maybe there's only so much that you know. But like, what should we be looking for from the outside? Because cumulatively, it does seem like there's been a lot of effort. And hopefully, it's accelerated the past year. But it seems like there's been a lot of important milestones, at least from an external point of view.

So what can we look for if anything?

Charlie Scharf -- Chief Executive Officer

Listen. I mean, what you can look at is you can look at the people that we have in roles today that have dealt with these issues before. And the organization today does, in fact, look very different than it was a year ago or even six or nine months ago. And as I've said, when you look at the Fed consent order, it's pretty straightforward in terms of what they're asking for.

The environment that they're asking for is the same thing that they've asked all the other big banks for. So getting the experience inside the company that actually understands exactly what is required of us, I think, is extraordinarily important. And that team is actively working through what's got to be delivered. Again, I wish I could say more, Matt.

As I said, it's ultimately the regulators on all of our issues are going to be the ones to determine when it's done to their satisfaction. But again, I could tell you, there's no question in my mind that we have a first-class team in place now working on it that's experienced, many that have dealt with these issues before. It has this sense of urgency in the company, which I think is different than what we had in the past. The amount of time and resources that the senior team is spending on this is extraordinary.

You'd be shocked at the amount of time because we know we need to do what's required. And beyond that, again, I can't speak for the regulators. So that's what I'd say.

Matt OConnor -- Deutsche Bank -- Analyst

OK. Thanks for taking my questions.

Charlie Scharf -- Chief Executive Officer



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

Ken Usdin -- Jefferies -- Analyst

Hey, thanks. Good morning, guys.

Charlie Scharf -- Chief Executive Officer

Hey, Ken.

Ken Usdin -- Jefferies -- Analyst

John, just on your NII point, understanding that we're still kind of seeing this decline in loans and the premium am, does the fourth quarter get to a stabilization point with NII as you look out into next year? And what would be the drivers to kind of put that bottom in as you think about the mix of earning assets and what you expect with deposit growth? Thanks.

John Shrewsberry -- Chief Financial Officer

Yes. So the pieces of it are deposit pricing on the one hand, and that's come down meaningfully, has a little bit more to go but will likely bottom out in the low single digits versus the high single digits, where it is today. On the asset side, yes, the softening in C&I loans, in particular, has been a contributor to things underperforming even recent estimates. And the question of where we go there, both the industry and Wells Fargo, will be, I think, at the margin, the swing factor in what happens for NII and for NIM over the course of the next year or so.

And if we get a little bit of steepening, that would be very helpful. The way we're sort of looking at it, it's possible that we end up flat to down single-digit percentages in NIM knowing what we know today. As Charlie mentioned, the forecasting process isn't done for next year. And so there will be more guidance on that as that comes into clarity.

But those are probably the big drivers. Right now, also on the security side, you mentioned premium am, so we've got mortgage securities prepaying rapidly. We're replacing 2% yields with, call it, 140 basis point yields in the current yield, which will bring down the overall book average a little bit, too. So that's in our forecast, but it's a little bit different than the -- or a continuation of what happened in Q3.

We expect that premium amortization to continue right into next year.

Ken Usdin -- Jefferies -- Analyst

Right. John, can I just ask you to clarify? You said flat to down NIM, but did you mean NII dollars? Or could you just kind of rego through that again just so we all heard it right?

John Shrewsberry -- Chief Financial Officer

Yeah. I meant NII, sorry, in dollars.

Ken Usdin -- Jefferies -- Analyst

OK. And then can you help us understand what a steepener means in terms of like what does a 10-year delta do to your net interest income and to your point about just a helpful steepener, if we got it on an all-things-equal basis?

John Shrewsberry -- Chief Financial Officer

Yes. Well, it depends what we choose to do with it in terms of how much we redeploy. But if you could get the 10-year up toward 100 basis points, something like that, and we're talking about, I don't know, $1 billion or more of net interest income, again, it depends on how quickly we redeploy into that, what happens to mortgage yields at the same time. But we are sensitive at the long end of the curve.

Ken Usdin -- Jefferies -- Analyst

Understood. Thanks a lot, John.


Your next question comes from the line of Erika Najarian with Bank of America.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning. The feedback from the investor community essentially indicates that they understand that it's going to take time to have a thoughtful plan, especially on expenses. I think what's surprising the market today is the base upon which we're thinking about potential future gross reductions was a little bit higher than expected.

So I guess my first question is, as I take the restructuring charges out of the third-quarter run rate, that would imply $14.5 billion with elevated operating losses and suggesting an annual base of $58 billion. Is that the right expense base from which we should think about future gross reductions and also investments?

John Shrewsberry -- Chief Financial Officer

Yeah. No, I would -- in our own math, we would also consider elevated operating losses to be more infrequent and not part of the run rate. So I get to a lower number on my own. I mean, the reported numbers are what they are and should be accounted for.

But as we're thinking about what's run rate and what's not, the elevated levels of operating losses, even though they have occurred now for a couple of quarters in a row, are not anticipated at this level. And restructuring charges, I'm certain there will be more, by the way, because that will be evidence that the company is making progress in its plans. But I wouldn't just consider that to be run rate either. So that would get you to a lower number.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. Just a follow-up on that -- go ahead.

John Shrewsberry -- Chief Financial Officer

Go ahead. Go ahead.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Just a follow up with that, actually. So I think you've previously mentioned that a more normal level would be $600 million annually. And so if I take that elevated level out, then the base upon which we would then say, OK, this is the base, and then there's further improvement from here, would be $54 billion. Clearly, different math in terms of your future earnings power.

Is that the right way to think about it?

John Shrewsberry -- Chief Financial Officer

That's how I think about it. Yes. That $600 million still seems like a good number. I think in this quarter, we have about $150 million worth of what we consider to be run-rate operating losses, fraud, robbery, and most standard things that have been in place for a long time.

And what's above that is more episodic. And this quarter had much more to do with the closure of legacy types of issues.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. Very, very helpful. And just as a follow-up question to Ken's line of questioning. All three of your mega-cap bank peers essentially indicated that net interest income has either hit a bottom in the third quarter or will hit a bottom in the fourth quarter.

Assuming no change in the outlook for rates and obviously, no change in terms of the asset cap, is that a statement that you're also confident in saying on NII bottoming?

John Shrewsberry -- Chief Financial Officer

I mentioned it could get a little bit softer next year. Remember that we're operating with a with an asset cap that doesn't allow us to expand the size of the balance sheet and earn a little bit of incremental net interest income on these extra deposit balances that we're all gathering. And so at the margin, that could be a difference-maker. There are other things that go into what our level of NII is.

But at the margin, that's a constraint that we have that others don't.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Thank you for clarifying.


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

John Pancari -- Evercore ISI -- Analyst

Good morning. Back to the expense discussion. On the $1 billion gross expense run rate reduction, could you maybe give us a little bit more detail around the timing of the realization of that? Could it be more front-end-loaded in terms of the annual impact?

John Shrewsberry -- Chief Financial Officer

Yeah. So it is a gross number, but the impact will be immediate in the run rate because we've accelerated the costs associated with the actions, and those expenses will drop out.

John Pancari -- Evercore ISI -- Analyst

OK. So it's more immediate impact there. OK. And then separately, in terms of the additional detail on the longer-term expenses, next quarter with fourth quarter, when you give us more details, could we get more of the larger expense opportunity detail in terms of potentially the $10 billion that was flagged before and maybe even an expense -- I mean, efficiency target beyond that? Just want to get an idea of what type of metrics, Charlie, that you might be in a position to give us.

Charlie Scharf -- Chief Executive Officer

OK. I think it was -- between now and then, we'll figure out exactly what we're going to give you. What I said was that we will give you a clearer outlook as to what to expect for expenses for 2021 at the end of the quarter. We also said that you'll be seeing the disclosure of our segments broken out differently and much more comparable to what others report.

And so you'll be able to see the gaps between our efficiency ratio by business and others. And just to be clear, what I said at the end of last quarter was all we did is we did the math of the people we compete against and said what's their efficiency ratio, looking at business mix and what's ours, and that's the difference. And so I assume you all do those calculations as well. We're acknowledging it.

And those are the conversations that we have internally to say, is there any reason why our expense base shouldn't look different? So you'll actually -- so you'll see what those gaps are, and we'll certainly be in a position to talk about the types of things that we will be doing to close the gap, some of which will be in progress and others which will be to come.

John Pancari -- Evercore ISI -- Analyst

OK. No, thank you. That's helpful. If I could just ask one more thing.

On the loan growth front, I know you mentioned that C&I is still -- you're seeing the pressure there, and that is a big factor in terms of your spread income outlook. Can you just give us some color around what you're seeing in terms of commercial demand? And could we see some improvement in C&I balances or at least stabilization here?

John Shrewsberry -- Chief Financial Officer

Sure. So there's a handful of things going on. At the upper end, for corporate and institutional borrowers, we're seeing continued utilization of the lines that they have but not a lot of incremental demand for more credit. In the middle market, there's a lot of different stories, but they can be summarized to saying that the utilization of existing facilities is down meaningfully to below pre-COVID levels.

Obviously, we all have the spike in the first part of the year that has abated. But in the middle market and including asset-based lending, we're seeing lower inventory levels held by customers who would use our financing to fund that inventory. Some of those may be coming back as inventories get rebuilt. Some of them may not.

But at the margin, that's pulling down balances. And also, I'd say on the high end. With the capital markets as wide open as they are, both for high-grade credit, as well as for more levered credit, that is replacing the utilization of bank lines by funding those things in the capital markets. And that's the story.

Charlie Scharf -- Chief Executive Officer

And I'll just state the obvious, right, which is that ultimately, the path of the recovery is going to determine the levels of demand that are out there. And you can -- we do try to be very careful in our remarks about when it comes to credit, saying that it's too early to draw any conclusions. At the same time, as you look forward, as you get into next year, there will be a vaccine, there will be therapeutics. The world will continue to open, and everyone is learning how to do it safely, even in today's environment.

And ultimately, that's what's going to drive business activity and demand, and that happens, we'll be the beneficiary.

John Pancari -- Evercore ISI -- Analyst

Got it. OK. Thanks, Charlie.

Charlie Scharf -- Chief Executive Officer

Thanks, John.


Your next question comes from the line of Saul Martinez with UBS.

Saul Martinez -- UBS -- Analyst

Hy. OK. Good morning.

Charlie Scharf -- Chief Executive Officer

Hey, good morning.

Saul Martinez -- UBS -- Analyst

First of all, good luck on your future endeavors, John, and be sorry to not have you on these calls going forward. But I guess, first of all, I want to -- sorry to beat a dead horse with this question, but I just want to make sure I have a good handle for what we should expect. So the year-end results, we'll get the outlook for expenses in 2021 in addition to enhanced segment disclosure, which will allow us to, I guess, more effectively compare you to your peers on a segment basis. And I guess what's still a little bit unclear to me is what, if at all, is the plan to go beyond that and give maybe more far-reaching goals.

As you kind of continue to go through your strategic review, should we expect to see longer-term financial targets and expense-reduction plans and maybe long-term expense targets? Is that still the plan, and it'll be determined at a future date when you're able to and feel comfortable giving those targets? Or is that just kind of on hold for now?

Charlie Scharf -- Chief Executive Officer

Well, I think three things, Saul. By the way, I completely appreciate the line of questioning. And so the fact that it's being asked a bunch, I completely understand. We have a couple of things that we need to get through.

We need to finish all of our internal work to understand what it takes to actually build the actions around becoming more effective and efficient at running the company. At the same time, we're continuing to invest to both build out the company and to do the regulatory and risk work that has to get done. There's no doubt that the environment that we're in today gives us pause in terms of committing to anything on a longer-term basis because then we'll show you a number, and then you're going to say, well, what's the timing? And obviously, it's very highly dependent on what the world looks like because of COVID, the asset cap because that obviously does impact our ability to grow the balance sheet and offset some of the NII reduction, which ultimately impacts the efficiency ratio. And so as we get more clarity around what those things look like, we will provide more detail.

It's just not clear when the right time to do that is, but we'll tell you everything we know when we know it.

John Shrewsberry -- Chief Financial Officer

One more thing to add, Saul. So what you'll see at the end of the year is that the results as they reflect 2020 will also show the results of some strategic decisions that have already been made. So that will be helpful at the margin.

Saul Martinez -- UBS -- Analyst

Got it. OK. No, that's helpful. I want to go back to Erika's line of questioning on how to think about sort of a more normalized basis of expenses currently.

And I think a lot of us have been kind of normalizing the op losses to the $600 million or $150 million a quarter. I mean, I guess my question there is, like, why is that the right number because you haven't been anywhere near that number for quarter -- it seems like five years. And I guess I get the normal amount of fraud and whatnot, but it's been much, much higher than that for a very long time. Heck, even before the sales issues.

And I guess -- so is that really the right number? And I guess maybe a more important question is, when do you feel like you'll have some of these customer -- or these litigation accruals that have been pretty elevated in three of the last four quarters kind of running their course and coming back down?

Charlie Scharf -- Chief Executive Officer

Yeah. So I guess I'll start, and John, you can add. I would say, when we look at the customer remediation accruals for both this quarter and last quarter, they're very discrete items where we went through all of the items that we have in our customer remediation queue, of which everything material relates to prior practices that have been around for a period of time. We're working really hard to put these behind us and put these behind us means determine exactly what we're going to do for remediation, work with our regulators where necessary to make sure that they understand what that means.

And what we did over the past couple of quarters is to try and go through the entire inventory to ensure that we were current and realistic about what our actions are and what we're going to do to move these on. And so we've done that. I wish it would have taken one quarter as opposed to two, but it took two. And not that there won't be anything going forward, but we don't see anything that looks at all, materiality, of the types of things that we've done.

And so we think those things are booked. It's in a good place, and we're just doing the work to implement them now.

John Shrewsberry -- Chief Financial Officer

And then in recent years, there have been this kind of range of litigation, but there's been two big pieces of litigation that have contributed to this in a way that's not expected to recur, one being, at that point, 10-year-old RMBS settlement, where we were among the last people to be brought into the settlement process. And then of course the sales practices-related litigation that was settled earlier this year. And that, similarly, is not expected to recur. So I get your point, which is it's been elevated for a long time.

But when you disaggregate it and look at what is the run rate in the business, we mentioned that adds up to roughly $600 million a year versus what things are specifically related to what I would describe as legacy issues, that is where the line gets drawn. The proof will be in demonstrating [Inaudible] $600 million or below would be helpful.

Saul Martinez -- UBS -- Analyst

Yeah. Helpful, yeah. Yeah. Well, it's been a while since you've been there, and you've been talking about that number for a while.

Charlie Scharf -- Chief Executive Officer

Actually, in the second quarter of 2020, it was $464 million. So that's an example.

Saul Martinez -- UBS -- Analyst

OK. Got it. But like the NII guide, just final one, just clarity. When you say flat or down, that's full-year '21 versus '20? Because it seems hard to be flat given kind of your run rate as you exit 2020.

John Shrewsberry -- Chief Financial Officer

Yes. It depends on what happens with loan growth. That's a good point. But that is the full year versus the full year.

Saul Martinez -- UBS -- Analyst

OK. Thank you.


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

Steven Chubak -- Wolfe Research -- Analyst

Good morning. So wanted to start off, John, with just a question on liquidity management. We've heard different messages from your peers regarding appetite to redeploy excess liquidity into MBS and help mitigate some NII pressures. You're currently running with, arguably, the largest excess liquidity pool of all the money center banks, and I was hoping you could frame the potential benefit from remixing into higher-yielding securities.

And is any of that contemplated in the NII guidance that you provided for next year?

John Shrewsberry -- Chief Financial Officer

Yeah. What's contemplated is a continuation of roughly the same level of deployment, which just requires redeployment, given the rate at which things are prepaying. So there's a question about how long you want to get in a sub-1% 10-year environment with mortgage yields at these levels. In the event of a backup, it's a problem.

It's a capital problem. It's an earnings problem versus the trade-off of what happens if rates stay low for a very long time, or frankly, go lower from here or even go negative and what that means from an earnings power perspective. And so those discussions, those trade-offs are measured and revisited each time we have an algo discussion given what the forward look is for what could happen to rates and deposit flows and loan demand and other things. So we have liquidity available for loan demand.

We certainly could redeploy tens of billions of dollars into MBS or probably even more into similar-duration treasuries. There's some liquidity difference in the characteristics there. But I think, as you heard from at least one of our competitors, really loading up at these levels and locking into both duration and/or negative convexity doesn't seem like a great trade-off. And so we're faced with those same choices.

And right now, we're essentially redeploying to stay at about the same level.

Charlie Scharf -- Chief Executive Officer

If I can just add. So in terms of how we think about the opportunity and also how it factors into the asset cap. So just trying to be clear about what I tried to say before, which is we have an asset cap that we have to live with, but we do have some room to operate as we sit here today because of the liquidity that we have, because of where the balance sheet is actually running today, because of other actions that we've taken, and as we think about exiting some things that can create some balance sheet room for us. And so while we don't have the same capacity that others have, we do have capacity to deploy more of our capital toward loans than we've currently deployed.

John Shrewsberry -- Chief Financial Officer

Right. That's right.

Steven Chubak -- Wolfe Research -- Analyst

That's great. Thank you both for the color. And then maybe just a question for you, Charlie, on the expense outlook. I'm going to try to take a different tack here.

Given that one of the biggest sources of pushback that we've we hear from investors is that while the opportunity to drive expenses lower is quite clear and evident, the risk is that revenue attrition is difficult to handicap and could be greater than anticipated, especially given how significant the revenue attrition has been since the last investor day update, recognizing you were not in the seat at that time. But just curious, as you begin executing on the cost plans and headcount reductions, what efforts are you taking to help limit revenue attrition? And your confidence level that you can achieve efficiency gains while protecting revenues.

Charlie Scharf -- Chief Executive Officer

Sure. I guess let me answer it a couple of ways. First of all, when we take a look at just what's happened to the franchise in terms of attrition, I mean, the reality of who we are is we are more of a traditional consumer and commercial bank than some of the other large competitors we compete with. And so the reduction in NII in those businesses has an outsized impact on us relative to the others because of the business mix.

And so that revenue decline is not franchise loss in terms of what it means to customer relationships. When we look at the individual businesses and how they're performing from a customer franchise in our consumer business, in our middle market business, in our wealth business, as well as the large corporate business, I actually look at and say it's been extraordinarily strong given all this company has been through. When we think about the actions that we're going to take. First of all, for things that we are going to exit, it doesn't either fit with what we do or have the right return characteristics.

And so those are a core set of decisions, which when we go through them and you see what they are, you'll hopefully look and see if that makes sense given who Wells Fargo is. And then the other actions that we're taking are all about improving the franchise. And so just to be clear, and I tried to say this in my remarks, we're not going around saying we have to cut X billions of dollars and everyone line up and just do it. It is about what do we have to do to run a better company so that we can be more efficient internally at getting work done and deliver a better-quality product for our customers business by business.

There's a gigantic amount of redundancy in multiple platforms across common products, common processes. Those are the types of things that are going to drive the efficiency of the company, but it will make us a better-run company. And so we have an extremely heightened antenna when it comes to anything, which impacts the risk work or could hurt the value of the franchise. And in fact, as I said, the conversations around doing everything to help the value of the franchise.

Steven Chubak -- Wolfe Research -- Analyst

That's great. Thanks, Charlie, for all the color. And, John, best of luck with your future endeavors.

John Shrewsberry -- Chief Financial Officer

Thank you very much.

Steven Chubak -- Wolfe Research -- Analyst



Your next question comes from the line of Vivek Juneja with JP Morgan.

Vivek Juneja -- J.P. Morgan -- Analyst

Hi. Thanks for taking my questions, Charlie, John. Let me just start with one clarification. Charlie, you talked about the fact that the operating losses, you've been trying to work on this for the last couple of quarters.

I want to check in on one thing. The reimbursements, you're trying to make sure that, where you needed to, expand the horizon in terms of customers, time period, etc. Given that we're concerned about the run rate of this number going forward, has that been signed off by regulators? Or is there still that process to come so that there's some potential that that could change because of the regulatory angle to it?

Charlie Scharf -- Chief Executive Officer

Yeah. Without being specific about whether something signed off on by regulators, I'd say that we have a -- the belief is, by the business leadership and everybody around it, that we've arrived at the right numbers that make sense for customers, put these issues behind Wells Fargo and shouldn't be met with any disagreement.

Vivek Juneja -- J.P. Morgan -- Analyst

OK. OK. Let me shift gears. Just a quick one.

Treasury management, you talked about fee revenues this time in your slide deck. Normally, you've talked about total revenues. Can you give us what the total revenue did for treasury management? I know that's an important business for you.

Charlie Scharf -- Chief Executive Officer

Yes, it is. And it gets split between the commercial business and the corporate business. I know that the way we're describing it, I think, is there's a trade-off between NII for earnings, credit rate, and fee revenue. So the way we've described it in the deck is sort of -- is all of the specifics we're putting on it right now.

We can talk about breaking it out a little bit more now that we're in a rate environment where we don't have to pay customers through treasury management fees for putting noninterest-bearing deposits with us. But I don't have any more clarity for you right now.

Vivek Juneja -- J.P. Morgan -- Analyst

OK. One last thing, Charlie, in terms of the businesses that you're talking about, the operations. Wealth Management operating margin was only 16% this quarter. Pretty low given what you folks have also delivered in the past.

Any color, any granularity on what's keeping it so low? Is there a potential to improve that through any business changes?

Charlie Scharf -- Chief Executive Officer

There's certainly a possibility of it. I mean, it's a question of what we're generating in loan spread, and loan yields in that business have come down. I think there's a belief by the new leadership in that business that there's a much bigger opportunity for securities-based lending among other types of lending for wealth customers that we haven't really tapped in the past. So that's probably going to be margin-enhancing.

On the core fee generation business, the margin isn't likely to change very much given the relatively linear connection between revenue and expense.

Vivek Juneja -- J.P. Morgan -- Analyst

Thank you.


Your next question comes from the line of Gerard Cassidy with RBC.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good morning, John. Good morning, Charlie. John, can you share with us -- on the premium amortization, you guys obviously have seen this in the past and in past cycles. And I know you said it's going to continue to be enforced on the margin going into '21.

If interest rates stay at this level, when do you think it will start to meaningfully come down from the current level? And second, what kind of impact has the Fed having on keeping the yields down in this market with their active buying, which -- actively buying the mortgage-backed securities?

John Shrewsberry -- Chief Financial Officer

Yeah. So a meaningful impact is just a quick answer to the second half of your question. I would expect the pace of premium amortization to stay in place throughout 2021. Mortgage securities, in part because of the Fed and in part because of the industry's ability to sort of shift and even speed up, take frictions out of the refinancing process, which speeds up prepayments.

I think we're operating at about 35 CPR right now. That isn't going away. Whether it's virtual inspections, virtual tours, paperless closings -- or at least electronic closings, etc., it's made it easier and easier for people to refi. And that's going to keep speeding things up.

We think we've accounted for that in the way that we measure that risk in different parts of our business, but I don't think it's going away. And eventually, we'll have a burn out of the in-the-money-ness of the stock of mortgage securities, but there's still a long way to go. I think we mentioned that our expectation for our Q4, very near term, but our Q4 looks a lot like Q3 in terms of volume and margin. And I think as Charlie mentioned, we're operating at capacity and so is much of the industry.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. And pivoting to you, Charlie. I know the asset cap is not what I'm asking about with this question, but you did point out that you guys are spending a tremendous amount of time on getting everything right with the regulators. If you're comfortable, can you give us a timeline of when you send in the documents, when do the regulators start to see the work that you've done? I assume it's already under way.

But where we could kind of then figure out maybe the regulators could give us outside of a decision that, yes, you guys are out of the penalty box and is off to the races?

Charlie Scharf -- Chief Executive Officer

Again, I think it's a hard question to answer. What I'll say is -- so the regulators are alongside us every single day. They see exactly what we're doing. They see how we're organized.

They see whether we've got the right sense of urgency. So they don't just sit in their offices and wait for us to send them something and then they study it and react. They're there, side by side with us, and we have extremely active dialogue with them, as all the big banks do. And for us, that's a good thing because we want them to see what we're doing, how we're doing it, and how it's different than we tackled these issues in the past.

My experience has been when we ask them something very specific or whether we -- when we give them something and submit something to them, they're thorough, but they're very timely in their response. How that actually plays out with a consent order, again, I don't know. What we're focused on is doing the work, having them see the progress. And hopefully, the work will be done to our satisfaction and their satisfaction.

And we'll move forward at the right time.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Great. Thank you for the insights. Appreciate it.

Charlie Scharf -- Chief Executive Officer



Our final question will come from the line of John McDonald with Autonomous Research.

John McDonald -- Autonomous Research -- Analyst

Hey, guys. A couple of quick cleanups here. Wrapping up, John, just on the CET1, how much does that change impact CET1, the RWA, the new measurement? Any idea, just kind of framework for how much that hits?

John Shrewsberry -- Chief Financial Officer

Yeah. Well, you can see in the deck what the comparisons have been for the last -- those measurement points. I mean, today, they're basically on top of each other. The question is what happens to RWA as internal risk ratings change with the passage of time.

And so we expect to be well above our minimums, our own targets, etc. It's not really an issue. But if it pops around by tens of basis points or something, I just want people to know that that's just the -- that's the regulatory framework that we're operating in. There's nothing new or different about the credit risks and these loans.

It's accounted for in our allowance, and we've been a standardized, constrained bank since this regulatory regime came into place. And now that might change for a period of time as we work through the pandemic. But I don't anticipate it being that meaningful, and it's the same dollars of capital protecting the same book of loans.

John McDonald -- Autonomous Research -- Analyst

OK. OK. Got it. And then just one more on the NII.

For the fourth quarter, is your guidance implying that NII is relatively flat to the third quarter?

John Shrewsberry -- Chief Financial Officer

Yes. It's flattish. I don't think we have specific guidance, but I wouldn't expect it to move around that much in the quarter.

John McDonald -- Autonomous Research -- Analyst

OK. And then if you operated at the fourth quarter annualized, if we annualize that and next year and compare that to the $40 billion for this year, that would be down mid-single digits. So I got a couple of questions of people asking how would it be flat year over year. It's like you'd have to have loan growth, right, for it to be flat, and you have an asset cap.

John Shrewsberry -- Chief Financial Officer

Yes. You have to have loan growth or a steepening and redeployment. A handful of things would have to go right for it to be flat. So that's why I think that's a reasonable range of expectation, flat to down mid-single digits.

And we'll give more clarity on that as the budget process is complete and we get closer to the beginning of the year, but those are the drivers.

John McDonald -- Autonomous Research -- Analyst

OK. And then the last thing just for Charlie. Charlie, just to kind of clarify what you're hoping to do on communications and the timeline, so in January, you'll give us some expense guidance for '21 once you've gotten to think through that some more. So we'll get an expense guide for next year in January.

But in terms of kind of the further details, like longer-term aspirations for ROE and efficiency and long-term cost potential, is that going to be later on, and that depends? If you could just clarify what the time frames are for road maps, that would be great.

Charlie Scharf -- Chief Executive Officer

You know, I think it depends on how much work we've done over the multiyear period and having bottoms-up, supportable plans that we have the confidence to share; where we are in COVID; and ultimately, thinking about the interest rate environment as well. Because clearly, as we think about our efficiency ratio, revenue these days has a very meaningful impact. But as we do our work on expenses, we're taking actions. You see that in the charge this quarter.

And the reserves that we provided for these actions will be taken this year, and so you'll see the positive impact next year. And so the actions that we're building are very real. It's a question of when it all comes together in terms of understanding the regulatory piece, the necessary investment piece, and the expense cuts. So again, I think we just have to take it one quarter a time and understand that people want to see progress on a net basis.


I'll now turn the conference back over for any further remarks.

Charlie Scharf -- Chief Executive Officer

All right, everyone, thank you very much for the time. We appreciate it, and we'll talk to you next quarter.


[Operator signoff]

Duration: 82 minutes

Call participants:

John Campbell -- Director of Investor Relations

Charlie Scharf -- Chief Executive Officer

John Shrewsberry -- Chief Financial Officer

Betsy Graseck -- Morgan Stanley -- Analyst

Matt OConnor -- Deutsche Bank -- Analyst

Ken Usdin -- Jefferies -- Analyst

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

John Pancari -- Evercore ISI -- Analyst

Saul Martinez -- UBS -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

Vivek Juneja -- J.P. Morgan -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

John McDonald -- Autonomous Research -- Analyst

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SS&C Technologies will act as the underlying recordkeeper for the Everyday 401(k) small-business retirement plan solution, with plans starting as low as $75 per month, with a $5 per participant monthly charge.

Jamie Dimon, chairman and CEO of JPMorgan Chase, says the Everyday 401(k) will leverage capabilities from across JPAM and Chase.

"We are uniquely positioned to support small businesses with solutions such as Everyday 401(k)," Domon suggests. He cites JPAM research indicating that a large majority (85%) of small-business owners are confident their business will survive the current economic environment. The JPAM data also shows more than one-third of small business owners plan to offer a 401(k) in the next year, while less than half (48%) currently offer a 401(k) plan. Low revenue is cited as the top reason small businesses do not offer a 401(k) plan, while nearly a quarter believe administration is too costly.

One notable feature is that Everyday 401(k) allows small business owners to commence setting up a plan and enroll their employees online at the main homepage. After answering a few questions to narrow down their plan options, determine pricing and select the plan for their business, owners can choose a customized plan and enroll their employees. From there, business owners confirm details with an SS&C retirement representative to give employees access to JPMorgan Chase resources and advice.

Asked to explain how this development stacks up against the firm's existing Retirement Link business line, Michael Miller, JPAM's head of retirement for the Americas, tells PLANSPONSOR that the two solutions should viewed as complementary.

"We built this solution specifically to help small business owners and their employees plan, save and invest for their future," Miller says. "This 401(k) solution provides a low cost, digital solution for micro-market and start-up 401(k) plans. The J.P. Morgan Retirement Link solution continues to play an important role in delivering retirement plan solutions to clients in the small- to mid-market retirement plan space. Both these solutions leverage our industry leading content and investment capabilities and are focusing on helping Americans build stronger retirement savings."

Miller says the firm is excited to leverage the breadth of resources available on and to help plan participants with their spending and savings goals. 

"Through, we are able to reach tens of thousands of Chase for Business customers, as well as nearly half of U.S. households that Chase serves with a broad range of financial services, including personal banking, credit cards, mortgages, auto financing, investment advice, small business loans and payment processing," he adds. "Our goal for Everyday 401(k) will be to fully integrate into Chase customer's existing online experience."

As to the choice to go with SS&C Technology as the underlying recordkeeper, Miller says this was a pretty easy one, in the end.

"SS&C, in addition to having robust scale and a proven technology base, provided a lot of the capabilities we were looking to deliver to small business employers, with a focus on delivering a digital forward, simple and low-cost retirement solution," Miller explains.

This news from JPAM and Chase underscores the retirement plan industry's growing focus on the small-plan and micro-plan market. As reflected in Miller's comments, providers are coming to view this end of the market both as an opportunity to grow the number of plans and participants they serve, but also to open up new distribution pathways for other services in the areas of asset management, banking, insurance, etc.

Principal, for example, has recently rolled out Simply Retirement by Principal, a retirement platform designed to make 401(k) plans more accessible to businesses with fewer than 100 employees. Like the Everyday 401(k), the Simply Retirement platform emphasizes an affordable and seamless setup process.

PAi, a provider of 401(k) plan administration and recordkeeping services, is another firm active in this area, as it has joined forces with LPL Financial to deliver a small-plan market solution that combines 3(38) fiduciary services with robust and affordable recordkeeping and administration support.

3 Ways to Bridge the Cash Flow Gap in Your Startup Business - ValueWalk

Posted: 15 Oct 2020 10:42 AM PDT

Cash flow gaps are common for small businesses. The flow of capital in and out of your business is what makes it operate. But, if more capital goes out than it comes in, business owners start facing problems. One of the biggest roadblocks in your cash flow is slow-paying or non-paying customers. The lack of inventory management systems is another issue to consider. If you are a beginner and do not operate with automated accounting, you face even more challenges. Let's discuss today the primary means you have to bridge cash flow gaps in your startup business.

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1. Make it Easier for Customers to Pay You

A survey conducted by the National Federation of Independent Business a few years back showed concerning data. More than half of small businesses dealt with clients who delayed payment for more than 60 days. Since then, things might have become a little better, but not by much. Small businesses still struggle with late-paying clients. Large companies hoard cash and pay late, thinking little of the startups delivering them products or services. In turn, small firms do not want to lose big clients, even if they pay late. So, here are some ideas you could implement to incentivize your customers to pay on time:

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  • Try to get a down payment or a retainer in advance for a large order you will fulfill. It is not a crime for a small business in our current economic landscape to ask for an advance. Use it to cover some expenses until you deliver.
  • Negotiate multiple payment terms. If you ask for a 25% advance to cover stock, set the next payment at 50% to pay your suppliers and fees. Then, ask for the rest upon completion.
  • Accept credit cards. Most small businesses dread credit card processing fees. However, they are preferable to waiting for a few months to receive your hard-worked money.
  • Automate your accounting software to allow clients to pay online or send them reminders regarding their due dates.
  • Invest in a mobile paying device (P.O.S.) for jobs you do on-site so clients can pay you on the spot. It saves you from waiting for them to pay the bill sometime later.

2. Get a Merchant Cash Advance

Merchant Cash Advance is a type of business loan dedicated to startups and small businesses. The differences between an M.C.A. and a traditional business loan are many. First, you do not need to worry about collateral or fixed monthly rates. You repay your lender in a structured schedule, depending on your sales. A Merchant Cash Advance is a structured lump sum you receive from the lender. You get the money fast in exchange for a fee or a percentage of your future credit or debit card sales. Such type of loan is increasingly popular. It allows you access to large sums of money in a couple of days. You should make sure you have high transaction volumes to manage this type of loan.

With Merchant Cash Advances, you do not have to worry about low credit business scores or no scores. The way you manage your personal finances does not matter either. Lenders care more about your future as a company and the projected sales. Such business loan works best for retailers relying on future high-grossing sales, restaurants, or medical offices. More businesses currently apply for M.C.A.s with high rates of success: seasonal service providers, event planners, etc.

The criteria to get an M.C.A. is reasonable. You do not have to worry about your FICO or Experian business credit score. Most young companies do not even have enough credit history to consider traditional business loans. You need to project realistic sales in the future and refrain from taking another M.C.A. before you repay the first one.

3. Invoice Factoring

Another way to fund your cash flow is invoice factoring. You can sell your clients' outstanding unpaid invoices to third-party entities against a discount. Then, these factoring companies chase your clients to receive the money. You might wonder why you would sell invoices for 70%-85% of their value. Financial experts say it is better than waiting 90 days for your customers to pay their debts to you.

Invoice factoring is also a type of alternative lending or small business financing. A factoring entity (financial groups, banks, etc.) unlock the funds tied up in your unpaid invoices. It makes cash flow management easier for you. They also provide credit control, so you do not have to waste time chasing late-paying customers.

The downside of invoice factoring is that it binds you to lengthy contracts. Such companies want to manage and fund all your sales, not only a couple of customer accounts. You might have a difficult time getting out of such a contract. Also, in time, such deals prove costly for small businesses due to extra fees.

If you want to apply for invoice factoring, make sure you have more than just one or two big clients. It is a system working best for B2B companies dealing with tens of customers. Nevertheless, it can be a great system if you accept the conditions and solve cash flow problems in the long term.

Bottom Line

Many cash flow specialists advise you to sell products with higher margins, offer discounts and promotions, manage stock better, etc. They are all sound ideas, but the reality is more complicated than that. Small businesses need to spend a lot of money to make some money. In this case, cash flow problems become chronic.

Start small by making significant changes in how you bill your clients and collect what they owe you. Automate your accounting software and keep a monthly cash flow balance. Negotiate with your customers and suppliers for adjusted payment schedules to optimize the cash flow cycle. If you need large amounts, go for an alternative lending option (an M.C.A., a business line of credit, etc.) or invoice-based funding.

Anything you do, be realistic of your expectations. Prepare for hefty repayments on loans and project your future sales factoring in all variables.


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