Wells Fargo's Huge Writeoff - The WaMu Angle

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Includes: WFC, WMIH
by: Herb Greenberg

From one of my really bright sources — the same one who first brought my attention to the ETrade’s (NASDAQ:ETFC) real estate debacle:

Wells Fargo (NYSE:WFC) just took a $1.4 billion charge on $11.9 billion of home equity exposure. That’s a 12% cumulative loss rate! If you used that as a read across for Washington Mutual’s (NYSE:WM) $59 billion home equity book it would imply a charge of $7 billion!! Total reserves are $1.9 billion. Oh my…

While it may appear that this is an apples to oranges comparison, Wells is considered a much higher quality home-equity lender. These numbers used by the analyst assume that much of WaMu’s home equity portfolio could be comparable to the $11.9 billion that Wells Fargo identified as its “highest risk” loans.