Wells Fargo 2010 Annual Report Download - page 102

Risk Factors (continued)
When we do announce an acquisition, our stock price may fall
depending on the size of the acquisition, the purchase price and
the potential dilution to existing stockholders. It is also possible
that an acquisition could dilute earnings per share.
We generally must receive federal regulatory approvals before
we can acquire a bank or bank holding company. In deciding
whether to approve a proposed acquisition, federal bank
regulators will consider, among other factors, the effect of the
acquisition on competition, financial condition, and future
prospects including current and projected capital ratios and
levels, the competence, experience, and integrity of management
and record of compliance with laws and regulations, the
convenience and needs of the communities to be served,
including our record of compliance under the Community
Reinvestment Act, and our effectiveness in combating money
laundering. Also, we cannot be certain when or if, or on what
terms and conditions, any required regulatory approvals will be
granted. We might be required to sell banks, branches and/or
business units as a condition to receiving regulatory approval.
Difficulty in integrating an acquired company may cause us
not to realize expected revenue increases, cost savings, increases
in geographic or product presence, and other projected benefits
from the acquisition. The integration could result in higher than
expected deposit attrition (run-off), loss of key employees,
disruption of our business or the business of the acquired
company, or otherwise harm our ability to retain customers and
employees or achieve the anticipated benefits of the acquisition.
Time and resources spent on integration may also impair our
ability to grow our existing businesses. Also, the negative effect
of any divestitures required by regulatory authorities in
acquisitions or business combinations may be greater than
expected.
Federal and state regulations can restrict our business,
and non-compliance could result in penalties, litigation
and damage to our reputation. Our parent company, our
subsidiary banks and many of our nonbank subsidiaries are
heavily regulated at the federal and/or state levels. This
regulation is to protect depositors, federal deposit insurance
funds, consumers and the banking system as a whole, not
necessarily our stockholders. Federal and state regulations can
significantly restrict our businesses, and we could be fined or
otherwise penalized if we are found to be out of compliance.
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) limits the
types of non-audit services our outside auditors may provide to
us in order to preserve their independence from us. If our
auditors were found not to be “independent” of us under SEC
rules, we could be required to engage new auditors and file new
financial statements and audit reports with the SEC. We could be
out of compliance with SEC rules until new financial statements
and audit reports were filed, limiting our ability to raise capital
and resulting in other adverse consequences.
Sarbanes-Oxley also requires our management to evaluate the
Company’s disclosure controls and procedures and its internal
control over financial reporting and requires our auditors to
issue a report on our internal control over financial reporting.
We are required to disclose, in our annual report on Form 10-K,
the existence of any “material weaknesses” in our internal
control. We cannot assure that we will not find one or more
material weaknesses as of the end of any given year, nor can we
predict the effect on our stock price of disclosure of a material
weakness.
From time to time Congress considers legislation that could
significantly change our regulatory environment, potentially
increasing our cost of doing business, limiting the activities we
may pursue or affecting the competitive balance among banks,
savings associations, credit unions, and other financial
institutions.
For more information, refer to the “Regulation and
Supervision” section in our 2010 Form 10-K and to “Report of
Independent Registered Public Accounting Firm” in this Report.
We may incur fines, penalties and other negative
consequences from regulatory violations, possibly even
inadvertent or unintentional violations. We maintain
systems and procedures designed to ensure that we comply with
applicable laws and regulations. However, some legal/regulatory
frameworks provide for the imposition of fines or penalties for
noncompliance even though the noncompliance was inadvertent
or unintentional and even though there was in place at the time
systems and procedures designed to ensure compliance. For
example, we are subject to regulations issued by the Office of
Foreign Assets Control (OFAC) that prohibit financial
institutions from participating in the transfer of property
belonging to the governments of certain foreign countries and
designated nationals of those countries. OFAC may impose
penalties for inadvertent or unintentional violations even if
reasonable processes are in place to prevent the violations. There
may be other negative consequences resulting from a finding of
noncompliance, including restrictions on certain activities. Such
a finding may also damage our reputation (see below) and could
restrict the ability of institutional investment managers to invest
in our securities.
Negative publicity could damage our reputation.
Reputation risk, or the risk to our earnings and capital from
negative public opinion, is inherent in our business. Negative
public opinion could adversely affect our ability to keep and
attract customers and expose us to adverse legal and regulatory
consequences. Negative public opinion could result from our
actual or alleged conduct in any number of activities, including
lending practices, corporate governance, regulatory compliance,
mergers and acquisitions, and disclosure, sharing or inadequate
protection of customer information, and from actions taken by
government regulators and community organizations in
response to that conduct. Because we conduct most of our
businesses under the “Wells Fargo” brand, negative public
opinion about one business could affect our other businesses.
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