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What could a Biden presidency look like for your small business? Let's look at his top 6 proposals. - USA TODAY

What could a Biden presidency look like for your small business? Let's look at his top 6 proposals. - USA TODAY

What could a Biden presidency look like for your small business? Let's look at his top 6 proposals. - USA TODAY

Posted: 14 Oct 2020 07:00 AM PDT

Rhonda Abrams, Special to USA TODAY Published 10:00 a.m. ET Oct. 14, 2020


Learning to be flexible and to pivot quickly has helped O'Brien achieve great success as a reporter and entrepreneur. USA TODAY Handout

In the three decades I've been advocating for small businesses, there's never been a more challenging time for them and for the self-employed. And we're far from out of the woods as this pandemic is not yet under control, and the economy is likely to take a long time to recover.

We've seen how President Donald Trump and his administration have responded to this crisis, but what would an administration headed by Joe Biden and Kamala Harris look like for small business and the self-employed?

"Day one, the focus is getting the coronavirus under control," said Rhett Buttle, Biden for President National Business Advisor. "One in six small businesses are probably not coming back, and COVID is top of mind for most small businesses. The effort to contain the virus and ensure recovery is part of Biden's small business plan, and small business stakeholders and the focus on small business will be a critical part of that."

Looking at Biden's top 6 proposals:

► Grants, not loans, for true small businesses that have lost substantial revenue. "We've been doing small business roundtables around the country," said Buttle, "and we've heard directly from small business owners that not only was PPP (the Paycheck Protection Program) mismanaged but they weren't sure how forgiveness worked."

My take: Biden has this right. Grants, instead of loans, were the better choice originally for small businesses who were being told they'd need to take on debt when they had no idea when they'd even be able to open – and low confidence in a program with a bungled rollout. Grants are still the right approach for the most-impacted, smallest companies and will help save America's Main Streets.

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Taxes: What would your tax rate be under Joe Biden's proposed plan?

► Guarantee that every business with fewer than 50 employees can get relief. The Biden campaign indicates they would "provide assistance to help small businesses get that relief quickly, especially minority-owned businesses." And ensure that minority-owned businesses get technical assistance – such as accounting support and legal advice – so that they are not shut out of federal aid programs.

My take: There were funds in the CARES act to help Small Business Development Centers and others assist small businesses in applying for aid. But since the PPP was so confusing, much of that assistance did not come quickly enough and enough assistance wasn't given to groups serving minority business owners. More help is needed not just in getting financial relief but in technical assistance on how to run a business now and pivot in this new economy.

► Redirect unused funds that were originally targeted for large corporation bailouts and any unused PPP funds and redirect those funds to help small businesses.

My take: The Federal Reserve launched a $600 billion program to help mid-size companies recover through lower-interest loans. As of the end of August, only a tiny fraction (0.07%) of those funds were used. While these funds are allocated differently than the PPP and other funds, perhaps some of these massive funds could be utilized to help Main Street instead of Wall Street.

► Unleashing $50 billion in public/private venture capital to entrepreneurs in disadvantaged areas by funding state, local, tribal and non-profit financing initiatives.

My take: Venture capital is great, but it typically doesn't reach small businesses who areon the ground, needing help now. Such help should reach further than just disadvantaged areas, as well. Women entrepreneurs throughout the country – even in Silicon Valley – have had a hard time securing venture capital.

► Establish a $400 billion federal procurement program to "buy American" designed to give greater federal contracting opportunities for certified small businesses, especially disadvantaged businesses.

My take: The entire federal "small business" procurement program needs examination and updating. Size standards for businesses are what most of us would consider medium to large businesses and the application process too cumbersome for most small companies. A more innovative approach would be useful in a Biden Administration, especially for disadvantaged businesses.

► Set up a national network of business incubators to help nurture startups. "The number of startup businesses is down," said Buttle, "and they are the generator of new jobs." And related: Establish business development programs at every public community college as well as two-year HBCUs (Historically Black Colleges and Universities), TCUs (Tribal Colleges & Universities), and MSIs (Minority Serving Institutions).

My take: These are both good ideas, though many such incubators and business development programs already exist. The number of startups is down, but there are lots of reasons, including outdated anti-trust laws and "non-compete" laws, which inhibit individuals from being able to start new companies. In previous statements, Biden has indicated he is interested in addressing both those issues.

In addition to specific policies the Biden-Harris campaign has laid out, Buttle emphasizes two of the most important characteristics a Biden-Harris administration will bring back to America: leadership and stability.

"We're taking the virus seriously; there hasn't been leadership at the top (in devising a national program to combat the virus)…Businesses depend on predictability and the government having some level of stability," Buttle said.

That emphasis on combatting the virus and providing stable national leadership will be reassuring news to small businesses. Remember, when a vaccine is developed, it will take effective national leadership over many months to oversee the roll-out of that vaccine and to encourage Americans to believe in the science behind it.

Rhonda Abrams is the author of "Successful Business Plan: Secrets & Strategies," the best-selling business plan guide in the U.S., recently named one of the 100 best business strategy books of all time. Follow Rhonda on Twitter and Instagram: @RhondaAbrams.

The views and opinions expressed in this column are the author's and do not necessarily reflect those of USA TODAY.

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There's No Such Thing as Free Lunch: How to Choose the Best Fundraising Option for Your New Business - Entrepreneur

Posted: 05 Oct 2020 07:00 AM PDT

10 min read

Opinions expressed by Entrepreneur contributors are their own.

One in four U.S. businesses are not able to obtain the funding they want, according to a survey by the National Small Business Association. Funding can be a maze for even the most experienced of entrepreneurs, who need to choose from multiple paths—each with its own risks. Ideally, you'll seek the solution that's best tailored to your business needs but also to your personal financial status.

Every source of funding comes with its own specific costs. There's cheap money, and then there's expensive money. Each option takes a different amount of time, requires giving away a different amount of equity, and has a varying level of risk involved. Be sure to do your research, assess your runway and money management skills honestly, and look at your competitors for a general sense of how to successfully raise funds in your industry.

Here are the most common funding routes for startups, plus tips and insights from seasoned investors:

RELATED: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course 

Revenue from customer sales

The least expensive form of funding is customer sales. It's a form of revenue that you don't have to give back to anyone, and you don't lose a portion of control over your business in the process. Naturally, the hard part is generating sufficient revenue from sales on a regular enough basis to keep your operations ticking over. Still, it's a popular choice for many founders who see early positive traction and have sound financial projections. You could even opt to sell your product or service before it's officially launched in order to cover any expenses you incur in the construction phase.

Pros: Don't have to pay money back or give up equity

Cons: Difficult to generate enough money to sustain operations

Difficulty: Medium - leveraged through early profit

Business type: Subscription-based companies, pre-sale models

Personal debt

Business loans, credit cards, and lines of credit account for roughly three-quarters of financing for new businesses. In fact, it's unusual to meet an entrepreneur who hasn't gone into debt starting their company. Most investors want to see that you have skin in the game, meaning that you've personally contributed to your own business - whether that's opening a new credit card, borrowing against your retirement savings or against your home. 

Personal debt is high risk, high reward. The advantages are that you don't have to give up equity and you have total control of the funding as the money you borrow is attached to you personally. That is also the downside. If your business doesn't perform as you expect, you are the person who loses out. Compared to other funding options, where everyone loses out in a poor performance scenario, personal debt is a heavier burden to carry. You also won't be paid back for your personal investment as you can't raise money to cover that debt.

Ramin Behzadi, general partner at 7 Gate Ventures, notes that personal debt is typically used to maintain the status quo in a company and not for immediate short or mid-term growth—that comes from equity rounds.

If personal debt is the right funding path for you, check in advance that your credit score makes you eligible for the amounts you'll be requesting, and speak with a financial advisor before committing to new lines of credit. 

Pros: Don't give up equity and it shows investors you have skin in the game

Cons: Debt is tied to you personally and you can't raise money to cover the debt

Difficulty: Medium- leveraged through financial institutions but dependent on personal credit history

Business type: Various

RELATED: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course 

Government and bank loans

Getting a government-backed loan is a good funding route but be aware that you'll have to jump through some hoops. These types of loans aren't particularly common and typically only apply to founders who have lots of assets or income. They also vary in amount and conditions, so you have to find information from your local economic agency to suss out if it's right for your startup. The U.S. Small Business Administration is useful for local-level government funding, as is the State and Territory Business Resource.

Gabe Zichermann, chief executive of Failosophy, suggests that if you want to secure funding via a bank loan, identify the bank that you have the closest relationship with and ideally where you have all your accounts, so that they can see your financial position. As well as offering a standard business loan, bank credit processors can also provide financing where you borrow money against your projected revenue streams. This option is preferable for startups that have recurring revenue but can't raise capital, for example, restaurants, retail stores, and wholesalers.

"Bank loans have the same benefits as personal debt in terms of keeping equity and control, but they often aren't viewed favorably by venture capitalists," Zichermann adds. If you have debt on your company books when approaching investors, they'll know that they aren't your primary payback group and may think that the money they give you would only be used to repay the bank.

To listen in to Gabe Zichermann and Ramin Behzadi discuss different options to find funding for your business sign up for a risk-free trial of the Start Your Own Business course and check out our live webinar on 10/07 at 3 pm ET.

Remember, any loan you receive will have interest rates, so you'll eventually pay back more than you took out. If you can't afford the extra amount, consider looking to friends and family for investment.

Pros: Keep equity and control, and can borrow against projected revenue streams

Cons: Hard to obtain, will be off-putting for venture capitalists

Difficulty: Low -leveraged through formal financial institutions but dependent on location and early traction

Business type: Startups with recurring revenue like restaurants, retail stores, and wholesalers

Friends and family

Raising money from people who know you is a relatively safe choice for founders. Most of the time, friends and family don't have to be sold on your business because they are investing in you, and simply want to help your company grow. They are also less likely to request ownership in your business. However, you may feel a stronger obligation to return their capital because of the relationship you share with them. This option is lower risk than others, but can be higher pressure.

To get started with investment from friends and family, make a list of the people who have money, would be most interested in your idea, and organize a time to pitch them your business. 

Pros: People invest in you personally, they don't have to be sold on your business

Cons: Greater obligation to pay people back

Difficulty: High - leveraged through personal network

Business type: Various

RELATED: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course 

Angel investors

For startups, angel investors are often the ideal pathway to funding due to their more "human" touch and hands-off involvement in businesses. Angels tend to work on a case-by-case basis, so they can be more generous with their investments, plus more flexible about returns and equity. The catch is that angel investment is often the result of a serendipitous meeting, meaning it can take anything from days to years to find.

Nonetheless, there are ways you can boost your exposure to angels through networks like AngelList, as well as browse investor groups by location, university, and cultural representation. Zichermann recommends finding angels that have experience in your industry and overlap in your circles of interest. He also notes that if you need to continue developing your business while you search for investors, accelerator programs can expose you to lots of angels. But keep in mind that some programs will ask for equity in exchange, meaning you'll give up some control for the privilege of being seen. 

Pros: More flexible about returns and equity, less risky than business loans

Cons: Hard to find suitable angel investors

Difficulty: Medium - leveraged through personal and professional networks

Business type: Various


One of the newer options for fundraising, crowdfunding is best-suited to companies that have a physical product. Crowdfunding means you don't have to give up equity or accumulate debt, you can earn social proof as you collect investments, and you can build a pool of loyal advocates for your product from the get go.

The downside is that crowdfunding requires a lot of time and effort to launch the campaign itself, and once it's live, you have to continuously market it. You also have to deal with a number of investors at once, which can be taxing when you're busy running the company. For these reasons, crowdfunding is a longer route to funding and not one that high-growth startups typically use, but it has proven to be very effective for early-stage companies.

Pros: Don't have to give up equity or accumulate debt, earn social proof as you fundraise

Cons: Requires time and effort to launch campaign, have to work with multiple investors

Difficulty: High - leveraged through crowdfunding websites

Business type: Industries with physical products

Venture capitalists

The last and most expensive fundraising choice is to turn to venture capitalists (VCs). This is far more exclusive than the other options listed, and primarily applies to startups in technology, biotechnology, and clean technology spaces.

For perspective, 1,500 startups get funded by venture capitalists in the U.S. every year, compared to the 50,000 that get funded by angel investors. VCs can offer significant investment amounts and years of expertise—which is what makes them so appealing—but they also expect a lot more control over your business. Some VCs will even appoint their own board of directors within your company.

Related: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course

Similar to angel investors, if you want to move forward with VC funding, you have to target firms that invest in your stage, industry, and ideally, have a shared connection with someone in your current network. Warm introductions are the best stepping stone for VC funding, and pitch competitions are valuable too. Behzadi suggests that a "warm introduction can be initiated from a person within your immediate connections/relationships or it could be cultivated or made with some proper efforts."

Likewise, Kevin Lavelle, senior vice president at Stand Together, says "you should look for a healthy balance of intellectual humility about the challenges of growth consumer investments, and intellectual curiosity about the space." 

Keep in mind that obtaining investment from VCs firms takes a long time, normally around one year in total.

Pros: Higher investment amounts, expert knowledge and connections

Cons: Expect greater control in your company, takes a long time to organize

Difficulty: Low - leveraged through events and network but dependent on industry and profit

Business type: Technology, biotechnology, and clean technology spaces

Before charging ahead with fundraising, think carefully about how different pathways can accelerate your company's vision, and what you might have to sacrifice in the process. Don't feel pressured to accept the first funding offer that comes your way when there could be a smarter route for you. The investment you accept will ultimately be a reflection of what you expect and want for your company.

Wells Fargo & Co (WFC) Q3 2020 Earnings Call Transcript - AlphaStreet

Posted: 14 Oct 2020 10:23 AM PDT

Wells Fargo & Co (NYSE: WFC) Q3 2020 earnings call dated Oct. 14, 2020



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 M. 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 supplement.

Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be also be found in our SEC filings, in the earnings release, and in the quarterly supplement available on our website.

I will now turn the call over to Charlie Scharf.

Charles W. Scharf — Chief Executive Officer and President

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 my 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 remained 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 in 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 is still a long way to go and there remain 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 the total 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, but 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 in 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 Innovation's 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 company-wide 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 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 #2 #3 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 continue 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 30th 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, it 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 under investment in risk and controls, and also little bit of outsized litigation and customer remediation expenses. This accounts were 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've 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 under [Phonetic] organization, reducing redundancy in manual work, and migrating customers and employees to digital solutions. All of this will also improve our control environment. Lower expenses will be a by-product 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 and 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 build out 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 R. Shrewsberry — Senior Executive Vice President & 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 remains 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 non-interest 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 in 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 non-interest income related to a change in the accounting measurement model for non-marketable 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 have begun 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 continue 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 pay-downs, 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 and categories that have not been negatively impacted by the pandemic. This includes multi-family 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 in the second quarter, and originations declined 5%. We continue to take certain actions to mitigate future loss exposure, while our spreads on new originations continue 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 #3 #4 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 in 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 non-interest 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 non-operational 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 costs 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 re-pricing 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 a $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. For 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 million, which is lower than our previous guidance due to lower commercial loan balances and higher MBS premium amortization. Turning to Page 9; non-interest income increased $1.5 billion or 19% from the second quarter, with growth in many fee related businesses. While we've continued to waive certainties 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 field counts 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 $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 are still in the process of transitioning key leadership positions, including Mike Santomassimo, who'll 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 re-open 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 non-accrual 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. Non-accrual loans increased $417 million from the second quarter, driven by higher consumer real estate, auto and commercial real estate non-accruals. 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 non-accruals 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 non-accruals 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 non-accruals 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. #4 #5 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, an increase — and an increase for credit card loans. Our allowance of $20.5 billion were 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 borrower's ability to excess 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 effect 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 in 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 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 than 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 and 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.

Charles W. Scharf — Chief Executive Officer and President

Hi, Betsy. Good morning.

John R. Shrewsberry — Senior Executive Vice President & 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?

Charles W. Scharf — Chief Executive Officer and President

Hey Betsy, it's Charlie. Thanks for the question. I would say, I referred in the remarks as, 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 plans 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 growth 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 clear 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, okay, I get that. And then, just separately Charlie, you were mentioning how — there's opportunities to get more efficient. There is also opportunities to get, you know, I don't know "your share of the revenue". Could you — 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?

Charles W. Scharf — Chief Executive Officer and President

Sure. I mean, I would say when we look at our business, I 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 — I'll just 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 the — about what our customers think of us. But while we had been investing in some of the digital capabilities which you do see in 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 just — 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 with our — within our risk framework the way we've defined it. We're 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 standalone 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 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, just — I would have said as an outsider that Wells had been very, very smart at building the business in — where it has its 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

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

Charles W. Scharf — Chief Executive Officer and President

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

Okay. Super. Thanks. Thanks, Charlie. Appreciate it.

Charles W. Scharf — Chief Executive Officer and President

I do want to just — 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. That will help.


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

Matt O'Connor — 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 roll out 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 all the asset cap driving something like that, say like a virtual Investor Day or something similar?

We are still processing the Q&A portion of the conference call. We will be updating it as soon as we analyze and process the con call. Stay tuned here for more updates.


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IMF envisions a sharp 4.4% drop in global growth for 2020 - The Detroit News

Posted: 13 Oct 2020 08:32 AM PDT

Washington – The International Monetary Fund foresees a steep fall in international growth this year as the global economy struggles to recover from the pandemic-induced recession, its worst collapse in nearly a century.

The IMF estimated Tuesday that the global economy will shrink 4.4% for 2020. That would be the worst annual plunge since the Great Depression of the 1930s. By comparison, the international economy contracted by a far smaller 0.1% after the devastating 2008 financial crisis.

The monetary fund's forecast for 2020 in its latest World Economic Outlook does represent an upgrade of 0.8 percentage point from its previous forecast in June. The IMF attributed the slightly less dire forecast to faster-than-expected rebounds in some countries, notably China, and to government rescue aid that was enacted by the United States and other major industrial countries.

While forecasting a global contraction this year, after 2.8% growth in 2019, the IMF predicts a rebound to global growth of 5.2% next year, 0.2 percentage point lower than in its June forecast.

The 189-nation lending agency cautioned that many developing countries, notably India, are faring worse than expected, in large part because of a resurgent virus. Many nations face the threat of economic reversals if government support is withdrawn too quickly, the IMF warned.

"While the global economy is coming back, the ascent will be long, uneven and uncertain," Gita Gopinath, the IMF's chief economist, wrote in the new outlook. "Recovery is not assured while the pandemic continues to spread."

At a news conference, Gopinath said it was critical that government economic support not be withdrawn too quickly.

"This crisis will leave scars," she told reporters, stemming from damage to labor markets that will take time to regain lost jobs, lost business investment and diminished schooling that will reduce the development of human capital around the world.

For the United States, the IMF forecasts an economic contraction of 4.3% this year, 3.7 percentage points better than in its June forecast. The less-pessimistic outlook reflects a stronger-than-expected bounce from the $3 trillion in relief aid that Congress enacted earlier this year.

For next year, the IMF envisions 3.1% growth in the United States, 1.4 percentage points less than in its June outlook and in line with the view of private forecasters. Last year, the U.S. economy grew 2.2%.

China, the world's second-largest economy, is expected to grow 1.9% this year, a sharp slowdown from the 6.1% gain in 2019, and then expand 8.2% in 2021.

The IMF said that while a swift recovery in China had surprised forecasters, the global rebound remains vulnerable to setbacks. It noted that "prospects have worsened significantly in some developing countries where where infections are rising rapidly" and that in India and in poorer nations in Africa and Asia, the pandemic has continued to spread and in some areas even accelerate.

"Preventing further policy setbacks," the IMF said, "will require that policy support is not prematurely withdrawn."

In the United States, a variety of economic aid programs, including small business loans to prevent layoffs and a $600-a-week unemployment benefit, have expired. Congress has so far failed to reach a compromise agreement to provide further financial assistance to individuals and businesses.

The scale of disruptions in hard-hit economic sectors of the U.S. economy, notably restaurants, retail stores and airlines, suggests that without an available vaccine and effective drugs to combat the virus, many areas of the economy "face a particularly difficult path back to any semblance of normalcy," the IMF said.

Even as China has rebounded much faster than many expected, India, another populous country in Asia, is enduring difficulties. India's economy is expected to contract 10.3% this year – 5.8 percentage points deeper than the decline the IMF had forecast in June.

The monetary fund predicted that the euro area, which covers the 19 European nations that use the euro currency, would contract 8.3% this year but rebound 5.2% next year.

The IMF produced the updated outlook for this week's virtual meetings of the 189-nation lending institution and its sister institution, the World Bank. Those meetings are expected to be dominated by discussions of how to provide more aid to the world's poorest countries in the form of medical aid and debt relief.

Finance ministers and central bank presidents from the Group of Seven wealthy industrial countries – the United States, Japan, Germany, France, Britain, Italy and Canada – held a videoconference led by U.S. Treasury Secretary Steven Mnuchin to discuss debt relief proposals for poor nations and their efforts to support the global economy, the Treasury said.

One idea being considered is to extend for six months a debt-payment freeze for the poorest nations that took effect May 1 but is due to expire at year's end. Many aid groups are pressing for rich nations to go further and forgive part of the debt rather than just halt repayments.

Poor countries have been hurt the most by the pandemic. The World Bank has estimated that the pandemic has thrown between 88 million and 114 million people into extreme poverty, which is defined as living on less than $1.90 a day. That would mark the largest increase in extreme poverty on data going back to 1990. And it would end a period of more than two decades in which the rate of extreme poverty had declined.

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