At a conference on Sept. 11, Wells Fargo Wells Fargo CFO Tim Sloan said that although the company achieved a "stable" net interest margin during the second quarter, in part because of "a 7 basis point linked quarter benefit from higher variable items," the margin for the third quarter "could be similar to what we experienced in the third quarter of last year when our net interest margin was down 17 basis points."

Mutascio last Monday downgraded Wells Fargo to a "Hold" rating from a "Buy" rating, saying that the expected 17-point decline in the company's net interest margin "would be nearly double the 9 basis points of margin compression we were anticipating this quarter."

Since Wells Fargo "does not need deposits, as it is flush with liquidity" and "does not need additional brick and mortar, as the profitability of branches is low in such a low interest rate environment and the company already has a coast-to-coast branching network," Mutascio sees CIT Group as a perfect fit, since the commercial lender does not have a branch network, but does have "$35 billion in higher yielding assets that have already been marked-to-market via Fresh Start Accounting," because of the company's bankruptcy filing in November 2009.

Mutascio said a combination between the two companies could "substantially improve CIT's earnings power by replacing its higher cost of funds with WFC's industry low cost of funds," and that there would be "no material reduction in cash on hand given CIT's high cash balances." The analyst also said that there would be "no meaningfully negative impact" to Wells Fargo's Tier 1 common capital ratio.

Based on his "base case assumptions," which include a price of $52 a share for CIT Group, or roughly $10.5 billion, "moderate cost saves of 20% of CIT's operating expenses base," acquisition funding of 50% cash and 50% stock, and "WFC benefiting from CIT's $4 billion net operating loss (NOL) carry forward," Mutascio estimates that the combination "could be 5% accretive to WFC's EPS - and up to 7% accretive if the acquisition was paid for in an all cash transaction."

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