WFC missed on revenue, but beat profit estimate. Unlike other large banks, Wells Fargo does not have an big investment banking or trading operation. So it didn't benefit from security underwriting or trading. The flip side of this is that its business would be the least affected among big banks if Washington pushes through its regulation to separate deposit-based banking from investment banking and trading.
It has two main sources of revenue: interest income and non-interest income. They are about equal in size, each brought in $11B last quarter. Mortgage income about flat, which means the company saw a soft loan demand. Deposit had continued to grow. Net interest margin came down a few basis points at 4.27%, largely due to this good problem: lots of deposit that earns no interest, but Wells could not find meaningful ways to park them. So they are keeping their gun powder dry. Wait for the loan demand to grow with the economy.
The biggest positioing story is of course the Wachovia integration, which appears to be on track. Company expects to achieve $5b in merger savings. The value in this merger is to convert Wachovia into an extension of Wells Fargo, using the same focused business model to realize higher efficiency and revenue generation by cross-selling more products to the same customer base. The end result will be a stronger coast-to-coast national franchise.
For a good summary, other than my take on its positioning, see this. Wells is getting everything ready to thrive in a growing economy when unemployment rate starts to decline materially.
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