Wells Fargo Wrestles with Credit Concerns

Wells Fargo may be confident when it comes to revenues and its capital cushion, but many investors are more concerned about what happens next in terms of the non-performing assets the company is dealing with. Indeed, there are concerns that credit defaults and loan write-offs may be in the future — especially as debt from acquired Wells Fargo cycles through.

Wells Fargo is trying to shore up confidence in its brand, but it hasn’t been a terribly successful effort so far. The Street reports on why Wells Fargo is struggling :

The problem is, no one doubts that Wells’ ability to expand offerings across the combined franchise . Nor are they worried that the firm won’t be able to earn money on those products. They’re worried that losses not yet accounted for will cause large enough craters in the balance sheet to consume those profits.

The problem is that it is difficult for the company to provide substantial proof that non-performing assets aren’t going to come up and bite them. And just insisting that everything is fine won’t do the trick, either. After all, the Bear Stearns CEO tried that, and the rumors just overwhelmed the company until investors lost faith and things collapsed. Clearly, Wells Fargo will need to show that it can absorb Wachovia, and that it has not been exposed to more risk that it can handle.

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