Wells Fargo’s (NYSE: WFC) chief executive, John Stumpf, recently made a statement that he anticipates the bank will see an increased amount of non-performing assets (delinquent loans) during the 4th quarter.
Last week, during a financial services conference in New York hosted by Barclays (NYSE: BCS), Stumpf commented that his bank had used 21% of its credits for losses tied to commercial and international loans from Wachovia Corp, which Wells Fargo purchased last year in a $12.7 billion deal engineered in-part by the Federal Government.
The 21% of credits used accounts for $2.2 billion in credits out of the $10.4 billion made available by the Federal Government. Wells Fargo has another $8.2 billion in credits to cover future losses from the loans, which includes a significant number of commercial mortgages. Many analysts predict that banks will see significantly increased numbers of commercial real estate foreclosures for the remainder of the year and well into 2010.
When Wells Fargo purchased Wachovia earlier this year, the success of the deal depended largely upon the performance of Wachovia’s risky real-estate portfolio. Before the company was picked up by Wells Fargo, Wachovia extended itself aggressively into originating mortgages for commercial properties such as housing developments and commercial buildings.
During the purchase, Wells Fargo declared $96.2 billion worth of loans as “credit impaired” and likely to generate losses. This allowed Wells Fargo to write of the $40.9 billion in losses it expected to generate from Wachovia, which prevented a significant hit to Wells Fargo’s profitability.
