Loan Modification

Where?s Wells Fargo in the TARP repayments?

By Morgan

We reported earlier that 19 banks were OK’d by the Treasury to pay back the TARP funds that were injected in to them during the first round of the bailout. According to the naked capitalism here are the banks that passed stress tests and will get to pay their TARP funds back:

The institutions are the following:

Passed the stress tests: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.
Failed the stress tests: Morgan Stanley
Was not subject to stress tests: Northern Trust

Bank of America and Citi have been told to bolster their reserves after failing to meet the Treasury’s standard. That leaves Wells Fargo, who was nowhere to be found on this list. So what to make of the absence of Wells? Bloomberg reports that Wells never applied, while others believe that Wells was denied by Geithner and the Treasury because of a still-shaky balance sheet.

From The Business Insider:

This is an important question. There is already speculation that Wells Fargo may have asked to get out of the TARP and been rejected. After all, Wells Fargo has been very vocal about wanting out. In fact, it’s been widely reported that Wells never wanted to take TARP funds at all.

I believe that Wells was told not to even apply. The problem with Wells is that they still have massive exposure in the Western bubble states where the biggest devaluations are occuring. This makes millions of dollars of second mortgages and home equity loans worth ZERO. Imagine writing off to zero your entire portfolio of second mortgages and HELOCs. Now that’s some serious pressure on your balance sheet and capital reserves.

Whether Wells wanted the TARP funds, I believe it’s a smart move that they’re not allowed to pay them back yet. With California still yet to experience the crushing reset problems of the Option ARM loans that will start rolling in at the end of this year, the real estate market is anything but clear. Those assets could fall further - which could result in Wells Fargo needing MORE TARP funds, not less.

From last April right here on Blown Mortgage:

In Moody?s affirmation of Wells Fargo?s Aaa credit rating the rating agency pointed to the health of Wells Fargo?s $83.68 billion home equity portfolio as a key driver in the company?s rating. If this portfolio should see degradation then the bank?s rating could suffer, said Moody?s in a press release.

What do you think? Why wasn’t Wells Fargo anywhere to be seen in the repayment news?

Full post as published by Blown Mortgage on June 10, 2009 (boomark / email).