Is Wells Fargo "Sugarcoating" Balance Sheet?

Monday, October 20, 2008 | 06:39 AM

NY Post quotes a trader fearful of SEC reprisal on

When Wells Fargo reported third-quarter earnings last week - which beat Wall Street expectations by a few pennies - investors cheered, and watched the bank's shares keep most of the 9 percent gain they had pocketed the previous day.

But banking and mortgage-sector analysts cast a wary eye on the San Francisco-based bank. That's because Wells Fargo, despite booking a near $1 billion increase in non-performing loans in the third quarter compared to the previous three-month period, cut its loan-loss reserve by $500 million. The slick accounting moves, while perfectly legal, gave a false impression of just how strong Wells Fargo's balance sheet actually was, the analysts said in separate interviews and reports last week.

"Wells Fargo are pretenders," said a trader at one top hedge fund, who spoke on condition of anonymity because he is afraid of trouble from the Securities and Exchange Commission, in light of the regulatory body's recent threat to prosecute short sellers.

The trader said trimming the loan-loss reserves had the effect of boosting profits, which in turn boosted its share price, which in turn made it easier for the bank to successfully move forward with a move it announced this week to raise $20 billion of capital."

Note that earlier this year, Wells Fargo increased its definition of non performing loans, from 120 delinquent to 180 days. This made their balance sheet appear stronger than it was.

Analysts fearful of SEC reprisal for doing analysis -- that is the net result of the ruinous tenure of the worst SEC chair in decades -- Christopher Cox.

click for larger graphic:



NYPost, October 19, 2008 4:00 am

See Also:
The Invisible Man
SEC Chairman Cox has often been missing in action during the financial crisis, even while Treasury Secretary Paulson and Fed Chairman Bernanke tread on his turf
Jesse Westbrook and Robert Schmidt
Bloomberg Markets, November 2008

Monday, October 20, 2008 | 06:39 AM | Permalink | Comments (21) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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This rumor has been floating around in one of the message board (goog or yhoo?).

Posted by: noob | Oct 20, 2008 6:51:45 AM

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