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Profile: Wells Fargo Bank, N.A.
Wells Fargo Bank, N.A. was a participant or observer in the following events:
Regulatory reports on Bank of America, Citibank, HSBC Bank USA, JP Morgan Chase, and Wells Fargo indicate that, as loan defaults of every kind soar, the institutions face “catastrophic losses” should economic conditions “substantially worsen.” Already suffering as a result of what the banks term “exotic investments,” the reports disclose that, as of December 31, 2008, current net loss risks from derivatives—quasi-insurance bets tied to loans or other underlying assets—have swelled to $587 billion. According to McClatchy journalists Greg Gordon and Kevin G. Hall, obscured in the year-end regulatory reports that they reviewed were figures reflecting a jump of 49 percent net loss in just 90 days.
Bailout Money Shoring Up Reserves - Taxpayer bailout money has already shored up four of the five banks’ reserves, with Citibank receiving $50 billion and Bank of America $45 billion, in addition to a $100 billion loan guarantee. According to their quarterly financial reports as of December 31:
JP Morgan had potential current derivatives losses of $241.2 billion, overrunning its $144 billion in reserves, and future exposure of $299 billion.
Citibank had potential current losses of $140.3 billion, outstripping its $108 billion in reserves, and future losses of $161.2 billion.
Bank of America reported $80.4 billion in current exposure, lower than its $122.4 billion reserve, but $218 billion in total exposure.
HSBC Bank USA had current potential losses of $62 billion, over three times its reserves, and potential total exposure of $95 billion.
San Francisco-based Wells Fargo, which took over Charlotte, N.C.-based Wachovia in October 2008, reported current potential losses totaling almost $64 billion, below the banks’ combined reserves of $104 billion, but total future risks of about $109 billion. [McClatchy Newspapers, 3/9/2009; Idaho Statesman.com, 3/9/2009]
Wells Fargo, the second largest home lender in the US, posts a surprising record first-quarter profit, outperforming the most hopeful estimates on Wall Street. The bank’s earnings are the most since July 16, 2007, with shares down 33 percent in 2009. The report also states that Wachovia Corporation, acquired by Wells Fargo in October 2008, is exceeding expectations. According to data compiled by Bloomberg, Wachovia’s $101.9 billion in losses and writedowns are the most for any US lender, and its adjustable-rate home loans are considered among the industry’s riskiest. Yet, in its preliminary report, Wells Fargo states that acquiring Wachovia “has proven to be everything we thought it would be.” Official first-quarter results will be released the third week in April.
Other Banks Also Gain; Profits Expected - The preliminary earnings report rallies the stock market, and the S&P 500 caps a fifth consecutive weekly gain and adds 3.8 percent to a two-month high of 856.56, the longest stretch since the bear market began in October 2007. The Dow Jones Industrial Average rises 246.27, to 8,083.38. The largest US lender, Bank of America, gains 35 percent today; JPMorgan 19 percent, and Citigroup 13 percent. The 24-company KBW Bank Index surges 20 percent, its biggest one-day gain since May 1992. Oppenheimer & Co. analyst Chris Kotowski says of these firms, “Barring an act of God, they had better report some number that is in the black or potentially risk being involved in some of the most intense securities litigation on record.”
Accounting Rules May Have Helped Profit Statements - Christopher Whalen, a managing director of Risk Analytics, says that the Financial Accounting Standards Board’s relaxation of accounting rules may have helped banks—including Wells Fargo—report a profit. “Most analysts are expecting loss rates to be much, much higher than we have seen in the last 20 to 30 years, even longer,” he says. “Given that, provisions of the large banks are not high enough.”
Wells Fargo 'Underperforming?' - While Wells Fargo Chief Financial Officer Howard Atkins says that increasing the bank’s provision for loan losses to $23 billion is adequate compared with other large US banks, FBR Capital Markets analyst Paul Miller wrote in a report that the bank’s addition of a $4.6 billion provision was below his estimate of $6.25 billion. “We remain cautious based on what we don’t know.” Miller rates Wells Fargo shares “underperform” and said that the preliminary report did not contain the percentage of non-performing loans and trends in Wachovia’s option-adjustable rate mortgate portfolio, a percentage Miller deems important. Atkins says that Wells Fargo benefited from strong trading results at Wachovia’s capital markets business, which the bank continues to shrink. He said that the improvement will not reverse those plans. Approximately 75 percent of Wells Fargo’s mortgage applications are refinance. President Obama said that homeowner interest rates, at less than five percent, are the lowest since 1971, and that it was “money in their pocket” for homeowners. Wells Fargo’s biggest shareholder is Berkshire Hathaway Inc., an acquisitions and investments firm owned by Warren Buffett. [Bloomberg, 4/9/2009]
Entity Tags: Dow Jones Industrial Average, Christopher Whalen, Wells Fargo Bank, N.A., Bank of America, Wachovia Bank, N.A., Standard & Poor’s, Warren Buffett, Paul Miller, Howard Atkins, JP Morgan Chase, Chris Kotowski, Risk Analytics, New York Stock Exchange, Oppenheimer & Co.
Timeline Tags: Global Economic Crises
Wells Fargo & Co. confirms that it is not one of the 10 megabanks that will repay TARP capital and also says it is not hastening to repay the money. There had been rumors, perhaps because it had objected to the TARP funding in 2008, that Wells was prepared to write a check to repay its $25-billion TARP infusion—at any given moment—to escape government restrictions on executive pay, dividends, etc., but these rumors are now found to be false. The San Francisco-based bank bought Wachovia Corporation last year when it was on the verge of collapse and in its statement Wells cites its need to focus on assimilating loss-ridden Wachovia. “We want to pay back the government’s investment on behalf of the US taxpayer at the earliest practical date, but we haven’t applied yet to our regulators to repay the investment,” the statement says. From the beginning, Wells Chairman Richard Kovacevich stoked anti-TARP sentiment and opposed his bank’s inclusion in the program. Mr. Kovacevich said then-Treasury Secretary Henry Paulson “forced” the money on the bank because Mr. Paulson believed that all of the nation’s largest banks should have been TARP participants so that none appeared to be singled out for federal involvement. Mr. Kovacevich also attacked the government’s “stress test” of the 19 major banks to determine whether they had enough capital to survive a worse-than-expected economy over the next two years. “We do stress tests all the time on all of our portfolios,” Kovacevich said, according to Bloomberg News. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.” On May 7, the Federal Reserve judged Wells and nine other major banks short of capital and Wells was ordered to raise $13.7 billion in additional capital by November 2009. The following day, Wells quickly raised $8.6 billion in a stock sale. Wells says it will “work closely with our regulators to determine the appropriate time to repay the TARP funds while maintaining strong capital levels.” [Los Angeles Times, 6/9/2009]
While California grapples with budget problems as a result of the havoc wreaked by the global recession, a collection of banks—Bank of America, Citigroup, Wells Fargo, and JP Morgan Chase among them—say that commencing Friday, July 10, they will not accept state IOUs, adding pressure for the state to close its $26.3 billion budget gap.
IOUs Result of Credit Crisis - The banks initially made a commitment to accept IOU payments when the economically devastated state announced that it would issue more than $3 billion in IOUs beginning on or around July 1. Since the beginning of the year, state leaders have tried and failed to agree on a budget, and Governor Arnold Swarzenegger imposed monthly one to three-day monthly furloughs on at least 200,000 state employees; the furloughs are still in effect. The state began issuing IOUs—‘individual registered warrants’—to hundreds of thousands of creditors one day after the end of the 2009 fiscal year. John Chiang, California state controller, said, “Without IOUs, California will run out of cash by the end of July.” California’s annual budget is the eighth largest in the world. If the state continues issuing warrants, creditors will be forced to hold them until their maturity on October 2 or find other banks willing to honor them before maturity. The maturity of the IOUs will allow the state to pay back creditors directly at a 3.75 percent annual interest rate.
Response by California Bankers Association - California Bankers Association spokeswoman Beth Mills says that some banks might work with creditors to develop a short-term resolution, such as extending lines of credit to creditors. Mills says the banks were concerned that there aren’t processes in place to accept IOUs; she said that some of the banks were also worried about fraud issues, and notes that the July 10 deadline was not set by all banks. She adds that dozens of state credit unions would continue to accept IOUs.
Significance of California's Problems - Twelve percent of the nation’s gross domestic product comes from California and the state has the largest share of retail sales of any state. Retail consultant Burt P. Flickinger, managing director of Strategic Resource Group, explains, “California is the key catalyst for US retail sales, and if California falls further you will see the US economy suffer significantly.” Flickinger warns of more national retail chain and brand suppliers bankruptcies. At one dollar for every 80 cents, the state sends more in tax revenues to the federal government than it receives in return. Although California’s deep recession primarily only affects the state itself, it could make it harder for a national economic recovery since, because of its size—38.3 million people—it affects businesses from Texas to Michigan. Even if lawmakers solve the state’s deficit swiftly, there will likely be more government furloughs and layoffs with tens of billions of dollars more in spending cuts. This could cause a ripple effect throughout the state’s economy and fear of even more job losses. Jeff Michael, director of the Business Forecasting Center for the University of the Pacific at Stockton, predicts that one million jobs are expected to be lost in the state in two years, with unemployment estimated to peak at 12.3 percent in early 2010. In 2008, for the first time since the Great Depression, personal income of Californians declined. Income revenue fell 34 percent for the first five months of 2009. [Associated Press, 6/29/2009; Wall Street Journal, 7/7/2009]
Entity Tags: California Bankers Association, Bank of America, Arnold Schwarzenegger, Beth Mills, California, John Chiang, JP Morgan Chase, Jeff Michael, Wells Fargo Bank, N.A., Burt P. Flickinger, Citigroup, Strategic Resource Group
Timeline Tags: Global Economic Crises
Since implementing a program to help millions of homeowners restructure their mortgages to prevent foreclosure, only 235,247 loans have actually been modified, according to the US Treasury Department in its first progress report. After the plan was announced in February, the first banking institutions began accepting applications in April. Between now and 2012, the Obama administration says it is on track to assist 4 million homeowners. The report occurs a week after the administration summoned institutions to Washington to discuss speeding up the program after large numbers of borrowers’ complaints that assistance was barely occurring. The Obama administration plans 500,000 modifications by November 1, and hopes to hold the institutions responsible for their performance with the release of monthly reports that allow consumers to see which banks are slow to implement the plan. So far, institutions have extended offers to 15 percent or 406,542 homeowners in danger of losing their homes, with uneven performances by 38 participating servicers. Morgan Stanley’s subsidiary, Saxon Mortgage Services, tops the list with 25 percent of its delinquent loans placed in trial modifications. Saxon is followed by Aurora Loan Services, a Lehman Brothers Bank subsidiary, with 21 percent. GMAC Mortgage, partially owned by the US government, has put 20 percent of its troubled loans into trial modifications, while major banks JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America have late loan trial modifications of 20 percent, 15 percent, 6 percent, and 5 percent respectively. The lenders acknowledge that they must improve their performance, and say that they are committed to President Obama’s foreclosure prevention plan, stressing that they were already performing modifications prior to the administration’s program. Wells Fargo says that it will soon have the ability to send eligible borrowers trial modification agreements within 48 hours. “We set a high bar for ourselves in terms of customer service, and we didn’t hit that bar in all cases in the first seven months of this year,” says Mike Heid, co-president of Wells Fargo Home Mortgage, “We have added 4,000 employees to our loan workout division this year. JPMorgan Chase says it has another 150,000 applications in need of processing and is currently training an extra 950 workout specialists hired earlier in 2009, bringing its modification staff to 3,500 people. “We know we’ve got more work to do,” says Chase spokesman Tom Kelly. “But the bank is pleased with its performance to date.” CitiGroup’s mortgage agency, CitiMortgage, added 1,400 staffers to its modification team, with 800 dedicated to loss mitigation at its recently opened Tucson, AZ call center. It began placing troubled borrowers in trial modifications in early June. “In the next quarter, one can expect the pace will be even higher,” Sanjiv Das, CitiMortgage head, says. Bank of America says it needs to improve its reach out efforts, while noting that it holds nearly one in four trial modifications offered under the Obama plan and has extended nearly 100,000 offers, although only 28,000 trial modifications are in process. Bank of America purchased mortgage giant Countrywide Financial last year, and has the largest number of eligible delinquent loans with almost 800,000. Borrowers have been pressuring the Obama administration as well as servicers and are complaining that servicers are not responding to applications and calls, are losing their paperwork, and are not making timely decisions. Servicers say they are increasing their staffing and upgrading their computer systems to handle the hefty increase in applications. Says Michael Barr, assistant US Treasury secretary for financial institutions, “We are working with servicers to ensure that they can adequately implement the program and servicers are increasing staff and training, but they must also treat borrowers more respectfully and respond in a much timelier manner.” [CNN News, 8/9/2009]
Entity Tags: Countrywide Financial, Wells Fargo Bank, N.A., Bank of America, Aurora Loan Services, US Department of the Treasury, Citigroup, Tom Kelly, Sanjiv Das, GMAC, JP Morgan Chase, CitiMortgage, Lehman Brothers, Morgan Stanley, Michael Barr, Saxon Mortgage Services
Timeline Tags: Global Economic Crises
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