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Wells Fargo: The Good, the (Not Too) Bad and the Ugly

Bapcha said "Has $68.2 billion in mortgage backed securities on its books [June 30, 2008], with net unrealized losses of a billion dollars. These will go down in value to $62.2 billion [with $7 billion in unrealized losses] if the interest rate increases by 200 basis points. Conversely, these will be valued at $72.4 billion with net unrealized gains of $3.2 billion if the interest rate decreased by 200 basis points."

$46B of these MBS are Fannie/Freddie paper and are held to maturity and actually have been marked up vs. cost as per Note 4. of the 10-Q.

The remainder are WFC's holdings of AAA-prime ABS bonds from non-Federally guaranteed CMOs. Defaults on prime paper are low, and it looks like WFC is holding the senior tranches which get paid first and are unlikely to default. Since WFC holds this paper to maturity, I'm not sure how relevant the mark-to-market is.

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