Credit Quality Overshadows Wells Fargo's Profit

[Dover]

American Banker |
Thursday, July 23, 2009



Wells Fargo & Co. did a lot of things a public company is supposed to do at earnings time — report a flashy profit gain and appear to exceed an ambitious capital plan, to name two — but it just wasn't enough to silence the alarm bells from a larger-than-expected deterioration in credit quality.

The guarded reaction of analysts and investors not only speaks volumes about the complexities of a banking giant like Wells Fargo, it underscores how in this earnings season, deep scrutiny of credit-quality statistics has supplanted routine measures such as earnings per share.

Besides a double-digit jump in the bottom line, the $1.3 trillion-asset Wells reported solid revenue growth — not only from mortgage banking but across many of its business lines — as well as margin expansion from core deposit growth. It also said it could fulfill its capital-raising plan without another stock offering.

However, chargeoffs and nonperformers rose more than expected, in both legacy Wells commercial real estate and consumer loan portfolios, and from option adjustable-rate mortgages inherited from its Wachovia Corp. acquisition last year...cont'd

http://www.americanbanker.com:80/article.html?id=20090722J1C2VZ1A&email=y

[dixiegrrrrl]

1. from option adjustable-rate mortgages inherited..........

THAT is going to bite them hard.

I am glad to see scrutiny is being applied to bank reports.
The fact is, no body knows the value of bank holding anymore, and the "profit/value" bottom line for banks is being used to justify the high take home pay rate of the few at the top.
Wonder how long they can play out the string?

[CoffeeCat]

2. How do you see Wells doing in the future?

I always thought WF was a pretty healthy and responsible banks. I was under the impression
that they didn't engage in a lot of the subprime nonsense that many other banks did.

Interesting that their huge profits didn't persuade investors. How many times have we been told that
specific bank stocks have surged to due "record profits"??? This has happened a few times during Q1 and Q2 of 09.
Funny, that people would more closely inspect the nitty gritty of Wells books--and that this made their stock
price fall a bit.

It's so difficult to try to make sense out of all of this.

[CoffeeCat]

3. The Wells bashing continues...

http://www.thestreet.com/story/10552223/3/wells-fargos-balancing-act.html

PBS's "Frontline" did a show on the bailout backstory. The show detailed how Paulsen rounded up
the bank CEO and demanded that they take the bailout funds and sign a letter confirming their
intentions to do so.

Reportedly, there was a lot of "screaming and shouting from one CEO in the room".

I knew that this was the Wells CEO, because prior to this Frontline airing, Wells was issuing statement
about not wanting the government help. I remember a Wells official saying that government officials
practically threatened them and told them that if they didn't take the bailout funds--that the government
wouldn't be so accommodating the next time Wells needed help.

Wells was a very solid bank. Their subprime exposure was very low.

I may be wrong--but it felt like (back then) that all of the largest banks were forced to participate. I remember
comparing the government's strongarming of Wells--to the mafia forcing people to take loan-shark money--to gain
control.

I find it interesting that these Wells-bashing articles are coming out now, like wildfire. Especially from thestreet.com, which
is owned by Jim Cramer--who is a consummate market manipulator and Wall Street kow tower.

[AdHocSolver]

4. Certain manipulators want investors to sell Wells Fargo shares and buy Goldman Sachs and JPMorgan?

It is the same old Ponzi scams played a somewhat different way.

Just as investors were "encouraged" by the artificially low interest rates maintained by the Federal Reserve to take their savings out of insured bank accounts and buy fraudulently inflated stock shares like Enron (one example out of thousands), by bashing the "safety" of Wells Fargo, share holders may be encouraged to sell WF stock and buy some stock favored by the bashers.

Whenever you don't understand some economic activity, just imagine how someone would run a Ponzi scheme, and all of a sudden, all the details become perfectly understandable.

[CoffeeCat]

5. I think you're exactly right...

This really deserves its own thread.

It totally makes sense. They strongarmed WF into participating--because WF was a threat to their
precious Goldman and JPM. Wells did have some problems with mortgages that were failing, but they
were a very conservative bank that was doing well. They didn't have a lot of subprime stuff on
their balance sheet like some of the other banks.

It appears that they forced wells to participate to control them. Get them under their thumb--much
like a loan shark controls their "customers".

Now, the dismantling begins, I guess. So fricking obvious--as this hatchet job comes out of thestreet.com
There have been two damaging articles on Wells in the past week.

There's a huge story here...for anyone who wants to do some digging. I wish Wells would open up and tell us
all about these thugs.

[Dover]

6. When WF bought up Wachovia they inherited a whole lot of subprime problems..

Which is not to say that your assessment is inaccurate, but WF is not as free of issues as
you seem to be making it.

And I'm not sure I believe that part of the Frontline story about what happened behind closed doors during the bailout and the banks being forced to take the money.

[CoffeeCat]

7. Clarifying Frontline...

From what I remember about the Frontline program, Bernanke called together the select bank CEOs.

Most were on board with getting the bailout funds. However, it was reported that one CEO was upset
and did not want to take this money. Bernanke said that there was "screaming and shouting" in that room.

I think most banks were on board, but it was apparent that at least one bank CEO wasn't.

During this time, Wells was front-and-center in the press--bad mouthing the bailout and suggesting that they
didn't need the money, and didn't want it. There was also one article in which Wells described the government
as taking a threatening posture and strong arming the bank into getting on board.

I'm convinced that the "screaming and shouting" was from the Wells CEO. I believe the account--because there
are numerous articles, around the time of the bailout--which clearly show that Wells didn't like this and went
into this kicking and screaming. They were openly criticizing the US government, and in this day and age--that
rarely happens from a corporation.

When you taken into consideration that what I just described might be true---the media's attack on Wells
is quite interesting, to say the least.