Wells Fargo, which has sidestepped many of the credit and liquidity problems plaguing U.S. mortgage lenders, believes the nation's housing slump is the worst since the Great Depression and is far from over, Chief Executive John Stumpf said Thursday.
Paul Sakuma
A Wells Fargo Bank in Palo Alto, California.
Despite Stumpf's assurances about his company's position, shares of Wells Fargo fell 3.85 percent on the New York Stock Exchange Thursday.
Stumpf said the second-largest U.S. mortgage lender and fifth-largest U.S. bank is "not immune" from the storm, but is well-positioned to ride it out, despite expectations for "elevated" credit losses from home equity loans into 2008.
He also said the San Francisco-based bank has "minimal" exposure to the collateralized debt obligations and asset-backed commercial paper conduits that have caused well over $40 billion of write-downs industry wide, with more expected.
"We have not seen a nationwide decline in housing like this since the Great Depression," Stumpf said at a Merrill Lynch banking conference in New York.
"I don't think we're in the ninth inning of unwinding this," he continued. "If we are, it's an extra-inning game."
Stumpf's comments came hours after Barclays announced a 1.3 billion pound ($2.7 billion) write-down for losses on securities linked to U.S. subprime mortgages.
Other banks to announce write-downs topping $1 billion this month include Bank of America, Bear Stearns, Citigroup, HSBC Holdings, Morgan Stanley and Wachovia.Merrill Lynch and Washington Mutual have also seen results suffer from losses tied to mortgages.
At Wells Fargo, rising delinquencies and defaults limited profit growth to 4 percent in the third quarter, the slowest in more than six years, though net income was a record $2.28 billion. Wells Fargo said the credit losses related more to the severity of bad loans than the frequency.
The bank made $216 billion of home loans from January to September, second nationally to Countrywide Financial, and services about $1.5 trillion.
Mozilo's Woes
Stumpf pointed out that Wells Fargo never offered some exotic mortgages, such as adjustable-rate loans that let borrowers pay less than the principal due, that have caused problems for rivals.
Countrywide did, and is cutting up to 12,000 jobs after a $1.2 billion third-quarter loss. Its chief executive, Angelo Mozilo, in July lamented "home price depreciation almost like never before, with the exception of the Great Depression."
Mozilo was born in 1938, around when the Depression was ending, while Stumpf was born in the mid-1950s.
Stumpf said the current downturn resulted in part from "froth, unscrupulous lenders, (and) borrowers who got too greedy," and called it the "steepest, fastest, most prolonged decline in residential real estate" in a long time.
"Once we reach the bottom, the (housing) inventory is going to come off pretty quickly," he said. "Once the secondary market gets comfortable with (credit) ratings again, and once you think you've hit bottom, I think we'll see some turnaround, and it could be faster than we've seen in the past."
Warren Buffett's Berkshire Hathaway on Wednesday said it owned 8.3 percent of Wells Fargo, making it by far the largest shareholder, according to Thomson ShareWatch. Berkshire reported owning 280 million shares as of Sept. 30, up from 258 million three months earlier.
Through Wednesday, Wells Fargo shares had fallen 6 percent this year, while the 24-member Philadelphia KBW Bank Index was down 17 percent.