Wells Fargo Must Address Credit Concerns

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.

FBR analyst Paul Miller estimated that Wells' allowance for loan losses covers about 5.4 quarters' worth of charge-offs, vs. 6.9 quarters during the last period.

"Unless [Wells Fargo's] net charge-offs stabilize over the next few quarters," says Miller, "[Wells Fargo] will have to start materially increasing its provision expense, which will put pressure on earnings and valuations."