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Stress Testing: What's Your Bank's AQ?

That's the first thing that struck me: why is Wells on the Good Bank list and yet the leaks on the Stress Test results are saying they need to raise $10 bn of capital?

Is their rank being distorted in the AQ by the recent run up in their share price? Is there something about their underwriting standards that is not being capture by the inputs to the AQ test? I think it's a combination of the two. I personally think that Wells pretty much ring fenced the potential damage from acquiring Wachovia. I think the stress testing done by the government was probably skewed towards further downside cases on real estate, particularly commercial, and Wells is and has been primarily a bank focused on commercial real estate. However, Wells has traditionally been a conservative underwriter on commercial real estate and may be getting painted with the excesses in lending that went on in this area. It's a tough call to make unless you had access to the details in their books.


On May 04 12:00 PM Vikingblood wrote:

> Wells Fargo is under your Good Bank list ... last time I looked,
> they were asked to raise an additional 10 Billion in Capital.

@VIC: Bill Ackman on Wachovia

Ackman's analysis that Wachovia's remaining businesses are worth more than either the Citi or WFC offer is right. I have one little question about his valuation: how do you get such a disparity in the low and high values for cash and equivalents? Are the equivalents junky CDOs?

Where Is Citi's M&A Expertise?

Citi sued WB and WFC asking for $60 billion, comprised of $20 billion in compensatory damages and $40 billion in punitive damages. If there really is $20 billion of compensatory damages, then Citi's offer of $2 billion with FDIC backstop on losses for just the banking assets was way under market. For that matter, WFC's $15 billion offer for all of WB was also undermarket. The FDIC's normal role is to protect the depositors. If they want to play matchmaker, then they need to realize that their new role is to maximize value to the shareholders.

Citi Examines Its Carrots and Sticks

By law, the FDIC is required to accept the best deal for the taxpayer. WB shareholders have to approve either deal. The deals were apples and oranges, so the door is open for Citi to counter for WB in its entirety. The WFC offer is a severe discount on the remaining stub of WB that was not in the Citi deal. Let the bidding begin.

Turnabout: Wells Fargo's Better Deal for Wachovia

I thought they had to get approval of the WB shareholders for the Citi deal?

Author's comment that Warren Buffet would use this to dump WB's toxic mortgage assets on to the Government is complete BS. Buffet has repeatedly said if you buy these assets at current market rate, you will make money on them. If Buffet had the liquidity, he said he'd participate in the Government's deal. Even though WFC is paying more than Citi, they're still stealing WB. WFC is getting these toxic mortgage assets very cheap and they're writing them down immediately, which means they'll probably sit on them. The way I see it, Buffet is following through on his statement that he'd participate in the Government deal (i.e. buy and hold these distressed mortgage assets) if he had the liquidity. Indirectly he does and it's through his stake in WFC.