Wells Fargo success has much to do with Wachovia
Wells Fargo has Charlotte-based Wachovia to thank, in large part, for its surprisingly strong earnings report this week. WFAE's Julie Rose explains: While other mega-banks like Citigroup and Bank of America reported multi-billion dollar losses for the fourth quarter of 2009, Wells Fargo says it came out ahead by nearly $3 billion. And Wells CEO John Stumpf gave much of the credit to Wachovia. "As a result of the merger with Wachovia, our business model is even stronger," said Stumpf, on a conference call with investors. It turns out that the sub-prime and so-called "Pick a Pay" mortgage loans that Wachovia acquired when it bought GoldenWest in 2006 aren't as toxic as people expected. Ironically, it was shareholder anger over that acquisition that led to the ouster of then-Wachovia CEO Ken Thompson. UNC Charlotte banking expert Tony Plath says Wells Fargo planned on big losses from those loans when it merged with Wachovia a year ago. "What they've found now that they've owned it awhile is that it's performing better than what they had thought, so they're not having to increase their provision expense to account for bad loans in that portfolio because it's doing just fine," says Plath. That's a big reason Wells Fargo had some of the best fourth quarter earnings numbers of the big banks, adds Plath. Further more, Wells Fargo says costs tied to merging with Wachovia are 3 billion less than they originally estimated. All of which is good news for Wells Fargo, but holds a bit of sadness for Wachovia, says Plath. Wachovia was forced into the merger when it experienced a cash-flow crunch in late 2008. "You know the tragedy here is Wachovia - if provided a little bit of temporary assistance back in September 2008 - probably could have weathered the storm and recovered quite nicely," says Plath. "Unfortunately they didn't make it over that speed bump. But if they had, it turns out their performance would have been better than most people had anticipated."