Wells Fargo & Company (WFC)

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Wells Fargo & Company (WFC)

Q3 2010 Earnings Conference Call

October 20, 2010 9:30 AM ET


Jim Rowe – Director, IR

John Stumpf – Chairman, President and CEO

Howard Atkins – SVP and CFO


Matt O’Connor – Deutsche Bank

John McDonald – Sanford Bernstein

Betsy Graseck – Morgan Stanley

Joe Morford – RBC Capital Markets

Mike Mayo – Calyon

Nancy Bush – NAB Research

Chris Nastasio [ph] – Stifel Nicolaus

Moshe Orenbuch – Credit Suisse

Jason Goldberg – Barclay’s Capital

Ron Mago [ph] – GIC

Fred Cannon – KBW

Carol Berger – Soleil Securities

Paul Miller – FDR Capital Market

Andrew Marcourt – Evercourt [ph] Partners



Good morning. My name is Celeste 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). I would now like to turn today’s call over to Mr. Jim Rowe, Director of Investor Relations. Please go ahead sir.

Jim Rowe

Thank you and good morning everyone. Thank you for joining our call today, during which our Chairman and CEO John Stumpf, and CFO Howard Atkins will review third quarter 2010 results and answer your questions.

Before we get started, I would like to remind you that our third quarter earnings release and quarterly supplement are available on our website. I’d also like to caution you that we may make forward-looking statements during today’s call and that those forward-looking statements 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 and the earnings release and quarterly supplement included as exhibits. In addition, some of the discussion today about the company’s performance will include references to non-GAAP financial measures. Information about those measures including a reconciliation of those measures to GAAP measures can be found in our SEC filings and in the earnings release and quarterly supplement available on our website at wellsfargo.com.

I will now turn the call over to Chairman and CEO, John Stumpf.

John Stumpf

Thanks, Jim, and thanks to all of you for joining our call and for your interest in our company. The third quarter was the best quarter in our company’s history with record earnings of $3.3 billion, up nine percent from last quarter. The strength of our diversified business model and the power of the Wells Fargo and Wachovia merger are clearly reflected in these results.

The Wachovia merger is exceeding all of our expectations, helping us generate more than $21 billion in earnings since the merger. In the third quarter we completed the integration of Wachovia stores in our overlapping states and began the integration in our eastern states, successfully converting 170 banking stores in Alabama, Mississippi and Tennessee.

This success paves the way for the rest of the eastern market conversions which will complete next year, giving millions of customer’s access to more products and the largest banking store network in the United States.

In addition to the banking stores, we have the revenue synergies we are already realizing from the merger. But let me just say, I’m particularly pleased with the positive results we’ve had in retaining and attracting deposits which are an important contributor to our results.

Checking account growth remained strong throughout our company, up a net 7.3 percent with very strong growth across the east including nine percent growth in Florida and 11.2 percent growth in New Jersey as examples.

Now, I know we’ve all been hearing in recent months about business practices within our industry. I’m proud of Wells Fargo’s adherence to a culture of doing what’s right for customers, which not incidentally benefits our team members, our communities and our shareholders in the long run. For us, this means doing the hard work early and building processes that adhere to our standards as a company.

This is as true in our approach to merger integration as it is to our day to day business operations. Let me quickly give you my views on the latest topic related to mortgage foreclosures and repurchases. Howard will address this topic in more detail later on the call, but there are a couple of important points I want to make upfront.

First, foreclosure is always a last resort and we work hard to find other solutions for our customers. Since January 2009, we have completed over 556,000 modifications, more than twice the number of foreclosure sales completed during this period, and we have forgiven $3.5 billion of principal to help customers stay in their homes.

Second, we are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate. Third, we did not and do not plan to initiate a foreclosure moratorium.

As it relates to regulatory form, we continue to work internally with our regulators to better understand how reform measures may affect our business and our customers. The services we offer our customers including financial security, convenience and advice obviously have a cost, and we need to be compensated for these benefits we provide our customers and for the capital we use to support these businesses. This is not new.

Over the years, there have been numerous environmental and regulatory issues in our industry and the breadth of our diversified model and the strength of our underlying customer relationships have enabled us to succeed in the aggregate and relative to our peers. This environment is no different.

In the same way that helping our customers avoid foreclosure is the right thing to do for them, and our shareholders, we will work to make sure than any changes we make in response to regulatory form are in the best long-term interest of our customers, our team members and of course, our shareholders.

Our customer centric approach has given us what I believe to be the best and most valuable franchise in the industry and our actions will be consistent with the principles that have driven our actions over the years.

Now let me turn it over to Howard.

Howard Atkins

Thank you, John. My remarks this morning will follow the slide presentation included in the quarterly supplement which is available on the Wells Fargo Investor Relations website. I’ve got lots of ground to cover this morning, but there are three – I’m sorry – six key themes that I’d like you to remember in my remarks.

First, as John indicated, we had record results in the quarter, best quarter ever, $3.3 billion in profit with earnings per share of $0.60 or up seven percent year over year.

Second, the way we grew earnings in the third quarter is the same as we’ve done to produce strong earnings every quarter since the merger; revenue growth in most of our businesses with expenses down.

Third, the Wachovia merger is already a big financial success for us with better than expected credit experience, expense savings on track and abundant revenue synergies.

Fourth, we had continued improvement during the quarter in credit quality. Charge offs are now some 24 percent below the peak last year, and nine percent down from the second to the third quarter.

Fifth, our balance sheet is stronger than ever. We’ve been growing tier one common at a rate about 40 to 50 basis points per quarter organically. Tier one common hit eight percent during the quarter and while the new BASEL III rules are still in process, we expect to be above seven percent tier one common on the proposed BASEL III rules as we understand them within the next few quarters.

And then finally, we are confident in our foreclosure and mortgage securitization policies, practices and controls and the adequacy of our repurchases, and I will get to that later on in this presentation.

If you look at slide four, which is our earnings trend, as indicated we earned a record profit of $3.34 billion in the third quarter. This is not a new development. Quarterly profits as you know have been consistently strong since the merger two years ago. Nor, is the strength of our earnings in the quarter due to any one factor. Our results were relatively broad based across many business segments and products.

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