Wells Fargo & Co (NYSE:WFC) was one of the banks presenting at the US Large Cap Banks 2013 BAAB Conference.

Wells Fargo

A recurrent theme at the conference was banks’ emphasis on expense discipline and the onset of strong competition in loans such as cards, indirect auto and in retail mortgages.

Credit Suisse research analysts Moshe Orenbuch, Jill Glaser and Lesley Robertshaw, who also attended the conference, observed, “Management’s teams noted that revenue headwinds remain given the persistence of the low rate environment, increased loan competition and declining mortgage banking activity.” Banks have been taking an axe to costs, and JPMorgan Chase & Co. (NYSE:JPM) is likely to cut 15,000 jobs by the end of the year.

Lower expenses and better credit quality

On the bright side, presenting banks reported declining expenses and credit costs. “Credit quality continues to improve and in some cases, NCO’s will dip below what is considered a “normalized” loss range. While it seems as though reserve bleed will continue to be a benefit for the foreseeable future, the benefit is lessening as absolute reserve levels approach an inflection point,” said the Credit Suisse analysts.

This trend was mentioned in a recent article in Reuters highlighting plunging loan losses at Wells Fargo & Co (NYSE:WFC) – the bank reported its lowest quarterly loan loss rate in at least nine years during the third quarter. The reasons are not hard to find: one, the bank tightened loan norms, and second a growing proportion of its loan book now constitutes loans made after the financial crisis. Thirdly, rising home prices helped reduce loan charge-offs. In fact, falling loan losses, both at Wells Fargo & Co (NYSE:WFC) and Bank of America Corp (NYSE:BAC) elicited a comment from Warren Buffett  in a October 16 CNBC interview: “I don’t think anybody expected charge-offs a few years ago to be as low as they are now.”

Wells Fargo at the Conference

Avid Modjtabai, Senior Executive Vice President & Head of Consumer Lending presented for Wells Fargo & Co (NYSE:WFC).

– The bank has a strong presence in the mortgage purchase market, deploying 11K consultants in the field.

– Declining mortgage refi volumes have led to staff reductions of 6.2K since August, the benefits of which would be visible in 4Q13 and thereafter.

– Focus on growing credit card franchise by cross-selling to client base in other businesses

– Loan competition is up but “remains more rational than pre-crisis.”

– Consumer lending would be boosted by leveraging its branch network.

– The bank intends to capitalize on a visible opportunity in indirect auto loans given its leadership position, and relationship with General Motors Company (NYSE:GM).