Community banks will suffer more, says Wells Fargo

Executives at Wells Fargo & Co. shared their opinion on the prospects of small banks in a short term. Chairman Dick Kovacevich and Chief Executive John Stumpf told RBC analyst Joe Morford that they expect Wells will benefit from its customer relationships and underwriting standards while they expect community banks to suffer more than the country's bigger banks in regards to the worsening situation with commercial real estate loans.

The credit bubble that burst in 2007 among other things was to a significant extend stimulated by the commercial real estate loans that helped community banking to grow at an unhealthy speed. Many observers expect banks to incur high losses in credit cards, auto and other consumer loans with the recessions aggravating and unemployment increasing.

Wells expects to cover any rise in consumer credit losses from net interest income. Morford said that the company is not likely to cut the dividend near-term but rather will preserve it ‘as a key component for long-term shareholder returns’.