Wells Fargo "Stumpf's" Investor's Again
We Nattered about Wells Fargo's Q108 10Q here and Wells less than solvent situation here.
We then took a riding crop to Wells unique book cooking here, here and here.
From Wells latest 10Q year over year...
"Credit quality in Wells Fargo Financial’s real estate-secured lending business has not experienced the level of credit degradation that many nonprime lenders have because of our disciplined underwriting practices."
Net charge offs $1.5 vs $0.715 billion
Non performing & foreclosed assets $4.495 vs $2.66 billion
Allowance for loan losses $5.803 vs $3.772 billion
Loans past 90 days due & still accruing $6.919 vs $4.812 billion
Wells moved $12 billion of Home Equity loans into a liquidating portfolio in Q407, which has decreased to $11.5 billion.
Add the above up and you get $30.2 billion in "disciplined underwriting" costs for Q1,
weigh that against $48 billion shareholder equity and $39 billion in tier 1 capital.
The liquidating portfolio produced only $163 million in net charge-offs in Q108, for an annualized quarterly loss rate of 5.58%.
In Q108, a $1.8 billion decrease in the fair value of our MSRs was offset by
$1.9 billion of gains on the free-standing derivatives used to hedge the MSRs resulting in an increase to net servicing income of $94 million.
It gets better... Q108 vs Q107 Cash flow from
operating activities -($390) million vs $4.833 billion
investing activities -($18.420) billion vs -($9.652) billion
Now thats what I call negative cash flow from investing while cash flow from operations got shot down in flames.
It even gets better... Q108 net income was $1.999 billion of which... from page 58:
Changes in level 3 assets net transfer into mortgages held for sale: $1.092 billion
from page 60 Fair Value Option under FASB 159:
Fair value carrying amount for mortgages held for sale reported at fair value less aggregate unpaid balance: Total Loans $222 million
and Mortgage banking noninterest income from mortgages held for sale: $752 million
$222 + $752 million = $974 million in FASB 159 "profit" from level 3 mortgages held for sale.
Level 3 being subjective mark to fantasy profits, so real net income was not $1.999 billion, but $1.025 billion.
The Nattering One muses... Take away the one time $334 million gain from the Visa IPO and net income was a paltry $691 million.
Tack on the $1.9 billion profit from free standing derivatives (hedging and gambling) and Wells loss is $1.2 billion.
Kudos to CEO Bob Stumpf for a nice try at doubling net income by shifting $1 billion of level 3 garbage into mortgages for sale.
And "hiding" $12 billion in non performing assets by classifying them as special mortgages for sale.
But unlike complacent investors, the Nattering One is not "Stumpf-ed" in the least.
Continued losses in operating and investing operations should eventually put Wells reserve levels in severe peril.
Much like Wachovia & WaMu already have, we can't wait for Wells Q2 disaster to complete our WWW CEO trifecta.
We then took a riding crop to Wells unique book cooking here, here and here.
From Wells latest 10Q year over year...
"Credit quality in Wells Fargo Financial’s real estate-secured lending business has not experienced the level of credit degradation that many nonprime lenders have because of our disciplined underwriting practices."
Net charge offs $1.5 vs $0.715 billion
Non performing & foreclosed assets $4.495 vs $2.66 billion
Allowance for loan losses $5.803 vs $3.772 billion
Loans past 90 days due & still accruing $6.919 vs $4.812 billion
Wells moved $12 billion of Home Equity loans into a liquidating portfolio in Q407, which has decreased to $11.5 billion.
Add the above up and you get $30.2 billion in "disciplined underwriting" costs for Q1,
weigh that against $48 billion shareholder equity and $39 billion in tier 1 capital.
The liquidating portfolio produced only $163 million in net charge-offs in Q108, for an annualized quarterly loss rate of 5.58%.
In Q108, a $1.8 billion decrease in the fair value of our MSRs was offset by
$1.9 billion of gains on the free-standing derivatives used to hedge the MSRs resulting in an increase to net servicing income of $94 million.
It gets better... Q108 vs Q107 Cash flow from
operating activities -($390) million vs $4.833 billion
investing activities -($18.420) billion vs -($9.652) billion
Now thats what I call negative cash flow from investing while cash flow from operations got shot down in flames.
It even gets better... Q108 net income was $1.999 billion of which... from page 58:
Changes in level 3 assets net transfer into mortgages held for sale: $1.092 billion
from page 60 Fair Value Option under FASB 159:
Fair value carrying amount for mortgages held for sale reported at fair value less aggregate unpaid balance: Total Loans $222 million
and Mortgage banking noninterest income from mortgages held for sale: $752 million
$222 + $752 million = $974 million in FASB 159 "profit" from level 3 mortgages held for sale.
Level 3 being subjective mark to fantasy profits, so real net income was not $1.999 billion, but $1.025 billion.
The Nattering One muses... Take away the one time $334 million gain from the Visa IPO and net income was a paltry $691 million.
Tack on the $1.9 billion profit from free standing derivatives (hedging and gambling) and Wells loss is $1.2 billion.
Kudos to CEO Bob Stumpf for a nice try at doubling net income by shifting $1 billion of level 3 garbage into mortgages for sale.
And "hiding" $12 billion in non performing assets by classifying them as special mortgages for sale.
But unlike complacent investors, the Nattering One is not "Stumpf-ed" in the least.
Continued losses in operating and investing operations should eventually put Wells reserve levels in severe peril.
Much like Wachovia & WaMu already have, we can't wait for Wells Q2 disaster to complete our WWW CEO trifecta.
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