January 28, 2009 – 3:51 pm

Wells Fargo reported a $2.55B fourth-quarter loss on the back of its own write-downs, while those of recently-acquired Wachovia added a further $11.2B to the tally. It’s foreboding for Wells Fargo, the Liar Bank, because its assorted accounting vulgarities could not keep it out of red ink for the first time in seven years. The loss was a sharp turn from the $1.3B profit in the fourth quarter of 2007.

The controversial acquisition of Wachovia Corp. wasn’t needed to help push Wells Fargo & Co.  into the red for the first time in seven years, with the San Francisco-based bank saying Wednesday morning that it lost $2.55 billion, or ($.79/share), during the fourth quarter of 2008.

Wells itself wasn’t immune to the credit crisis, outside of Wachovia, either; the bank said it built credit reserves by $5.6 billion for future expected losses, while absorbing $473 million in other-than-temporary-impairment charges in its securities portfolio and another $413 million in write-downs on mortgages in warehouse facilities.

Had the bank included its shotgun spouse, the results would have been $11.2B worse. Witness:

Wachovia itself — which wasn’t included in the bank’s bottom-line results — recorded a fourth quarter loss of $11.2 billion, including $2.8 billion deferred tax asset write-down, $4.2 billion credit reserve build and $4.3 billion of market disruption losses, Wells Fargo said in a press statement.

Wells Fargo’s write-downs included $37.2B against Wachovia’s $98B balance sheet on December 31, 2008 as well as $900M in write-downs on its own mortgages and securities. Then, just to be fashionable, the bank blamed nearly $300M more in write-downs on Madoff. Witness:

Wells Fargo & Co. wrote off $294 million because Bernard Madoff’s alleged Ponzi scheme wiped out some of its customers and left them unable to pay loans, said Chief Financial Officer Howard Atkins.

“This is not our exposure to Madoff, this is our exposure to customers of ours who had investments in Madoff,” Atkins said today in an interview after the company announced fourth- quarter results, which included the pretax chargetied to Madoff. “They’ve gone from being wealthy to not having any money,” Atkins said. He didn’t say how many were involved.

Why not global warming or the conflict in the mideast? He is a nice distraction, but Madoff is not Wells Fargo’s problem. Wachovia is, and it’s obvious that the bank knows it. In anticipation that these are merely the first awkward steps, Wells Fargo sold $13B worth of common shares and tapped the TARP for another $25B:

The San-Francisco-based bank bulked up in the quarter, raising nearly $13 billion through a common-share offering and getting $25 billion in government funding that helped it close its buy of Wachovia. The company said Wednesday it has no plans to ask for further government bailout money.

But as we have seen, the best non-plans often go awry. That’s why the bank takes more steps down the trail carrying Wachovia:

Wells Fargo boosted its credit reserve by $5.6 billion during the quarter. Total loan-loss provisions were $21.7 billion for the combined company as of Dec. 31, up from $8 billion at Wells Fargo alone as of Sept. 30.

$3.9B of the $5.6B was tied to the Wachovia merger.

For Wells Fargo, that’s a small step for a bank down a long and troubled trail riddled with booby traps.

That struggle was greased by the tax law changes and federal bailout money, and probably some good stiff arm twisting, so that the Goldman Sachs man in the Treasury could pay off the Goldman Sachs man (Steel) at Wachovia. Wells Fargo looks a lot like a cash conduit in between the crooks gentlemen.

First Robert Steel, the non-banker turned CEO of Wachovia, was Secretary Paulson’s long time right hand man at Treasury and Goldman Sachs.  Next came the collusion between the IRS, Treasury and the banks to change the tax law in a closed-door back room session. Observe:

This new rule apparently allows Wells Fargo to accelerate the use of Wachovia’s huge write-downs as an offset to their own income, saving Wells Fargo a substantial amount in taxes over the next several years.

Yep, it’s a substantial amount to say the least. Just at the very moment when the national debt is exploding because of bank bailouts, money that Wells Fargo would have paid in taxes is being used to buy Wachovia:

Another significant aspect of the deal is its timing. On Sept. 26, after reviewing Wachovia’s books, Wells Fargo balked and walked, leaving the mess to Citigroup. Then on  Sept. 29, the IRS changed the rules to allow Wells Fargo and Wachovia out of taxes. Then on Oct. 3, with all eyes on Congress passing the bailout bill, Wachoiva slipped into Wells Fargo’s dirty pockets in what was sold as a merger.

You’ll note the eerie similarity to the Merrill Lynch and Bank of America merger.


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