Wells Fargo (WFC)

Wells Fargo (WFC) filed its 10-Q and there were some very favorable items in it for shareholders.

Results: the credit crisis itself has created incremental earnings opportunities for Wells Fargo, largely offsetting our incremental charge-offs from the crisis.

Net interest income on a taxable-equivalent basis increased 21% to $6.33 billion in second quarter 2008 from $5.23 billion in second quarter 2007. The increase was driven by 20% earning asset growth combined with an increase in the net interest margin to 4.92%, up 3 basis points from a year ago and up 23 basis points linked quarter. Card fees increased 14% to $588 million in second quarter 2008 from $517 million in second quarter 2007, due to continued growth in new accounts and higher credit and debit card transaction volume. Purchase volume on these cards was up 13% from a year ago and average card balances were up 30%. Although credit quality in Wells Fargo Financial’s real estate-secured lending business has deteriorated, we have not experienced the level of credit degradation that many nonprime lenders have because of our disciplined underwriting practices.

Long story short? Wells Fargo is in fantastic shape. Does that mean there will not be bumps in the road? Clearly if the economy continues to deteriorate, things will fall. When you look around the financial sector, I can't find anyone making the kinds or statements (results based ones, not "anticipated results" promises) like Wells Fargo. Citi (C), Wachovia (WB), Washington Mutual (WM) are all repairing rather than growing. Even JP Morgan (JPM) and Bank of America (BAC) while not suffering can't claim the same quality of assets as Wells.

With the mortgage crisis ripening, more and more financial institutions are shaken up. All company share prices are plummeting and more companies are willing to be taken over. Wells Fargo is in a strong position to buy out other smaller companies like Washington Mutual. The cash reserves and the conservative exposure to the mortgage crisis will help them buy a company or two this year.

Wells Fargo's 80+ businesses offer a diversity in product and service offerings that most competitors cannot match. The diversification gives Wells Fargo opportunities to cross-sell products, or to refer one business' customers to other WFC businesses so that the one customer has multiple Wells Fargo products. Diversification across the financial services industry has also helped WFC protect against heavy losses in any particular business, for example, the current losses in the home mortgage and auto loan businesses.

WFC has seen strong double-digit growth in a number of its businesses, not just a few. This indicates that the company is not depending solely on strong performance by a couple "star" businesses, and is rather poised for stability, even when market conditions change.

Wells Fargo & Company is well established in the United States, with a large variety of businesses and a solid and rapidly expanding client base. Although WFC is not seeking international expansion, it is extending its reach in the domestic market in a variety of its business lines.

Not seeking to expand internationally allows Wells Fargo to focus on competing in the U.S. market. Wells Fargo has been expanding in the Western United States. In 2006, WFC added nearly 4500 new employees and 109 regional banking stores.