Wells Fargo & Company, the nation’s second-largest mortgage lender, after Countrywide Financial, said yesterday that it would take a $1.4 billion fourth-quarter charge for losses it anticipated in connection with home loans.
The bank said that it would continue to provide home equity financing directly to customers, but that it would not originate or acquire home equity loans through indirect channels. Wells Fargo will also not originate home equity loans through third parties when the combined loan-to-value ratio of the first and second mortgages is over 90 percent or where the second mortgage is not behind a Wells Fargo loan.
The bank is putting $11.9 billion into a special liquidating portfolio. The bank’s filing with the Securities and Exchange Commission said that the figure is 3 percent of its total loans outstanding, but that it represents the riskiest element of the $83.4 billion in its National Home Equity Group portfolio. The loans are generally clustered in areas of the country that are having the greatest decline in retail prices.
R. Scott Siefers, an analyst who follows Wells Fargo for Sandler O’Neill, said: “It is unfortunate certainly because Wells Fargo has had an aura of invincibility. Over the last few years, it has not gotten involved in a lot of the issues that have caused so much pain for the group. It is one of the largest mortgage lenders in the country so this is going to be painful for everybody.
“As good as they are, we are dealing with a pretty big issue industrywide,†Mr. Siefers said. “Will there be more? It will depend on how depressed the real estate market stays, but they are taking care of a good deal of the riskiest stuff now. Still, identifying credit problems is always difficult to do in one fell swoop.â€
The bank said it expected to write off $1 billion in 2008 and 2009.
The chief financial officer, Howard I. Atkins, said in a statement yesterday that “the bank had largely avoided many of the credit and capital market problem areas in the industry.â€
More Protection for Bank
BERLIN, Nov. 27 (AP) — Germany’s state-owned KfW development bank said Tuesday that it had nearly doubled its risk shield for IKB Deutsche Industriebank, a lender battered by its exposure to the subprime lending problems.
KfW, which is IKB’s biggest shareholder, said it raised the risk shield by 2.3 billion euros, to 4.8 billion euros, ($3.4 billion to $7.1 billion) on the basis of new reports regarding the valuation of risks covered by IKB’s Rhineland Funding investment vehicle.
“In addition, the latest capital market developments have led to a dramatic worsening of the fundamental market assessment of the actual default risks in the subprime segment,†KfW said.
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