Gun Slinger
July 22, 2009 – 3:52 pm
Wells Fargo & Co.’s (WFC) second-quarter earnings soared 81%, hitting a new company record, amid the bank’s acquisition of Wachovia. But shares fell 6.9% premarket despite the company’s results topping analysts’ expectations as loan troubles continued to mount. Larger banks like Wells Fargo have enjoyed a lift from the recent mini-boom in mortgage refinancing, which is a major business for the San Francisco bank. But rising delinquencies and credit woes continue.Analysts have expressed concern about the risk Wells Fargo assumed with its purchase of troubled Wachovia, which left it heavily exposed to the rapidly weakening commercial real estate sector. Meanwhile, option adjustable-rate mortgages have been generating proportionally more delinquencies and foreclosures than subprime mortgages in recent months, which could mean higher-than-expected losses for some of the bigger banks.
Chief Executive John Stumpf said Wednesday the company’s top priority is to integrate Wachovia as smoothly as possible, adding that the integration is on track. He added in November, banks in Colorado will convert Wachovia branches to Wells Fargo ones.
Integration of Wachovia is not the issue Wachovia is the issue; the bad bank Wells never wanted can’t shake loose the geyser from which writedowns and future writedowns will spring for years.
The cost of loans written off as uncollectible jumped 35 percent from the first quarter to $4.39 billion, including $984 million of Wachovia assets, more than double the previous period. The charge-offs widened to 2.11 percent of loans from 1.54 percent in the first quarter, exceeding the 1.85 percent estimate of Sterne Agee & Leach Inc. analyst Adam Barkstrom.
Wells Fargo took writedowns on Wachovia’s riskiest loans at the time of the takeover through so-called purchase accounting. The company said today that losses increased in the portion of the Wachovia portfolio that hadn’t been viewed as impaired at the time. Wells Fargo Chief Financial Officer Howard Atkins said in an interview Wachovia’s nonaccrual loans will moderate in the coming quarters.
Credit-loss provisions were $5.09 billion, up 69% from a year earlier and 11% from the prior quarter. Net charge-offs rose to 2.1% of average loans from 1.54% in the prior quarter. Nonperforming assets grew to 2.2% from 1.5% in the prior quarter.
The bank said it generated $14.2 billion toward satisfying the Federal Reserve’s Supervisory Capital Assessment Program, surpassing the $13.7 billion requirement. The process will be completed at the end of the third quater.
Wells Fargo sold $600 million in mostly non-performing subprime loans to Irvine, Calif.-based Arch Bay Capital, National Mortgage News reported, citing sources familiar with the sale.
The industry publication said the loans sold for 35 cents on the dollar, about double what most hedge funds were offering.
But the questionable sale hasn’t slowed the real business model for Wells Fargo, which is the hat in hand one. And with $25 billion in TARP funds to keep it alive, the taxpayer has been kind to Wells, where it has been in return cruel to the consumer.
Today, I was informed that Wells Fargo Bank is unilaterally closing the business checking accounts of companies simply because they are offering loan modification services. Yes, you read that right. Business checking accounts. Because you offer to help people obtain loan modifications from banks… like Wells Fargo.
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