Why Wells Fargo is "The Best Looking Horse in the Glue Factory"
Whither Wells Fargo?
The venerable San Francisco bank is in the spotlight as one of the few successes among the major buyout kings of the bloody financial meltdown. Beating hapless Citigroup to the punch, it picked up Wachovia and its prized retail operations. Unlike other banks it says it isn’t going back to the trough another time for federal bailout funds.
Yet, a big question is emerging. Wachovia has plenty of toxic debt and it has been weighing Well financials down. It doesn’t seem to be as bad as in the soap opera that’s been playing over at Bank of America regarding its screwball buyout of Merrill Lynch, which likewise is saddled with lots of bad subprime plays.
Will Wachovia eventually be unmasked as a bum buy?
Wells’ flakmasters are hard at work saying it ain’t so, even though Wells posted its first quarterly loss in eight years thanks to North Carolina-based Wachovia. The loss reported Jan. 28 was $2.55 billion or 79 cents a share. On the bright side, Wells’ performance beat analysts expectations which is saying something during these woeful times.
Wachovia’s buy forced Wells to take a $37.2 billion credit writedown linked to Wachovia’s $93.9 billion in risky loans not to mention other charges. Wells is boosting its reserves by $5.6 billion to provide a near-term cushion, which its officers say shows prudence.
BofA’s announcement that it wanted a second bailout just as it was absorbing unexpected Merrill Lynch losses and going through a temper tantrum over former ML Chief John Thain’s departure provided little in the way of reassurance.
Citi’s continuing woes and need for more bailout bucks likewise did the same.
By comparison, these problems make Wells look especially good. In the words of one wry analyst, Wells “has definetly become the best-looking horse in the glue factory.”
Assuming there are no more unknown skeletons in Wachovia’s closet, Wells could be in one of the best positions among big banks to recover. A lot of that depends on whether and how a “bad” bank is set up in Washington to buy up toxic assets, presumably like Wachovia’s. Proposals for such a bank have gone up to a whopping $2 trillion and problems persist such as how toxic debt will be valued.
But for now, Wells is looking good despite its obvious problems.
Peter Galuszka is a Virginia-based journalist with more than three decades of experience, including 15 years at BusinessWeek, during which he was twice Moscow Bureau Chief and International News Editor in New York.
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