Dr. Doom Responds on Wells Fargo

 |  About: Wells Fargo & Co. (WFC)
by: Tom Brown

In a comment on Seeking Alpha Nouriel Roubini says that, contrary to my assertion, he did not screw up his loss estimate for Wells Fargo. Here’s what he has to say, in full:

Sir, your attack it totally misplaced. I never made any prediction about credit losses in individual US banks. I only used macro variable to forecast average losses on tranches of different types of loans and securities for the AGGREGATE of US banks; this is the same approach used by the IMF and Goldman Sachs to derive estimate of aggregate expected credit losses for all US banks, not for individual institutions. It was Time magazine that used my macro estimates of average losses to then make inferences and estimates about individual US banks. When you go to the individual bank level you of course need to take into account individual bank's provisioning and other details to infer capital losses. So you may or may not be right about what is happening at Well Fargo; but the comments you make have NOTHING to do with what I have written. So you should correct the record on this. I never wrote that Well Fargo has an additional $117 billion of losses. I have provided an estimate of aggregate credit losses for all US financial institutions based on standard estimated of average losses from macro assumptions.

This is the opposite of convincing. First, I don’t recall seeing Roubini’s letter to Time urging it to “correct the record” on the $117 billion loss estimate for Wells it published based on his macro projections. I assume Stephen Gandel ran his loss numbers on individual banks by Roubini before he posted them on February 19, and would be shocked if he didn’t. I may be wrong. Perhaps Roubini might clarify this point. Regardless, if Roubini is suddenly so hopped up about a $117 billion loss estimate for Wells that he’s associated with, I don’t get why he’s only getting around to disowning it now, since it’s been out there for over a week. Actually, I do get why. I think Roubini is being disingenuous.

And Roubini is definitely being disingenuous when he writes that I “may or may not be right about what’s happening at Wells Fargo.” Less than a week ago, recall, he was unequivocal that the company was a goner. Here is what he told the Wall Street Journal in an interview published on Saturday:

Wells Fargo took over Wachovia. It doesn't work! You can't take two zombie banks, put them together, and make a strong bank. It's like having two drunks trying to keep each other standing.

So six days ago, Wells Fargo was a “zombie bank.” Now, Roubini only deals in “macro variables.”

Meanwhile, Roubini fails to address my main objection to his antics, that he insists on blabbing publicly on the solvency of individual federally guaranteed institutions, a topic he now admits he knows nothing about. Unfortunately, prophecies about highly levered institutions sometimes become self-fulfilling, especially when they come from “sagelike” commentators like Nouriel Roubini. Now that Roubini has come clean that, when it comes to individual banks, he’s basically full of it, one would hope he’d have the good sense to keep his lip buttoned.

There’s no doubt Nourel Roubini has gotten the macro picture exactly right so far. That’s to his credit. My suggestion to him is that he stick with the macro calls.

Disclosure: No position in WFC