Wednesday, July 29, 2009

Weak Treasury Auctions Raise Worries About US Debt Burden

Wells Fargo owns crappy Georgia credit card debt too.

ATLANTA (TheStreet) -- Georgia has the unfortunate distinction of leading the U.S. with 21 bank failures this year and last. And many other banks in the state are suffering from very high levels of bad loans.

Most of the failed Georgia institutions made outsized bets during the real estate boom on residential and commercial construction projects in the Atlanta area. Since the quality of commercial real estate loans is declining sharply as the later stages of the banking crisis unfold, there are dozens of banks and thrifts in trouble.


Wells Fargo also has a credit card subsidiary among the 10 largest Georgia banks, Wachovia Card Services of Atlanta. This institution was assigned a financial rating of C despite its increasing credit card charge-offs, because it's strongly capitalized.

Monday, July 27, 2009

Widening Commercial Real Estate Crisis Hits U.S. Banks


Wells Fargo & Co., for example, said 2.3% of its commercial real estate mortgages were considered nonperforming as of the second quarter, up nearly three-fold from 0.8% a year ago.

The San Francisco bank purchased its large teetering rival Wachovia Corp. at the end of last year, and Wells Fargo now holds $138 billion in commercial real estate loans, more than any other lender. Wachovia expanded aggressively into commercial real estate before falling victim to rising losses from consumer loans.

Nearly a third of Wells Fargo's total commercial real estate loans are tied to properties in California or Florida -- two regions among the hardest hit by the real estate depression.

Wells Fargo did not immediately respond to a request for comment.

Wednesday, July 22, 2009

For Wells, Multiple Ruts in the Road


Through the credit crunch, Wells Fargo has convinced investors that it is a cut above other large banks. Its shares trade at 2.5 times tangible book value versus 1.6 times for J.P. Morgan Chase. But while Wells posted better-than-expected second-quarter profits on Wednesday, it also showed a sharp deterioration in credit quality.

The question now hanging over the company: Has Wells's management been caught out by the recent poor performance of the bank's loans? One reason Wells trades at a big premium over others is the perception that its executives have a strong handle on credit risk. Now, though, there are signs that the bank may have been too optimistic about the quality of loans it got from Wachovia, the large bank it acquired last year. Moreover, many of Wells's own loans continue to perform disappointingly, with nonperformers going up in the second quarter for corporate loans, commercial real-estate credits and its $117 billion of core home-equity loans.

Voltron says: remember, home equity loans are second mortgages. If the first mortgage is worth 99 cents on the dollar, the home-equity loan is worth zero.

Granted, as the economy struggles, rising bad loans are hardly a surprise. But they become a big deal for investors if management doesn't appear to have set aside adequate loan-loss reserves.

Wells's reserves are equivalent to 2.86% of loans, well below 5% for J.P. Morgan and 3.61% at Bank of America. Wells's defenders might point out that less of its loans are going bad. Its nonperformers are equal to 1.92% of loans vs. 2.17% at J.P. Morgan and 3.12% at BofA. But Wells's nonperformers ratio could go higher.

For instance, there are signs this may happen on a $51.6 billion portfolio of option adjustable-rate mortgages Wells inherited from Wachovia. The bank said 3.21% of these loans were more than 90 days past due in the second quarter, a big leap from 1.11% in the first quarter. And these are loans that Wells didn't treat as impaired when it bought Wachovia, presumably because management thought they were stronger than those they did mark down.

Wells Fargo's Beat Rings Hollow


Despite Wells Fargo's huge profit beat and a pronouncement that the firm had surpassed its stress-test capital mandate, investors sent its stock down on worries about escalating credit problems.

Wells added $700 million to its credit reserves, bringing its total allowance for credit losses over the next year to $23.5 billion.

"We expect credit losses and nonperforming assets to increase," Chief Credit Officer Mike Loughlin said in a statement.

Credit Worries Shadow Wells Fargo as Earnings Jump

Voltron says: Wall Street Journal calls out Wells Fargo on it's lies.

Wells Fargo & Co.'s 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 continued.

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 Jon 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.

Investors must rely on management to volunteer information about the integration, because the company has said it again won't hold a conference call.

Wells Fargo posted income of $3.17 billion, or 57 cents a share, up from $1.75 billion, or 53 cents a share, a year earlier. The company had 36% more shares outstanding in the most recent period amid the takeover. Revenue nearly doubled to $22.5 billion from $11.46 billion, with Wachovia making up 39% of the total.

Analysts polled by Thomson Reuters expected earnings of 34 cents on revenue of $20.49 billion.

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's tangible common equity ratio, which measures how much of a bank's hard assets its shareholders actually own, rose to 5.2% from 3.8% in the prior quarter

Monday, July 13, 2009

Deliberately walking away from mortgages

Voltron says: No surprise, when people's houses are worth less than the mortgage, they walk. The government is trying to trick people into refinancing their mortgages into full-recourse loans to prevent them from walking away, but most people aren't that stupid. The banks are not willing (or able) to eat the loss by lowering the principal amount of the loan, interest rates are already effectively zero and the government is broke. The only way the government can keep the banks solvent is through inflation.

Article has some updated statistics:,0,3674775.story

Friday, July 10, 2009

California says all I need are some tasty waves, a cool buzz, and I'm fine

Voltron says: I find it amazing how blasé people are about the fact that California is broke. California is now issuing IOUs, which the banks have stopped accepting as of today. They are being bought for 50-88 cents on the dollar on ebay and craigslist. California is basically trying to print it's own money. Fiat money (i.e. money not backed by gold or silver) originally derived its value from the fact that it was accepted for payment of taxes. California is going to have to accept these IOUs at 100 cents on the dollar for taxes, fines, fees, etc. All of the IOUs will end up being returned to the state, requiring the state to issue more and more IOUs, in a financial death-spiral.

Dollar devaluation this summer?

Voltron says: rumor has it that the dollar will be devalued this summer during a special "bank holiday." You see, any banana republic can devalue its currency to shrug off its debt by adjusting the official foreign exchange rates. The problem is that the US Dollar is the world's reserve currency and everything is pegged to the dollar. This fact has allowed the US to get away with monetary murder for decades (low interest rates), but it's a double edged sword. The US gets to finance its debt at low interest, not because its a super cool peachy keen country, precisely BECAUSE it can't default very easily through devaluation (a.k.a inflation).

Thursday, July 9, 2009

Goldman conspiracy theory

Voltron says: rumor on the street is that the software stolen by a rogue ex-Goldman Sachs employee reveals that Goldman Sachs has been hacking into the stock exchanges and front-running the entire market.

Monday, July 6, 2009

Bearish WFC and IYR options activity

Voltron says: Someone is making some rather large bets that Wells Fargo will decline over 35% by mid August. Also, puts were purchased on IYR with a break even at 7% below the current price.