Worst Housing Decline Since The Depression - Wells Fargo

"We have not seen a nationwide decline in housing like this since the Great Depression," declared Wells Fargo CEO John Stumpf at a Merrill Lynch banking conference in New York Thursday. Likening real estate to baseball, Mr. Stumpf commented, "I don't think we're in the ninth inning of unwinding this. If we are, it's an extra-inning game." Despite its self-proclaimed "minimal" exposure to subprime-related credit products, shares of Wells Fargo -- the second-largest U.S. mortgage lender and the fifth-largest U.S. bank -- fell 3.85% to $31.97 on Thursday, while the S&P Financials Index lost 3.1%, compared to a 1.3% loss for the S&P 500. Wells Fargo appears to be one of the best positioned banks, since the company never engaged in exotic mortgages, but Mr. Stump said the bank is "not immune" to the housing slowdown. A handful of banks have announced subprime-related writedowns of more than $1B (Wells Fargo wrote down $490M) and cumulatively exceeding $45B, where in an extreme case, Citigroup was compelled to drastically increase its writedowns from initially around $2B to an additional $8B to $11B (full story). Wells Fargo reported record Q3 net income, but also suffered its slowest profit growth in years due to higher delinquencies and defaults (full story). Mr. Stumpf blamed housing market woes on froth, unscrupulous lenders and overly greedy borrowers. Although Mr. Stumpf said this is one of the most severe declines ever in residential real estate and expects more industry-wide credit losses in 2008, he optimistically thinks there will be a sharp recovery once the bottom is reached.

Sources: Bloomberg, Forbes, Reuters
Commentary: Housing Market Tracker - Subprime Review • Financials Short Interest: Bears Flock to WaMu, Bear, Lehman • Wells Fargo Reports 4% Increase in Profits, But Misses Targets
Stocks to watch: WFC, C, JPM, BAC, WM. ETFs: XLF, IYF, KBW, RKH
Earnings call transcript: Wells Fargo Q3 2007
Related: Merrill Lynch 2007 Banking & Financial Services Conference presentation [pdf] and audio webcast

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Comments

[wunderhof]

What reg's are there to prevent money center companies like wells fargo from transferring their toxic siv paper to one of the mutuals that they manage?