Wachovia Shouldn't Slow Wells Fargo Down

Meanwhile, Standard & Poor's on Dec. 19 downgraded Wells Fargo's rating, along with those of 10 other large financial institutions. It cited increased risk to the banking industry at large and a worsening economy. S&P's long-term issuer rating is AA. Moody's similarly keeps an Aa1 rating on Wells' long-term debt.

Wells' management is optimistic about its prospects after the Wachovia deal. CEO John Stumpf has said he anticipates $5 billion in annual cost savings in the combined company, and has been enthusiastic about the expanded branch network Wells will now boast. He has also said that the bank's existing deposit base is growing as customers flee failing or troubled institutions, seeking the stability Wells offers, and the company has said that it expects the merger to be accretive within three years.

According to Wells, the combined company creates a bank with $1.42 trillion in assets, $787 billion in deposits, 48 million customers and $259 billion in assets under management. The merger also substantially expands the company's presence in large markets such as Florida, Georgia, North Carolina, Pennsylvania, Virginia, Texas and New Jersey.

Saying that Wells has been "anointed a survivor by the government back-stop," Hagerman wrote that the bank's large profit margin and capacity to expand its balance sheet will offset additional credit erosion.

Furthermore, Wells has an institutional distaste for exotic loans, the company has said that it will let the more adventurous parts of Wachovia's portfolio expire over time. Barclays analyst Jason Goldberg notes that Wells' aversion to the TARP money has been a public matter, and he sees the government funds as "added capital to put to work, but we don't expect that to alter their risk appetite." Barclays provides banking services for Wells Fargo, and a Barclays fund holds Wells shares.