Wells Fargo 2006 Annual Report Download - page 67

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65
OFAC may impose penalties for inadvertent or unintentional
violations even if reasonable processes are in place to prevent
the violations. Therefore, the establishment and maintenance of
systems and procedures reasonably designed to ensure compli-
ance cannot guarantee that we will be able to avoid a fine or
penalty for noncompliance. For example, in April 2003 and
January 2005 OFAC reported settlements with Wells Fargo
Bank, N.A. in amounts of $5,500 and $42,833, respectively.
These settlements related to transactions involving inadvertent
acts or human error alleged to have violated OFAC regulations.
There may be other negative consequences resulting from a find-
ing 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.
WE DEPEND ON THE ACCURACY AND COMPLETENESS OF INFORMATION
ABOUT CUSTOMERS AND COUNTERPARTIES. In deciding whether to
extend credit or enter into other transactions, we rely on the
accuracy and completeness of information about our customers,
including financial statements and other financial information and
reports of independent auditors. For example, in deciding whether
to extend credit, we may assume that a customer’s audited finan-
cial statements conform with U.S. generally accepted accounting
principles (GAAP) and present fairly, in all material respects, the
financial condition, results of operations and cash flows of the
customer. We also may rely on the audit report covering those
financial statements. If that information is incorrect or incom-
plete, we may incur credit losses or other charges to earnings.
WE RELY ON OTHERS TO HELP US WITH OUR OPERATIONS. We rely
on outside vendors to provide key components of our business
operations such as internet connections and network access.
Disruptions in communication services provided by a vendor or
any failure of a vendor to handle current or higher volumes of
use could hurt our ability to deliver products and services to our
customers and otherwise to conduct our business. Financial or
operational difficulties of an outside vendor could also hurt our
operations if those difficulties interfere with the vendor’s ability
to serve us.
FEDERAL RESERVE BOARD POLICIES CAN SIGNIFICANTLY IMPACT
BUSINESS AND ECONOMIC CONDITIONS AND OUR FINANCIAL RESULTS
AND CONDITION. The Federal Reserve Board (FRB) regulates
the supply of money and credit in the United States. Its policies
determine in large part our cost of funds for lending and invest-
ing and the return we earn on those loans and investments, both
of which affect our net interest margin. They also can materially
affect the value of financial instruments we hold, such as debt
securities and MSRs. Its policies also can affect our borrowers,
potentially increasing the risk that they may fail to repay their
loans. Changes in FRB policies are beyond our control and can
be hard to predict.
OUR STOCK PRICE CAN BE VOLATILE DUE TO OTHER FACTORS.
Our stock price can fluctuate widely in response to a variety
of factors, in addition to those described above, including:
• general business and economic conditions;
• recommendations by securities analysts;
• new technology used, or services offered, by our competitors;
• operating and stock price performance of other companies
that investors deem comparable to us;
• news reports relating to trends, concerns and other issues
in the financial services industry;
• changes in government regulations;
• natural disasters, such as Hurricane Katrina; and
• geopolitical conditions, such as acts or threats of terrorism
or military conflicts.