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Wells Fargo's Rise From The Dead Redeems Sins Of All Banks, Says TIME Columnist
"More Quickly Than It Began, The Banking Crisis Is Over" declares longtime financial journalist Douglas McIntyre in a column posted this morning on the TIME website. Well miracles of miracles! Noting yesterday's news from Wells Fargo that the bank made more than twice analysts' projections during the first quarter and the positive buzz about the progress of the Treasury Department "stress tests" being run to assess banks' abilities to withstand further economic downturns, he wonders why the heck they're bothering to run "stress tests" at all. Isn't it obvious we're out of the woods?
Oddly absent from the discussion of how well Wells Fargo did is why the government was in the midst of testing bank balance sheets at all. The experts at the Treasury had been thrown off the scent and consequently had missed the fact that there was not need to test what is already working well. The same holds true for the Geithner plan to take toxic assets off bank balance sheets. It is academic now. What banks are earning from the difference between the cost of capital and the income from lending is now great enough for the banking system to be self-sustaining again.Hallelujah, but: zombie banks don't rise from the dead every day. On CNBC this morning CEO Howard Atkins credited Wachovia, the bank it hastily acquired in the thick of the panic of '08, for bringing the good news. And indeed, an analyst tells Forbes the Wachovia deal has been much more auspicious than experts initially expected, when Wells told analysts it anticipated writing down $10 billion in bad and "non-performing" loans held by Wachovia; thus far, they've only had to write down $77 million.
There's probably a very good reason for that, according to mortgage blogger Ken Watson -- the Financial Accounting Standards Board just relaxed mark-to-market accounting restrictions, meaning Wells can value those loans a bit more creatively than before.
Still, we wonder if McIntyre isn't a tad premature with his latest oracle. After all, as his column of three weeks ago pointed out, creative accounting can't collect rent from a half-finished skyscraper, and a lot of those assets might never "perform":
The experts who really know the banking industry believe that there are still hundreds of billions of dollars or write-offs walking around the financial system waiting for big banks to run into them.And while the earth may have been created in a week, the crisis has been looming at least since Alan Greenspan and Bob Rubin committed the original sin of claiming that derivatives traders could regulate themselves.
Josh
Zachary
This Is FANTASTIC!!! NEWS!!! FOR ME!!!
Now can I have my job back?
April 10, 2009 3:09 PM | Reply | Permalink
I'd use another word to describe Wells Fargo return from the dean, but baloney will do.
The truth about Wells Fargo?
Take a look at what the analysts are not talking about on TV. The most recent audited financial statement for WF covers up to Dec 31st in the 2008 year end report: https://www.wellsfargo.com/pdf/press/4q08pr.pdf On page 23 of this report, the bank outlines the loan exposure carried on its books, including $18.25 billion in CDO’s and over $51.7 billion in mortgage backed securities. There is also more than $100 billion in commercial real estate exposure, and a whopping $227.35 billion in consumer mortgages and credit card debt. Less than 2.5% has beenm reserved for loan losses to cover these liabilities (otherwise known as ‘assets’ on the balance sheet).
Now to put all of that into context, economists know that consumer debt levels are currently at all time highs. They also know that bankruptcy levels are rapidly climbing, both at the corporate and consumer level. They know that a record number of home mortgages are underwater, meaning that they are worth less than the value that is still owed. We know that unemployment continues to escalate month after month, ie. The bottom is NOT in. Lets put it all together…
People who lose their jobs lose their ability to repay loans. This is underlined by the data reported in the Biz section of USA Today on Monday, April 6th, where a record 4.2% of consumer loans are now at least 30 days delinquent and an ADDITIONAL 4% were already in default. These people often turn to credit cards as a source of cash to make ends meet. So the fact that unemployment has risen sharply since the last financial statement was issued by WF would suggest that the situation is in fact worse than it was just 4 months ago. And recall that loss provisions of less than 2.5% have been reserved against loan write offs, well below the average for the country of at least 8% in trouble, and probably this number will get worse since job losses continue to accelerate. Yet WF manages to pre-announce earnings of more than $3 billion… How can this be?
April 11, 2009 5:30 PM | Reply | Permalink
That should have been return from the "dead".
April 11, 2009 5:31 PM | Reply | Permalink
It's called "Creative Accounting".
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April 12, 2009 11:14 PM | Reply | Permalink