Wells Fargo & Company (WFC)

WFC 
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Wells Fargo & Company (WFC)

Q2 2010 Earnings Call

July 21, 2010 9:30 a.m. ET

Executives

Jim Rowe – Director, IR

John Stumpf – Chairman, President and CEO

Howard Atkins – SVP and CFO

Analysts

John Mcdonald – Sanford Bernstein

Matthew O'Connor – Deutsche Bank

Chris Kotowski – Oppenheimer

Betsy Graseck – Morgan Stanley

Mike Mayo - COSA

Nancy Bush – NAB Research

Fred [Kellin] with KBW

Paul Miller – FBR

Joe Morford – RBC Capital Markets

Ed Najarian – IFI Group

Moshe Orenbuch – Credit Suisse

Presentation

Operator

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 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn today’s call over to Director of Investor Relations, Mr. Jim Rowe. Please go ahead, sir.

Jim Rowe

Good morning. Thank you for joining our call today during which our Chairman and CEO, John Stumpf, and CFO Howard Atkins will review Second Quarter 2010 Results and answer your questions.

Before we get started, I would like to remind you that our Second Quarter Earnings Release and our Quarterly Supplement are available on our website. I’d also like to caution you that we may make forward-looking statements in today’s call, and that those forward-looking statements are subject to risk and uncertainties. Factors that may cause actual results to different materially from expectations are detailed in our SEC filings, including the Form 8K and the Earnings Release and Quarterly Supplements are 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 the reconciliation of those measures to GAAP measures can be found in our SEC filings and in the Earnings Release and Quarter Supplements available on our website at wellsfargo.com.

I will know turn the call over to our Chairman and CEO, John Stumpf

John Stumpf

Thank, Jim. And thanks everyone who has joined us on this call. We appreciate your interest in Well Fargo.

I’ll turn this call over to our CFO, Howard Atkins shortly for a more in-depth look at our quarter results. But first, I’d like to comment briefly on the strength of our franchise, the status of our Wachovia merger integration and the current regulatory environment.

As to our financial performance, our Second Quarter results again reflected the underlying strength of our company with all three business segments contributing to our profitability. Our next income was up about 20% from last quarter, and represents just the fourth time in our history that we’ve had quarterly net income over $3 billion.

More importantly, we’re winning new business everyday, seeing growth in certain loan portfolios and more instances where conversations are turning into new relationships and new commitments.

It is early yet to call these sustainable trends, but it is real progress and it is in the right direction.

While the uneven economic recovery continues to create some headwinds to loan and revenue growth, we continue to see the core power of our diversified business model at work. For example, we think it is meaningful that Q2 revenue held up well versus last year despite a year-over-year decline in mortgage banking revenue of about $1 billion, along with the steady decline in earning assets over the year; a real testament to our overall business model’s resilience.

Continuing to focus intensely on helping our customer succeed financially has allowed us to perform well through various economic cycles; a hallmark of our business.

In addition, we’re now about half way through our three-year Wachovia Merger Integration Plan. We successfully integrated the California Wachovia stores in April, and this weekend we’ll integrate Texas, our largest overlapping market, and Kansas, which will complete the integration of all of our overlapping markets.

During the quarter, we also completed one of the industry’s largest trust conversions; $150 billion in trust assets representing about 81,000 accounts.

In addition, we completed a conversion in our unsecured loan portfolios, credit card rewards program, and mutual fund business. And we’ve now done a lot of the heavy lifting to prepare for the integration of our East Coast markets, which begins in September with Alabama, Mississippi and Tennessee, followed in the Fourth Quarter with Georgia.

Our entire team is working exceptionally well together and culturally and financially, this merger is exceeding my expectations. I couldn’t be more excited about the opportunities ahead.

Now, there’s no question that our industry is experiencing some uncertainty regarding the impact of regulatory reform. So let me spend a few minutes talking about the changing landscape based on what we know today.

First of all, Wells Fargo has always been focused on doing the right thing for our customers, and adhering to a philosophy of transparency with all of our stakeholders. Those are core to what we do.

While portions of the newly-signed legislation are consistent with that operating philosophy, which is positive, we remain concerned that some aspects may have unintended negative effect for America’s financial system, for consumers, and for businesses.

Right now, we are proceeding with our efforts to gain a better understanding of all the components, and we will work internally with our regulators on implementation plans as the rule-making process evolves.

At this stage, it is too soon to definitively estimate the financial impact given the varying implementation timelines for different components of the bill, the need for some additional clarifications since the actual rule writing is still on the horizon and the size of potential financial offset.

Nevertheless, we believe the impact on Wells Fargo overall will be lower than the impact of our large-bank peers; particularly in areas such as proprietary trading, derivatives, and private equity.

There will be areas where we will be affected, like debit interchange. There is simply insufficient information at this point for us to make a determination as to the net economic outcome.

Any estimates will be premature in our view. It is just too soon.

With that being said, Wells Fargo joins others in our industry in wholly dedicating our talents and resources to the biggest priority we share with the American public; the return to a vibrant US economy.

To that end, Wells Fargo continues to supply significant credit to the US economy including consumers, small-and-medium sized business, and large corporate clients; about $990 billon over the last 18 months. We’ve also helped more than 1 ½ million people keep their homes since January 2009.

We believe Wells Fargo has show that it’s business model remains successful throughout these tough economic times. And we position our franchise well for better economic times ahead. We’ve grown our customer base by providing a full spectrum of products and services to meet their needs throughout this period. We have an unmatched distribution platform nationwide. We’ve maintained our increased market share across many of our business, and our leadership team is encouraged by signs of continued improvement in the credit landscape.

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