Magazine article American Banker

Wells' Big Hit May Signal Wider Consumer Problem

Magazine article American Banker

Wells' Big Hit May Signal Wider Consumer Problem

Article excerpt

Wells Fargo & Co.'s acknowledgement that it will have to take a $1.4 billion charge this quarter to cover steep losses on home equity loans probably heralds bad news for other kinds of consumer loans at Wells and other companies, according to analysts.

Many customers struggling to pay off home equity loans also are grappling with auto and other loans, Terry J. McEvoy, an analyst at Oppenheimer & Co. Inc., said on Wednesday. "It's a lot easier to skip that boat payment in the middle of winter than it is to miss your mortgage payment," he said.

"I think Wells and a range of other companies have risk in auto and other portfolios," Andrew Marquardt, an analyst at Fox-Pitt Kelton said. "The questions that remain are timing, severity, and manageability."

Companies like Fifth Third Bancorp, Wachovia Corp., and Capital One Financial Corp. have already flagged higher delinquency rates in their auto portfolios.

Wells, meanwhile, reported that net auto loan chargeoffs in the third quarter were up $57 million from the previous quarter. Though the company attributed its auto loan losses in part to a typical autumn decline, analysts said the losses were severe enough to foster concern, especially while housing prices are plummeting.

However, at a conference in New York on Wednesday, Howard Atkins, Wells' chief financial officer, said the San Francisco banking company, a big mortgage originator, has a healthy balance sheet beyond its home equity exposure and has little exposure to subprime loans.

He reiterated that the $548.7 billion-asset company has seen delinquencies rise in its $28 billion auto loan portfolio but again cited "seasonality" and said that in the third quarter loans "90 days past due and still accruing, continued to improve and were down 9% from the second quarter."

In its $17 billion credit card portfolio, he said, "the loss rate . …

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