Chart of the Day: Wells Fargo's Construction Loans

Teri Buhl found this chart at WLMlab.com. It shows the percentage of Wells Fargo’s (WFC) $38 billion in construction and development loans which are in default, compared to nationwide figures:

“Alarming, Alarming, Alarming” is right — especially the last line, which shows that the loans more than three months in arrears are running at more than nine times the national rate. And that’s before the spike in delinquencies which seems certain to hit:

The bank specialized in underwriting short-term loans up to five years during the credit boom of 2005-2007. The standard terms for such loans included interest-only payments on a floating rate with a huge balloon payment in the final year of the loan. If these loans cannot be refinanced, more waves of defaults are inevitable.

“The bank”, here, is Wachovia, not Wells, but it’s all Wells Fargo’s problem now, along with untold billions in contingent CDS liabilities which no one seems to be able to estimate.

I fear that Wells Fargo is representative of the banking system as a whole: Since MLEC and TARP and PPIP all failed in their original intent of ridding the system of its toxic loans, those loans remain stinking up balance sheets across the nation. Wells is bad — but then again, so might everybody else be, too.

Comments

[LKofEnglish:]

actually the mistake was Wachovia buying Golden West so Wells knew exactly what it was doing when it bought Wachovia. Indeed wasn't it Buffet who said "buy Wells Fargo" when this crisis hit? How could he be wrong?

Sep 17 03:31 PM

[Graham and ...:]

Wachovia was a crummy bank. Why Wells wanted it is beyond me. Warren Buffett likes Wells a lot, but it must be in spite of, not because of, the Wachovia exposure.

Sep 17 04:01 PM

[Roger Knights:]

"Wells knew exactly what it was doing when it bought Wachovia."

Maybe not. Here's a startling quote from the informative 3-page Teri Buhl article (first link in article) that may explain it: "To give Wells Fargo credit, it might not even know the size of the problem."

Sep 17 04:04 PM

[CoverIsBetter:]

Wells has 1/4 of the total mortgage market now. So do they really have to fear how they perform compared to the "nation"? They are the Nation mathematically. Can't they invoke "too big to fail" or whatever to get TARP or like help if needed?
Stumpf has already hinted that Fannie and Freddie need to step up into the bigger loans to free up some capital for the banks.
This is a problem for the "nation" to help solve to rescue 25% of the mortgage market.

Sep 17 04:09 PM

[texalope:]

Why don't you point out these statistics represent a percentage of only 4.5% of their total portfolio.

Sep 17 06:17 PM

[Stockmajor:]

I"m with Buffet on Wells and I'm long the other large, government supported financials. Yes, it's a shell game. Yes, they are really insolvent. Yes, the off balance sheet game is a sham. However, Uncle Sam has given them the way to slowly earn their way out, and he will most likely continue to do so. These banks will survive and eventually all of this will be history. Citi and BofA, et al, stock values will return to 30, 40, and higher dollar values. It will take years, but it will happen.

Sep 18 01:41 AM

[Trane250:]

When buying Wachovia, I'm sure that Wells looked at Wachovia's overall footprint including its extensive branch network and its nationwide retail and wholesale brokerage operation and concluded that the purchase of Wachovia was too good of an opportunity to pass up.

Sep 18 11:36 AM