Archive for the 'Wells Fargo' Category
May 4th, 2009, 5:00 pm by Mathew Padilla
The Associated Press reports regulators are instructing Wells Fargo to raise more capital after government’s stress test showed the bank would have trouble surviving if the recession worsens.
AP cites anonymous sources. Last week word leaked that Bank of America and Citigroup will also have to raise capital.
The stress test results are expected to be released later this week.
However, Wells Fargo stock closed today up 24% at $24.25 on Warren Buffett, top shareholder in San Francisco-based Wells, saying he would buy more shares of the company. Buffett also said he would buy shares of U.S. Bancorp and M&T Bancorp. (Bloomberg reported Buffett’s comments.)
Buffett’s Berkshire Hathaway is sitting on $20 billion in cash. One wonders if he has stockholders committed to selling him shares in those three banks (since he just drove up their stock prices), or is saying he would buy shares directly from the banks if they are forced to raise capital.
One thing is clear: Buffett is limiting stress-test fallout.
In other news…
Posted in: Company Watch • Wells Fargo • industry • Warren Buffett | 1 Comment »
April 25th, 2009, 3:00 am by Mathew Padilla
When Wells Fargo completed its acquisition of Wachovia in December, Wells marked down Wachovia’s risky loan portfolio by $37.2 billion. That did the trick, and future losses on Wachovia’s old loans will be much reduced, Wells said in its first-quarter earnings release on Wednesday.
Mike Loughlin, chief credit officer, said in the release:
We have now evaluated Wachovia’s high-risk loan portfolios multiple times since the merger was announced and loss estimates remain within our initial expectations. As a result of having already written down Wachovia’s higher-risk portfolios for their expected losses, the remaining portfolio will have lower loss rates because of its reduced loss content.
However, Wells Fargo continues to see bad loans pile up, including those on commercial real estate and from credit card holders.
Its nonperforming assets, essentially loans beyond repair, increased 40% in the first three months of the year to $12.6 billion. Over the same period its reserve for bad loans, known as an allowance for loan losses, increased 6%.
The more a bank increases its reserve, the more it must lower its earnings.
 click for larger image Wells’ allowance for loan losses totaled $22.3 billion on March 31, which equates to a 177% coverage rate of nonperforming assets (NPA). That ratio is down from 233% on December 31, but it is higher than 129% a year earlier. (The chart, click on it for larger image, illustrates the faster rise in NPA in Q1.)
Wells says the allowance covers all consumer losses for the next 12 months and any commercial losses for at least two years.
In any case, these numbers for Wells compare favorably to those of Bank of America. See my post on BofA HERE.
In other news…
Posted in: Bank of America • Bank woes • Company Watch • Meltdown • Wells Fargo • distress | 4 Comments »
April 22nd, 2009, 3:00 am by Mathew Padilla
Reporters like to cover companies as if they are in a race, even amid a credit crisis. I am guilty of this strange fascination, so here’s this from Bloomberg:
Wells Fargo & Co.’s purchase of Wachovia Corp. at the end of last year helped the lender double its mortgage originations in the first quarter and build its lead over Bank of America Corp.
Wells Fargo lent more than $100 billion for mortgages in the period, while Bank of America funded about $89 billion, including $4 billion in home-equity products, according to statements from the companies. In the previous period, Wells Fargo originated $50.9 billion in mortgages, compared with $50 billion at Bank of America.
The banks expanded their mortgage units after acquiring home lenders last year. Bank of America purchased Countrywide Financial Corp. in July, gaining the nation’s largest home lender, while Wells Fargo bought Wachovia, the biggest issuer of option adjustable-rate mortgages. Wells Fargo, based in San Francisco, picked up branches and customers along the East Coast in purchasing Charlotte, North Carolina-based Wachovia.
“There was less overlap between Wells and Wachovia vs. Bank of America and Countrywide, which had almost the exact same footprint,” Guy Cecala, chief executive officer of industry publication Inside Mortgage Finance, said today in a phone interview from Bethesda, Maryland. Wells Fargo “has been more aggressive in terms of mortgage lending across the board.”
Before Charlotte-based Bank of America bought Calabasas, California-based Countrywide, it was already among the top banks in Countrywide’s home state. Bank of America has cut back on Countrywide’s subprime operations since the purchase.
…
With the Countrywide deal in July, Bank of America catapulted from the fifth-biggest mortgage originator and sixth- largest servicer to number one in both categories. It took a “leadership position in one of the most important products,” Chief Executive Officer Kenneth Lewis said when the purchase was announced in January 2008. The bank is still the biggest servicer, Cecala said.
Home lending nationwide surged 60 percent in the first quarter from the previous period to $407 billion, according to Inside Mortgage Finance. To jumpstart sales and support lending, the Federal Reserve has been buying mortgage bonds and said last month it may purchase $750 billion of securities from Fannie Mae, Freddie Mac and Ginnie Mae.
Average 30-year fixed mortgage rates dropped to 4.82 percent on April 16 from 4.87 percent a week earlier, according to Freddie Mac, the McLean, Virginia-based mortgage finance company. Rates fell below 5 percent this year for the first time in records dating to 1971.
In other news…
Posted in: Bank of America • Company Watch • Wells Fargo | 1 Comment »
April 13th, 2009, 3:57 pm by Mathew Padilla
We will know more about the miraculous $3 billion first-quarter profit at Wells Fargo when it reports earnings on April 22. For now HousingWire points out that a chunk of the earnings came from a special accounting treatment.
It appears, however, that as much as nearly one-third of the bank’s first quarter earnings may be nothing more than the result of an accounting treatment; without such a move, tangible common equity would be 10 bps less than the 3.1 percent the Street expects.
The jump in earnings pertain to FAS 160, an accounting rule first announced in 2007 that became effective on January 1, 2009. The rule addresses accounting for minority interests, and mandates that the ownership interests in subsidiaries held by parties other than the parent corporation be clearly identified and presented as equity for the purpose of consolidated reports. Until now, minority interests in the U.S. have been reported either as a liability or as a mezzanine line item between liability and equity.
The effect of the new accounting rule allows certain liabilities to ‘jump over’ to the asset book as non-cash transactions via paid-in capital, thereby rolling directly into earnings and boosting reported equity. In the case of Wells Fargo, the bank found itself with up to $824m it could use this quarter as an accounting gain to earnings.
That gain comes as the result of WFC’s controlling interest in a legacy joint venture with Prudential Financial; the joint venture was acquired when Wells took over Wachovia last fall. Prudential currently holds a 23 percent non-controlling interest in the venture, as well as a put option on its interest in the venture; according to government filings, Prudential intends to exercise such an option “at a date in the future.”
Yet even if HousingWire’s Teri Buhl is correct, that still leaves more than $2 billion in profit. Wells is clearly benefiting from a generous 4% net interest margin. (Though look out, Treasury yields are up from mid-March lows.)
But what about all those bad loans at Wachovia, which Wells acquired? Investment bank Friedman, Billings, Ramsey & Co. told investors to wait for the quarterly report:
WFC’s 1Q09 preannounced results exceeded our expectations, but the release was short on details. We encourage investors to demand better disclosures going forward, and it is our sincere hope that WFC will revisit its long-held practice of not holding live quarterly public conference calls. We caution investors not to get too excited about growth in the tangible common equity ratio until we know how much of the improvement was one-time in nature (and 3.1% tangible common equity is still too low). Announced earnings surprised on the upside, largely based on lower credit costs and net charge-offs, but WFC gave no details on delinquency trends or Wachovia’s credit losses. We find ourselves wondering how were net charge-offs so much lower than we expected? Have we overestimated WFC’s losses, or is the timing obscured by purchase accounting adjustments from the Wachovia merger? Based on everything we know about continued credit deterioration, we are skeptical, and we find no clarity from what little information Wells Fargo has provided.
Let’s wait and see. Nothing against Wells, but it is always good to remember quarterly statements are not audited, only annual reports undergo a full audit.
In other news..
Posted in: Company Watch • Wells Fargo • Bank rebound? | 3 Comments »
April 9th, 2009, 2:32 pm by Mathew Padilla
(Update: Laura Pephens added.)
Wells Fargo today said it earned a record $3 billion profit in the first quarter. Some market watchers react:
Mark Boud, principal, Real Estate Economics, Irvine
” I think this reflects Wells Fargo’s savvy more than a bottom for the banking crisis. WF’s underwriting has always been more conservative than other banks, and the wide margins have only helped. Even know, WF offers mortgage rates that are about a point higher than most banks. They’ve played this recession well, and are poised to expand in the next cycle.”
Laura Pephens, Pephens & Co., Inc.
“With the acquisition of Wachovia, the expansion of its residential mortgage warehouse lending division, and self-proclaimed successes associated with residential mortgage lending activities (their press release), I’d say that they’ve re-entered the mortgage marketplace in a very big way. My grandmother had a saying: “You can’t fall out of a basement.” I believe the money center banks have turned the corner with respect to their individual liquidity issues (climbed partially out of the basement) and that the surge in mortgage refinance activity (supported and encouraged by Obama administration) will continue to play a large roll increasing profitability.
With respect to ‘losses on bad debt’ — these are primarily resulting from required fair market value write downs of the assets. ‘Realized losses’ vs. ‘reserves for bad debt’ are the indicators to watch for all the money center banks. As market values either bottom out or begin to incline, we’ll see some turnaround (or recapture) of these ‘reserve’ figures, which will have a very positive impact for banks that are able to hold assets until RE market turns.”
Sean O’Toole, chief executive, ForeclosureRadar.com
“My initial reaction was twofold. First that they likely generated a phantom profit by under-reserving for future loan losses, and second that it is amazing they didn’t earn more given the amount of government assistance they have received.”
Jack Kyser, chief economist, Los Angeles County Economic Development Corp., which also tracks Orange County
“Several of the large banks were saying that their business had improved during the 1st quarter. People were concerned about Wells because of their purchase of Wachovia (and Golden West’s lousy portfolio). But Wells is well managed, and that 4% interest margin certainly helps.”
In other news…
Posted in: Company Watch • Credit Crunch • Wells Fargo | 8 Comments »
April 9th, 2009, 8:00 am by Mathew Padilla
(Update: Wells’ high net interest margin.)
Wells Fargo said today it expects a record net profit of $3 billion in the first quarter. That’s despite net charge offs, or ultimate losses on loans, of $3.3 billion, down from $6.1 billion in Q4, including losses from buying Wachovia.
And the record profit accounts for the bank setting aside $4.6 billion for future loan losses, bringing its total loss reserve to $23 billion.
Howard Atkins, chief financial officer, said in the release, “Business momentum in the quarter reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results — $100 billion in mortgage originations, with a 41 percent increase in the unclosed application pipeline to $100 billion at quarter end, an indication of strong second quarter mortgage originations.”
Low interest rates are clearly boosting refinance and, to a lesser extent, home buying loan activity for Wells.
As a reminder, Wells has received $25 billion as part of the federal bailout of the banking industry.
This is certainly good news for Wells and the banking industry. But I’d like to see a few more quarters of strong results before declaring Wells as out of the woods. The company officially reports first-quarter earnings on April 22.
Update: Wells said its net interest margin hit 4.1% in the quarter, which strikes me as extremely high. Clearly, its borrowing costs are low, very low, thanks in large part to the Federal Reserve’s cutting of interest rates and tepid global demand for goods and services, which has halted inflation. In an interview on CNBC, CFO Atkins said higher cost deposits of Wachovia are maturing, which implies Wells is getting those borrowers into lower cost CDs. A world in which savers get very little return on their money is great for banks.
In other news…
Posted in: Company Watch • Wells Fargo | 8 Comments »
March 9th, 2009, 1:03 pm by Mathew Padilla
Stock of Wells Fargo closed 15% higher today after investor Warren Buffett said the fourth-largest bank will emerge “better-than-ever” from the credit crisis. The stock ended at $9.97, up $1.36 from yesterday, but still only a fraction of its Sept. 19 peak of $39.79.
Speaking on CNBC television, Buffett said Wells Fargo is able to borrow at low cost amid low benchmark interest rates. His comments were picked up by news service Reuters:
Berkshire Hathaway Inc, Buffett’s insurance and investment company, was Wells Fargo’s largest investor at year end, owning a 7.2 percent stake. Buffett suggested that the greatest risk might be the prospect that banks sell more common stock, diluting existing shareholders.
“These are a couple of tough years for losses in the banking business, but you expect a couple tough years every now and then,” Buffett said. “The earning power is going to be greater by far than it has ever been when you get all through with it. The only worry in that is the government will force you to sell shares at some terribly low price.”
I haven’t looked closely at the books of Wells Fargo, but it clearly assumed a lot of bad loans with its acquisition of Wachovia. Wells on Friday slashed its dividend 85 percent to help save $5 billion a year.
Here’s more of Buffett from CNBC:
Even though Wells Fargo is going through a tough couple of years, he looks at its overall business prospects. Wells Fargo prospects are good several years out. Wells could generate $40 billion of annual pre-provision income within a couple of years.
In other news…
Posted in: Company Watch • Wachovia • Wells Fargo | 6 Comments »
March 6th, 2009, 12:32 pm by Mathew Padilla
Wells Fargo said today it will reduce its dividend to 5 cents from 34 cents in an effort to save $5 billion annually, reports the Associated Press. The next dividend will likely be declared in April.
The move was expected, considering other major banks have done it already. AP recaps:
Last month, JPMorgan Chase & Co. cut its quarterly dividend to 5 cents from 38 cents. In January, Bank of America Corp. slashed its quarterly dividend to a penny from 32 cents. And troubled Citigroup Inc. has lowered its quarterly dividend to a penny from 16 cents.
Furthermore, PNC Financial Services Group Inc. and U.S. Bancorp cut their dividends earlier this week. Other smaller regional banks have made similar moves.
And the AP says this on Wells’ health:
Although Wells Fargo has long been considered one of the stronger players in the banking sector, the company has recently faced increased scrutiny from analysts and investors who are worried about its capital levels. There is concern that losses related to the company’s acquisition of troubled Wachovia Corp. will be bigger than anticipated. In recent weeks, its stock has taken a beating as investors fear it could be the next big bank in need of a government bailout.
Since the crisis began, government has nudged strong, or semi strong, banks to buy weaker players: Wells-Wachovia, BofA-Countrywide, JPMorgan-Wamu. But the result has been to drag down the stronger player. Some economists see temporary nationalization of these banks as necessary.
In other news…
Posted in: Company Watch • Wells Fargo | 1 Comment »
February 11th, 2009, 3:00 am by John Gittelsohn
A new documentary on CNBC, “House of Cards,” analyzes the economic meltdown and points to Orange County as the birthplace of the subprime loans that infected the world financial system.
The 90-minute program, which first airs Thursday, features locals such as Bill Dallas, founder of Ownit; Lou Pacific, a Mission Viejo real estate consultant; Daniel Sadek, founder of Quick Loan Funding — and a few clips of this reporter.
It also connects the born-in-O.C. mortgages to Wall Street and to Narvik, Norway, where a town went broke investing in CDOs.
Here’s a clip …
Is Orange County the birthplace of the financial crisis?
By the way, Orange County’s role in the subprime experiment is chronicled in the book Chain of Blame, co-authored by blogger Mathew Padilla.
Related stories …
Posted in: Bad ads • Bank woes • Bear Stearns • Citigroup • Credit Crunch • Meltdown • Subprime news • TV spots • Uncategorized • Wells Fargo • Bill Dallas • CNBC • Daniel Sadek • House of Cards • Lou Pacific | 55 Comments »
November 21st, 2008, 12:23 pm by John Gittelsohn
 Wells Fargo is cutting 80 percent to 90 percent of its wholesale mortgage jobs nationwide, according to the Web site the Mortgage Lending Implode-o-Meter, including cutting a lending division in Irvine.
Julie Green Rommel, a Wells Fargo spokeswoman in Orange County, confirmed that the company is cutting “a small number” of jobs in its wholesale mortgage lending division, but declined to say how many.
“As conditions with the national mortgage market continue to change, Wells Fargo Home Mortgage is adjusting staffing levels for its Wholesale Lending channel to reflect the reality of the market,” she said. “Wells Fargo is not disclosing the number because although a position is eliminated, it doesn’t mean the team member will leave the company as we work to retain employees when possible.”
Green Rommel said the Irvine office will remain open, but staff will be reduced.
The Irvine office processes FHA and other government approved loans. According to Implode-o-Meter, which requires a paid subscription to view, the Irvine mortgage jobs will transfer to Lombard, Ill. The Web site reports:
“According to a reliable source, Wells Fargo plans to cut its wholesale operations back by as much as 80% to 90% in the first weeks of December. An internal memo we were sent lays out the consolidation of volume handling nationwide to just three offices. The memo states “affected team members were notified earlier today,” but based on the lack of buzz we’re seeing, many are likely still unaware of these changes. The consolidation cuts across all wholesale channels, including both Conventional and Government product lines.”
If you have any other details, feel free to contribute here.
Related stories …
Posted in: Bank woes • FHA • Uncategorized • Wells Fargo • layoff | 16 Comments »
November 19th, 2008, 4:14 pm by Mathew Padilla
Bloomberg reports U.S. prosecutors and the Securities and Exchange Commission opened an investigation into whether Wachovia Corp. misled borrowers and investors.
Citing San Francisco U.S. Attorney Joseph Russoniello, Bloomberg writes….
Prosecutors are examining whether Golden West Financial, acquired by Wachovia in 2006, fraudulently lured borrowers into mortgages, such as by switching them into more expensive loans or falsifying financial information so they could qualify, Russoniello said. His office and SEC investigators in San Francisco are also scrutinizing whether the banks misled investors about the quality of Golden West’s loans, he said.
“We are looking down, in terms of what borrowers were told, and we’re looking up at what investors were led to believe,” Russoniello said in an interview today. He characterized the inquiry as preliminary.
Regulators pressed Wachovia in September to merge with a stronger bank, leading Wells Fargo & Co. to top a Citigroup Inc. bid last month to acquire the Charlotte, North Carolina, lender for $14 billion. Wachovia became vulnerable because of expected losses from $120 billion in payment-option adjustable-rate mortgages. The loans were mainly acquired through the $24 billion purchase of Golden West, based in Oakland, California.
Christy Phillips-Brown, a spokeswoman for Wachovia, and SEC spokesman John Nester declined to comment. Wells Fargo spokeswoman Julia Tunis Bernard also declined to comment.
Bloomberg also reports that Golden West co-founder Herbert Sandler wasn’t available for comment, according to an assistant at his San Francisco-based foundation.
Back on Oct. 30, Sandler told Bloomberg Television: “I did not see how problems in the subprime market would roll into the mortgage market and then into the economy. It was not like we enriched ourselves.”
Read the full story HERE.
I have read of the FBI investigating a dozen or more companies tied to the mortgage meltdown including New Century Financial in Irvine and Countrywide in Calabasas. But so far there have been few high-profile arrests — I can recall only the folks who ran the Bear Stearns hedge funds that collapsed last year.
And in other mortgage news…
Posted in: Investigations • Wachovia • Wells Fargo • Investigations | 10 Comments »
October 29th, 2008, 5:18 pm by Mathew Padilla
Wells Fargo said today it got $25 billion from the U.S. Treasury as part of government’s plan to inject banks with capital to jump-start lending to consumers and businesses.
The bank issued 25,000 preferred shares at $1 million per share. The shares pay a 5% annual dividend for the first five years and 9% after that.
The deal, announced after the market closed, granted Treasury 10-year warrants to purchase 110 million shares of Wells’ common stock at an initial price of $34.01 per share. That’s above Wells’ closing price today, $32.11, but below its Tuesday close, $34.46. Wells has about 3.3 billion shares outstanding, according to Yahoo.
Here’s more from Wells:
Wells Fargo was among the first nine large financial institutions to participate in the Treasury Department’s capital purchase program. “We believe the Treasury’s plan is a positive step toward providing much needed capital for financial institutions in the best position to deploy it effectively to stimulate the U.S. economy and strengthen confidence in the U.S. banking system,” Chief Financial Officer Howard Atkins said. “The strength of our franchise, earnings and balance sheet positions us well to continue lending across all sectors and satisfying all of our customers’ financial needs, which is in the spirit of the Treasury’s plan.” As of September 30, 2008, prior to this new capital investment, Wells Fargo’s Tier 1 regulatory capital ratio was 8.5 percent, one of the strongest among large bank holding companies.
Read the full release HERE.
Banks are individually announcing what they got. I would guess the other eight large financial companies also got $25 billion and had to give up a right to buy a chunk of their common stock.
So far the only Orange County bank I know of that got money is Westminster-based Siagon National Bank, which got $1.2 million.
Some experts say weak lenders, such as Downey Financial of Newport Beach, are not getting capital. Bloomberg has a story on that HERE.
And in other mortgage news…
Posted in: Company Watch • Meltdown • Wachovia • Wells Fargo | 4 Comments »
October 14th, 2008, 6:56 am by Mathew Padilla
President Bush this morning said the government will buy shares in banks, injecting them with capital in a bid to make credit more available to businesses and consumers. The government plans to spend as much as $250 billion as part of the $700 billion plan previously approved by Congress.
 The Associated Press reports the Bush plan will focus on nine major banks initially, including all of the nation’s largest financial institutions. Read that story HERE.
“This is an essential short-term measure to ensure the viability of America’s banking system,” Bush said “And the program is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize and they can raise capital from private investors.”
He said the plan is “not intended to take over the free market, but to preserve it.”
Here are other key points Bush outlined:
- “Second, and effective immediately, the FDIC will temporarily guarantee most new debt issued by insured banks. This will address one of the central problems plaguing our financial system — banks have been unable to borrow money, and that has restricted their ability to lend to consumers and businesses. When money flows more freely between banks, it will make it easier for Americans to borrow for cars, and homes, and for small businesses to expand.
- Third, the FDIC will immediately and temporarily expand government insurance to cover all non-interest bearing transaction accounts. These accounts are used primarily by small businesses to cover day-to-day operations. By insuring every dollar in these accounts, we will give small business owners peace of mind and bring stability to the — and bring greater stability to the banking system.
- Fourth, the Federal Reserve will soon finalize work on a new program to serve as a buyer of last resort for commercial paper. This is a key source of short-term financing for American businesses and financial institutions. And by unfreezing the market for commercial paper, the Federal Reserve will help American businesses meet payroll, and purchase inventory, and invest to create jobs.”
Read his full speech HERE.
And in other meltdown news…
Posted in: Bailout Buzz • Bank of America • Bank woes • Citigroup • Meltdown • Wells Fargo | 12 Comments »
October 3rd, 2008, 7:45 am by Mathew Padilla
(Update: Citigroup wants merger halted.)
Wachovia today said it is being acquired by rival Wells Fargo in a $15-billion all-stock deal that trumps a competing offer by Citigroup and doesn’t involve the government.
On Monday, the Federal Deposit Insurance Corporation had said Citigroup was buying Wachovia’s banking operations and that the FDIC might absorb some losses on Wachovia’s $312 billion pool of loans.
Citigroup today demanded Wachovia stop the merger with Wells, saying Wachovia breached an exclusive deal reached with Citigroup earlier this week, reports Bloomberg. Read that story HERE.
Here’s some facts on the Wachovia-Wells deal and where to find more info:
- Robert Steel, CEO of Wachovia Corp., said in a release, “This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support. The market presence and composition of our businesses, along with our service-oriented cultures, are extraordinarily complementary and this combination creates great potential for sustained stability and growth.” To read the full release, CLICK HERE.
- Wachovia has branches in nine cities and towns in Orange County. See the full list HERE. Wells Fargo has many more locations in the county. Look up a branch HERE.
- Wachovia shareholders will get 0.1991 shares of Wells Fargo for every share of Wachovia stock they own, valuing Wachovia at about $7 per share. That is a nearly an 80 percent premium over the stock’s Thursday closing price of $3.91. The Associated Press has more details on the deal HERE.
- Sheila Bair, chairman of the FDIC, gave a brief statement saying her agency would still stand behind the Citigroup deal if necessary: “Since the close of our bidding process, Wells has apparently re-assessed its position and come forth with this new offer that does not require FDIC assistance. …The FDIC stands behind its previously announced agreement with Citigroup. The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest.” Read the full statement HERE.
- How does this deal compare to Citigroup’s offer? Read more about that previous deal HERE.
And in more meltdown coverage…
Posted in: Company Watch • Wachovia • Wells Fargo | 3 Comments »
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