Wells has depositors money amounting to over one trillion dollars, however $160 billion of that is losing money as they spend more money servicing it than the .25% they are getting from the FED while they have it parked there.
What they might consider doing is not paying depositors anything on their checking accounts and next to nothing on their savings accounts even as their competitors start to pay a little more on their certificate of deposits. Get aggressive on helocs and jump back into subprime while looking into matching it up with issueing long term debt 10 yr bonds.
This is a crazy amount of liquidity without trying to get back into higher yielding loans all the while they can obtain LT financing locking in margin.
the FED is paying 25 pbs on that while WFC is paying 1 bp or nothing. So that is about 1/4% on $160B. I don;t think they are losing money, even if it is not 10% margin. If nothing else it pays the rent, and they have to be have the bricks and mortar and personnel for their other business.
Its not a stand alone analysis. There are some sunk costs and some other relationships and business to consider.
it doesnt pay the rent, the FDIC insurance and servicing it costed around 23 bps back a couple years ago, Bernank didnt just pick 25 bps out of the air, it just barely covers the cost of banks holding your money, it might even be more expensive now than a couple years ago.
If you listen to the CEO of JPM and WFC talk during their CC, they mention quite often that capital costs them money.
They have a 312 billion loan portfolio yielding in the 3% percent range on jumbo mortgages and other portfolio type mortgage products like jumbo interest only. They are trying to get a better return and taking on risks. And they are growing their presence in wealth management through their WFA channel with jumbo financing priced very low with interest only options no one else will do. This all sounds good in theory. The problem is, there is no secondary market for this paper. If rates go up, they will get slaughtered on the negative interest carry......to start. And if they need to access this capital, there is no one who will buy this paper anywhere near face value. 25% of this portfolio is the very dangerous Golden West portfolio which they got from Wachovia. The government gave them massive tax credits for swallowing that ticking time bomb and its those credits that have allowed WFC to appear very NET Profitable. It served them well for the last 3 years.
But that Tax advantage has been spent, and they are left with mortgages that none of those customers will keep. They only have a good pay history because they pay less than interest only payments. There is no financial reason to walk on a severely underwater house with a payoption ARM if its more expensive to rent. But they will walk when the P&I payments kick in. And WFC has been booking the full payment in their revenue because the "will get it someday." WFC is taking massive risks at exactly the wrong time in the interest rate cycle. And its why my puts continue to rise, even though the stock price rises. They have decoupled and thats not common. But whats about to happen here has never been seen before. This company will be bailed out, but the stock holders.......well they will be crushed.
I suggest you read in detail the 1st quarter WFC report. You will find more than adequate information on the status of the former Golden West/World Savings/Wachovia option arm portfolio, and its accounting treatment and payment experience, along with current loan-to-value. Being ignorant of the facts and the accounting treatment makes everything you post just so much hog wash. The only allowable treatment anywhere near what you are asserting relates to loans that are fully insured by a third-party agency as to full payment of interest and principal; in that case, despite the payment status, the bank is allowed to continue accruing income but only while in the process of foreclosing or otherwise terminating the loan. There is no such "will get it someday" in either WFC policy and practice or in GAAP accounting.
You remain a Gus/Al doofus clone.
Let me guess: you got your information second hand by reading news articles or blogs.
It is highly doubtful that Wells Fargo made interest only loans with fixed interest rates.
As far as tax advantages, their effective tax rate has been normal for a while now. It didnt seem to be killing them to pay taxes.
Wells does from time to time choose to sell some of its option arms when they feel it is an attractive offer.
Here is something you might have known: more than half of Wells Option Arms are paying down principal as oposed to building negative amortisation. I used to read up on their option arm portfolio and I dont ever recall an ability to "book the full payment in their revenue because they will get it someday". I think you have confused this with the ability to show negative amortization as income.
Here is something you may not have known, and it might even change your mind about the option arm portfolio. One thing doom sayers got wrong is that the Golden West portfolio did not have what they referred to as "exploding arms". But rather GW loans were concervative in comparison to CFC in that their monthly payments have been going down once their 10 year intial period ended. That is to say once they started to pay fully amortised payments their monthly payments actually went down.
Also, the GW was weighted towards fully documented income that figured fully amortized payments into their debt to income ratios. I am not sure, but I believe It wasnt until Wachovia got ahold of the bank that there were a few more stated income loans being done.
The proof is in the pudding. Look at the loan losses or yield of the portfolio. These borrowers have had these loans for 6 years or more at least.