Wells Fargo’s Turnaround: A Mirage?

George Washington Blog
Friday, April 10, 2009

Wells Fargo is projecting a $3 billion dollar first quarter profit.

But since the Fed is ordering banks to keep the results of the “stress tests” secret, and given the suspension of mark-to-market accounting, can we be sure that Wells has really turned a corner?

Well, Wells was effectively insolvent a short time ago, drowning in toxic derivatives debt. And Geithner’s toxic asset plan is a charade, merely shuffling bad debt between the biggest derivatives holders. So its hard to see how Wells could have turned around so quickly.

And as HousingWire writes:

“We believe that credit quality materially deteriorated in the first quarter, and that Wells Fargo is under-reserving for expected future losses,” FBR’s Miller wrote in a Wednesday research brief. “We reiterate our Underperform rating.”More questions from Miller: “[W]e remain cautious based on what we don’t know. Most importantly, what happened to nonperforming loans and what would have been net charge-offs excluding purchase accounting adjustments? What are the trends in WFC’s Option ARM portfolio? Did the company write up the MSR and what was the new capitalized cost of servicing? Was there any benefit from an increase in level 3 assets given recent accounting guidance?”…

This chart … should speak volumes about the value of skepticism here:

This shows the ratio of loan loss reserves/total loans at the four major U.S. banks still standing. Wells Fargo is in white. Notice anything? You know, like which bank is comparatively weakest on reserving activity against its loan book?

This chart doesn’t include updated Q1 numbers for Wells, as the bank did not provide an updated loan total on Wednesday — meaning it doesn’t include Wachovia. Historically, Wells has justified its lower reserves by maintaining a comparatively higher-quality loan book; can the same argument really be made now? With Wachovia’s option ARMs lurking? Because there’s an ugly truth about credit costs: they come home to roost eventually, irrespective of any games played with loss reserves in the interim.

I wish that Wells’ turnaround was for real. But given that the Fed and Treasury are suppressing the results of the phony stress tests (if you don’t know that they are phony, see this and this), given that mark-to-market has been suspended, given that Wells was one of the banks previously judged insolvent because of its huge derivatives holdings, and given that Wells appears to have very little reserves, I’d be a little skeptical of its amazing turn around.

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5 Responses to “Wells Fargo’s Turnaround: A Mirage?”

1. Sillyfool Says:
   April 10th, 2009 at 1:14 pm

   They are making money because the credit card interest rates are 30% and they are hiding their losses that have yet to be put on our backs. The jewish banking scum and their goyem minions are going to come for our lives sooner than you think. HR 845 will keep us from legally being able to feed ourselves and most will die.

   

   wilcat Reply:
   April 10th, 2009 at 3:35 pm

   H.R. 845, The Crow Tribe Water Rights Settlement Act of 2009
   http://www.opencongress.org/bill/111-h845/text

2. wilcat Says:
   April 10th, 2009 at 3:36 pm

   I guess you mean HR 875?

3. BIG-ASS-CUP-O-KOOLAID Says:
   April 11th, 2009 at 11:04 am

   my old jew friend, monday dropped 10,000 into citi at a buck and pulled thursday around 3 bucks, made a cool 20,000… for the rest of us… we get 25 bucks a week extra on the unemployment… funny huh…maybe you can invest that 25 into wells… shit you could have 30 bucks, so quit complaining…, my stimulus is smoke, and obama bumper stickers… been free since sept and love every minute of sitting round watching the race of the sheep.

4. Joe in JT Says:
   April 11th, 2009 at 10:43 pm

   Wells Fargo has a huge derivatives holding. See there, you just said the majic words. Don’t forget that Geitners plan is basically the banks can’t lose. Banksters put up 30 cents for a 60 cent valued toxic asset. If they can sell it to China for 90 cents on the dollar everybody wins. But if the garbage doesn’t sell, and they can only get 10 cents to the dollar…guess what…the taxpayer picks up the difference. Well no shit Shakespeare, the banks can’t lose. Hell yeah they are optomistic and the stock is rising, they can’t freekin lose.!!!