Wells Fargo 2008 Annual Report Download - page 84

Accounting Policies” in the Financial Review section of this
Report.
From time to time the FASB and the SEC change the financial
accounting and reporting standards that govern the preparation
of our external financial statements. In addition, accounting stan-
dard setters and those who interpret the accounting standards
(such as the FASB, SEC, banking regulators and our outside
auditors) may change or even reverse their previous interpreta-
tions or positions on how these standards should be applied.
Changes in financial accounting and reporting standards and
changes in current interpretations may be beyond our control,
can be hard to predict and could materially impact how we report
our financial results and condition. We could be required to
apply a new or revised standard retroactively or apply an exist-
ing standard differently, also retroactively, in each case resulting
in our potentially restating prior period financial statements in
material amounts.
Acquisitions could reduce our stock price upon announcement
and reduce our earnings if we overpay or have difficulty inte-
grating them. We regularly explore opportunities to acquire
companies in the financial services industry. We cannot predict
the frequency, size or timing of our acquisitions, and we typically
do not comment publicly on a possible acquisition until we have
signed a definitive agreement. When we do announce an acquisi-
tion, our stock price may fall depending on the size of the acqui-
sition, 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 approval before
we can acquire a bank or bank holding company. In deciding
whether to approve a proposed bank 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 lev-
els, the competence, experience, and integrity of management
and record of compliance with laws and regulations, the conve-
nience and needs of the communities to be served, including the
acquiring institution’s record of compliance under the
Community Reinvestment Act, and the effectiveness of the
acquiring institution 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 condi-
tion 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, dis-
ruption 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 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 audi-
tors were found not to be “independent” of us under SEC rules,
we could be required to engage new auditors and file new finan-
cial 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
filed with the SEC, 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.
The Patriot Act, which was enacted in the wake of the
September 2001 terrorist attacks, requires us to implement new
or revised policies and procedures relating to anti money laun-
dering, compliance, suspicious activities, and currency transac-
tion reporting and due diligence on customers. The Patriot Act
also requires federal bank regulators to evaluate the effective-
ness of an applicant in combating money laundering in deter-
mining whether to approve a proposed bank acquisition.
A number of states have recently challenged the position of
the OCC as the sole regulator of national banks and their sub-
sidiaries. If these challenges are successful or if Congress acts to
give greater effect to state regulation, the impact on us could be
significant, not only because of the potential additional restric-
tions on our businesses but also from having to comply with
potentially 50 different sets of regulations.
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 institu-
tions. As an example, our business model depends on sharing
information among the family of Wells Fargo businesses to bet-
ter satisfy our customers’ needs. Laws that restrict the ability of
our companies to share information about customers could limit
our ability to cross-sell products and services, reducing our rev-
enue and earnings. Federal financial regulators have issued regu-
lations under the Fair and Accurate Credit Transactions Act
which have the effect of increasing the length of the waiting period,
after privacy disclosures are provided to new customers, before
information can be shared among Wells Fargo companies for the
purpose of cross-selling Wells Fargo’s products and services.
This may result in certain cross-sell programs being less effec-
tive than they have been in the past.
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