Wells Fargo & Company said today that it will take a charge of $1.4 billion cover losses in its mortgage portfolio, while further tightening its underwriting standards for home equity lending. The bank said in a press statement that it will no longer originate home equity loans through wholesalers where the CLTV (combined loan-to-value) is 90 percent or higher, or where the second mortgage is not behind a Wells Fargo first mortgage. Wells also said it will liquidate $11.9 billion in home equity loans originated via its now-defunct correspondent channel, loans it characterized as the "highest risk" in its $83.4 billion National Home Equity Group portfolio. Losses in liquidation are expected to total $1 billion in both 2008 and 2009, the bank said, and will be charged against the $1.4 billion reserve as they are incurred. Wells said the remaining amount of the charge would be tied to losses in its continuing lending business for the fourth quarter, and did not comment on its expecations for further charge-offs in continuing operations in 2008. In spite of the charges, Wells CFO Howard Adkins exuded confidence about the bank's future position in the mortgage market, saying the bank "lost market share in the sub-prime segment the past three years and we're glad we did." "We have minimal exposure to collateralized debt obligations," Adkins said. "We do not hold in our money market mutual funds any collateralized debt obligations, any commercial paper obligations directly backed by sub-prime debt, or any single-seller commercial paper programs sponsored by mortgage originators. "We did not participate in any significant way in any large, leveraged buyouts that were ‘covenant lite.' We did not sponsor any ‘structured investment vehicles' to hold assets off our balance sheet. We have never made a market in sub-prime mortgage securities. We have minimal direct exposure to hedge funds. Avoiding these problems has enabled us to maintain one of the strongest equity capital positions among large bank holding companies.� While the Associated Press cites RBC Capital Markets analyst Joseph Morford as saying Wells Fargo now has "a big blemish on them, too," other sources seem more sanguine about the bank's visit to the confessional:
"Maybe people are going to be freaked out about Wells Fargo's losses, but they shouldn't be," said Punk, Ziegel & Co. analyst Richard Bove. "Wells Fargo isn't superhuman and they made some bad loans just like everyone else."
For more information, visit http://www.wellsfargo.com.