UPDATE: Wells Fargo CEO Sees Bad Loans Rising
September 16 2009 - 1:20PM
Dow Jones News
Wells Fargo & Co. (WFC) Chief Executive John Stumpf
reiterated Wednesday that he expects the San Francisco bank's
nonperforming assets, or troubled loans, to increase next quarter.
He also said the bank has used 21% of its credits for losses tied
to some commercial and foreign loans from Wachovia Corp., which
Wells Fargo purchased last year.
Speaking at a financial services conference in New York hosted
by Barclays PLC (BCS), Stumpf said Wells Fargo has used $2.2
billion of an available $10.4 billion in credits for losses from
the most troubled of Wachovia's commercial and foreign loans. Wells
Fargo has a remaining $8.2 billion to cover future losses from the
loans, which include mortgages tied to commercial properties like
office buildings and housing developments.
Separately, Stumpf said he expects the bank's levels of
nonperforming loans, or loans that may become uncollectable, to
increase.
"Considering the current economic environment, we would expect
our nonperforming assets to continue to increase," Stumpf said.
Wells Fargo issued a similar forecast when it reported its
earnings for the second quarter.
Stumpf's message is a contrast to remarks on Tuesday from the
chief executive of Regions Financial Corp (RF), C. Dowd Ritter, who
said nonperforming loans at his regional bank, based in Birmingham,
Ala., likely peaked in the second quarter.
Shares in Wells Fargo were recently up 3% to $29.43 in composite
morning trading.
Wells Fargo bought its teetering rival, Charlotte's Wachovia,
for $12.7 billion at the end of last year after Wachovia began to
crumble under losses from billions in risky home loans. A crucial
component of Wells Fargo's merger of the two banks is whether
Wachovia's piles of risky real estate loans perform as Wells Fargo
initially expected over the coming quarters and years.
During this decade, Wachovia expanded aggressively into
mortgages for commercial properties such as housing developments
and office buildings. Analysts widely expect commercial real estate
loans to hit banks with heavy losses over the coming year since
losses from commercial loans typically rise months or years after
losses from home loans surface.
At the time of the purchase, Wells Fargo was permitted by
accounting rules to declare $96.2 billion of Wachovia's loans as
"credit-impaired," or likely to produce losses. Wells Fargo was
allowed to immediately write off the $40.9 billion losses it
expected those loans to generate in order to prevent the bank from
being damaged by Wachovia's loan troubles.
Of the $40.9 billion in credits for Wachovia losses, Wells Fargo
said Wednesday that it has used $3.8 billion thus far to offset
losses on Pick-A-Pay loans, a risky type of home mortgage.
"Overall, our impaired loans, including Pick-A-Pay and
commercial real estate, have performed in line with our original
expectations," Stumpf said. He called those loans "the two loan
portfolios of most interest to investors."
Wachovia issued more than $120 billion of the risky home loans,
which offered borrowers the option of four monthly payments,
including a minimum payment that increased the loan's balance.
Wells Fargo expects the most troubled Pick-A-Pay loans, whose
losses can be covered by the credits, to generate another $22.7
billion in losses.
-By Marshall Eckblad, Dow Jones Newswires; 212-416-2156;
marshall.eckblad@dowjones.com