This page has been archived and commenting is disabled.

Per Chris Whalen, Wells Fargo's CFO Quit Due To An Internal Dispute Over Financial Disclosures

Tyler Durden's picture





 

Last week, the CFO of Wells Fargo suddenly resigned for "personal reasons"  and was immediately replaced by CAO Tim Sloan. The departure was promptly buried, and everyone moved on. Not so fast, says Institutional Risk Analytics' Chris Whalen, who speculated that there is much more here than meets the eye. In a report released yesterday, Institutional Risk Analytics notes that "The departure of Atkins, we are led to believe, was not merely the result of personal issues, but reflects an ongoing internal dispute within WFC’s executive suite regarding the bank’s disclosure." As a result of this action, IRR went ahead with the following rating action: "We are downgrading from “Neutral” to “Negative” the outlook for the forward operating results for Wells Fargo & Co. (“WFC”/Q3 2010 Stress Rating: “B”/Outlook: “Negative”). Recent management changes, the poor quality of WFC disclosure and unresolved issues regarding on and off balance sheet exposures to the GSEs and private investors and/or insurers led to this downgrade, as discussed below."

As expected, Whalen is quite florid in his description of the troubles at Wells:

There is an old saying on Wall Street that when a company does not say anything to investors and the analyst community, then it is all bad. Since the start of the crisis, WFC has made an art form out of failure to disclose, particularly when it comes to the credit loss, doubtful and past-due experience on the bank’s retained loan portfolio and related loss reserves. While WFC’s peers among the largest banks have increased written and oral disclosure regarding loan losses and related data during the past three years, WFC consistently has stonewalled the investment and analyst communities.

TheStreet compiles the key points from Whalen's report:

“Wells Fargo(WFC) is involved in an "ongoing internal dispute" over financial disclosure, prompting the departure of its CFO and leading some officials at the bank to contact regulators over concerns the bank is being too aggressive in its accounting…"The departure of Atkins, we are led to believe, was not merely the result of personal issues, but reflects an ongoing internal dispute within [Wells Fargo's] executive suite regarding the bank's disclosure," he writes…Whalen then goes on to argue that Wells Fargo's "public behavior suggests significant problems in the bank's internal systems and controls as defined by the Sarbanes-Oxley law. We further understand that some officials of [Wells Fargo], increasingly uncomfortable with the bank's aggressive public disclosure regime, have reached out to regulators because of concerns regarding accounting issues…After mentioning the alleged internal dispute, Whalen goes on to accuse Wells Fargo of having poorer disclosure than peers among the largest banks when it comes to mortgage-related loan loss exposures…"While [Wells Fargo's] peers among the largest banks have increased written and oral disclosure regarding loan losses and related data during the past three years, [Wells] consistently has stonewalled the investment and analyst communities," Whalen writes…Whalen also has harsh words for Bank of America(BAC), writing that loss rates on residential mortgage backed securities and whole loans for the overall market suggest the pictures painted Wells Fargo and Bank of America are too rosy…This overly optimistic view "is also visible in many other large US banks, but [Bank of America] and [Wells Fargo] are the worst offenders in our view," Whalen writes, adding, "simply stated, the loss rates are far too low compared with loss experience visible on RMBS and whole loans."”

Quantifying the possible transgressions shows some potential for messiness:

To give you some context, of the $2 trillion in principal amount of private label RMBS outstanding at the end of 2007, 25% have prepaid, 8% has been written off and almost 30% are now delinquent. Keep in mind that the worst credits in this large body of loans have already been charged-off in the form of the 8% liquidation, but 30% of the remainder are now delinquent. Yet WFC and BAC want us to believe that their realized losses and delinquencies are an order of magnitude lower that private label RMBS.

Far more significant than the GSE claims, WFC and BAC face potentially catastrophic losses from private label RMBS claims from investors and/or insurers. Again, if you look at the double-digit loss experience data on private label RMBS, and then compare this actual experience with the loss disclosure from BAC (WFC has provided none), the two pictures simply do not coincide. And remember that the losses on RMBS from servicer reports are cash losses, not estimates or an accrual fiction of the type commonly used by banks with respect to their retained portfolios.

For everyone axed in the name, we suggest getting a copy of the report and parsing it very carefully. After all nobody in the sellside community even reads Wells' financial paperweights, er, statements. And as for Warren Buffet, should things at Wells turn sour, we are confident that Uncle Sam will be there to provide his latest Congressional Medal of Freedom recipient with that free taxpayer funding that is so rightfully owed to the octogenarian billionaire who no longer has to worry about downside in any investment decision: such are the benefits of being a TBTF investor in this great socialist country (where John Paulson is rapidly trying to become first runner up in the same category).

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 02/16/2011 - 11:04 | Link to Comment jobs1234
jobs1234's picture

Just BTFD...WFC is down...BUY BUY BUY.

 

There will never be a correction in our lifetimes.

Wed, 02/16/2011 - 11:04 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Ha-Ha.  Time to short WF?

Wed, 02/16/2011 - 11:09 | Link to Comment Thunder Dome
Thunder Dome's picture

This would be news if it actually mattered whether or not TBTF banks are solvent. 

Wed, 02/16/2011 - 11:09 | Link to Comment youngman
youngman's picture

Is morality and ethics making a comeback...

Wed, 02/16/2011 - 12:24 | Link to Comment assumptionblindness
assumptionblindness's picture

uh, nope. 

Wed, 02/16/2011 - 14:43 | Link to Comment hbjork1
hbjork1's picture

Right!

At least not in DC.

Wed, 02/16/2011 - 11:10 | Link to Comment whatz that smell
whatz that smell's picture

no worries. jpm, the pigmen, and robotTrader are long NFLX...

...a multi-year look at NFLX's chart will calm your fears.

Wed, 02/16/2011 - 11:14 | Link to Comment TooBearish
TooBearish's picture

O so NOW the CFO wants to come cleaner, after 3 years of lying and obfuscation...go to hell and burn WFC and all the other TBTFs

Wed, 02/16/2011 - 11:16 | Link to Comment Elmer Fudd
Elmer Fudd's picture

Not trying to hijack the thread or change subject, but yesterday Sinclair said:

"A major well known US brokerage firm has sent out packages to investors in a precious metals company." -looking to borrow shares for a major short action most likely.

Anyone in ZH land got a better handle on details of that little situation and cares to enlighten the rest of us? 

Wed, 02/16/2011 - 11:41 | Link to Comment Bastiat
Bastiat's picture

I've heard it's Schwab and the stock is TRE.  The short is something like 7M shares and highly concentrated.  Could be a monster squeeze coming.

Wed, 02/16/2011 - 11:54 | Link to Comment william the bastard
william the bastard's picture

The SI on TRE now is 6mm (of 91MM). It does look like a tough borrow in size.

Wed, 02/16/2011 - 11:16 | Link to Comment Quinvarius
Quinvarius's picture

JPM does not have such ethical issues.

Wed, 02/16/2011 - 11:56 | Link to Comment william the bastard
william the bastard's picture

Jamie P Morgue bathed and lotioned up with Bear Stearns toiletry products and Wamu cologne. They're spic and span now.

Wed, 02/16/2011 - 11:17 | Link to Comment Ayn Rand
Ayn Rand's picture

Can't be a problem because Buffet owns too much here.

He just got a medal from O yesterday who has the most transparent administration in history so one must think that WFC's transparency is just as clear.

Wed, 02/16/2011 - 11:58 | Link to Comment william the bastard
william the bastard's picture

Buffett really scored with that overweight Moody's long placed in 2006.

Wed, 02/16/2011 - 11:17 | Link to Comment Ayn Rand
Ayn Rand's picture

Can't be a problem because Buffet owns too much here.

He just got a medal from O yesterday who has the most transparent administration in history so one must think that WFC's transparency is just as clear.

Wed, 02/16/2011 - 11:26 | Link to Comment Clockwork Orange
Clockwork Orange's picture

+111

Wed, 02/16/2011 - 11:29 | Link to Comment Common_Cents22
Common_Cents22's picture

Yep, as long as WF is on the TBTF list.  Since Buffett is in and I think recently John Paulson?   Unless there is a scheme to make Buffett and Co whole through an AIG type scam. 

Wed, 02/16/2011 - 12:01 | Link to Comment william the bastard
william the bastard's picture

If Buffett and Paulson get bailed out on WFC the public will want to keep a few pitchforks in storage.

They'll be needing a few extras to stack the bodies.

Wed, 02/16/2011 - 11:18 | Link to Comment Johnny Lawrence
Johnny Lawrence's picture

The banking industry is a crime syndicate.  I work for one.  The shit that goes on here is disgusting.

Wed, 02/16/2011 - 11:21 | Link to Comment Seasmoke
Seasmoke's picture

Wells Fargo and Bank of America are the greatest shorts to ZERO of all time

Wed, 02/16/2011 - 11:22 | Link to Comment onarga74
onarga74's picture

Would this be in addition to what Wikileaks may release?  They sure put the zipper on that boy's lip.

Wed, 02/16/2011 - 11:47 | Link to Comment Miss Expectations
Miss Expectations's picture

Wiki is apparently the sound of <crickets>

Wed, 02/16/2011 - 11:22 | Link to Comment Elmer Fudd
Elmer Fudd's picture

Not trying to hijack the thread or change subject, but yesterday Sinclair said:


"A major well known US brokerage firm has sent out packages to investors in a precious metals company." -looking to borrow shares for a major short action most likely.


Anyone in ZH land got a better handle on details of that little situation and cares to enlighten the rest of us? 

Wed, 02/16/2011 - 11:44 | Link to Comment Bastiat
Bastiat's picture

Responded above.

Wed, 02/16/2011 - 11:25 | Link to Comment Miss Expectations
Miss Expectations's picture

I believe that Warren is the recipient of the Presidential Metal of Freedom.

Me thinks that there should be some corollary Zero Hedge Metal of Serfdom.

Also, Florid Bitchez!

Wed, 02/16/2011 - 11:31 | Link to Comment Fisherman7
Fisherman7's picture

Ok - This is Chris Whalen's "Meredith Whitney" moment.  This is an excellent call.  There is major smoke billowing from WFC's executive suite on this....Meredith will chime in soon along with others, I'm sure.  Finally...something is going to bring some attention to this massive fraud by the Fed and the Banksters....although, the rug sweeping committee will be out in force.  Should be interesting.

Wed, 02/16/2011 - 11:35 | Link to Comment ZackAttack
ZackAttack's picture

I don't think WFC's trillion in HELOC exposure is any big secret. We've long suspected those are worth virtually zero.

Gotta be worse than that, even.

Wed, 02/16/2011 - 11:37 | Link to Comment Misean
Misean's picture

"Whalen goes on to accuse Wells Fargo of having poorer disclosure than peers among the largest banks when it comes to mortgage-related loan loss exposures"

I really didn't think there was a divisible gap there. It's like saying it's worse to get kicked in the nuts before being napalmed.

Wed, 02/16/2011 - 12:19 | Link to Comment Sausagemaker
Sausagemaker's picture

Misean: "It's like saying it's worse to get kicked in the nuts before being napalmed."

 

I would like to nominate the above for ZH Quote of the Year.

 

Sausagemaker

Wed, 02/16/2011 - 12:49 | Link to Comment 55 men
55 men's picture

2nd that....I busted out laughing when I read that.

Wed, 02/16/2011 - 11:42 | Link to Comment Oh regional Indian
Oh regional Indian's picture

All controlled leaks. Dis-information. Whispers.

All of us watched too much 24. Even Assange.

Now, no one can just speak up, call it for what it is.

Such a symptom of this crazy time. Crazy truths and crazier lies...

ORI

http://aadivaahan.wordpress.com/2011/02/16/truth-about-america-truth-about-us/

Wed, 02/16/2011 - 11:44 | Link to Comment Bastiat
Bastiat's picture

CFO couldn't take it anymore --  he'll never get the poo off him but still, good choice and it puts the rest of management, and the board, on the spot.

Wed, 02/16/2011 - 11:51 | Link to Comment Common_Cents22
Common_Cents22's picture

I'm sure he got a big bonus in exchange for being silent.

Wed, 02/16/2011 - 12:38 | Link to Comment A_MacLaren
A_MacLaren's picture

Hush money package: http://www.bizjournals.com/milwaukee/news/2011/02/14/departing-wells-far...

Wells Fargo & Co. chief financial officer Howard Atkins, whose sudden departure was announced last week, will leave with more than $22 million in pay and benefits.

Atkins will receive about $7.4 million in deferred compensation, about $900,000 in supplemental retirement contributions and pension benefits worth $940,000. The figures were reported by Bloomberg News, citing executive pay researcher Equilar Inc.

Atkins also holds $13.2 million in stock and options that vest after his retirement.

Read more: Departing Wells Fargo CFO gets $22mm | The Business Journal
Wed, 02/16/2011 - 12:46 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

I guess it's not like the mob - you can call it quits, and still live a nice life.  My question is what took him so long to realize the bullshit was not worth all the aggravation, when he already had the pile of FU money.

Wed, 02/16/2011 - 11:52 | Link to Comment vas deferens
vas deferens's picture

 

I hope they put some BBQ sauce on this report and that fat tard charlie munger chokes on it. 

W. Buffett is on the dark side owning banks and advising the gov.,  laundering Mexican drug money and stealing from the American people. 

Huffington post...

Kabul Bank is no different from Wells Fargo, either in its willingness to handle drug money or its apparent impunity from the law. As Bloomberg News originally reported, Wells Fargo's internal screening unit repeatedly turned a blind eye to money laundering on behalf of mass-murdering Mexican drug cartels.

Regarding these drug laundering charges,Bloomberg reported that "no big U.S. bank -- Wells Fargo included -- has ever been indicted. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again." As Bloomberg explains, "Large banks are protected from indictments by a variant of the too-big-to-fail theory."

full story

http://www.huffingtonpost.com/rj-eskow/afghanistans-too-big-to-f_b_817312.html?ir=World

Nothing will put these people in jail other then a revolution.

Wed, 02/16/2011 - 12:05 | Link to Comment topcallingtroll
topcallingtroll's picture

Yeah there is definitely more to this story!

Wed, 02/16/2011 - 12:07 | Link to Comment NOTW777
NOTW777's picture

so now we know the reason for the buffet/cnbc fast money pump yesterday;

saw a screen and a guy arguing that WFC was cream of the crop in fins

Wed, 02/16/2011 - 12:13 | Link to Comment williambanzai7
williambanzai7's picture

Wed, 02/16/2011 - 12:29 | Link to Comment Sherman McCoy
Sherman McCoy's picture

you guys must have trouble sleeping, what with having to a wear a tinfoil hat to bed. You just don't "get it". Everybody knows WFC has a boatload of toxic loans. The fix is in though. Rates are zero and will stay at zero until bank balance sheets are once agian pristine. GNMA 5s are FF&C and have a 0% risk weighting. Lets do the math. I borrow at 0% and I invest at 5%, x 100bb and I make 5bb/year. How long will it take to write down and sell EVERY bad loan if I have this kind of offst? Not very long. Get over it. You're not going to make a dime selling WFC short. The gimme trade is to buy the preferred's - they yield 7% with 7 years of call protection - and THEY WILL get called.

Wed, 02/16/2011 - 12:48 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Sadly, you're right of course. I keep thinking that the sheer absence of cash flow will force the necessary disclosures but it doesn't seem to be happening.  Our regulators have been told to stay the flock away.

Wed, 02/16/2011 - 13:21 | Link to Comment poor fella
poor fella's picture

dunno - decades?

Wed, 02/16/2011 - 12:35 | Link to Comment fuu
fuu's picture

Chris needs to be careful, he will end up swimming with Uncle Warren's fishes. Then again his last name is Whalen so he will fit right in under the sea.

Wed, 02/16/2011 - 12:38 | Link to Comment SDRII
SDRII's picture

WFC = smokescreen - was used as the tool to kick off the short sqeeze when it raised the dividend into the capital storm - haven;t looked at timeline but surely it comports with Buffet's "meeting in NYC" or the NYT editorial vomit. Smoking pile of shit

Wed, 02/16/2011 - 13:08 | Link to Comment lynnybee
lynnybee's picture

 WALL ST. / BANKS / WASHINGTON D.C. / LOOTING of the U.S. TREASURY / CRIMINAL SYNDICATE / LOOTING / LOOTING / LOOTING / STEALING / LOOTING / CRIMINALS ............ & if I steal just one small candy bar from any store, i will be in big trouble,  family would be ashamed of me, legal problems, a record for 10 years ...... blah .

the very people we elected to represent us in CONGRESS & the PRESIDENCY are now the very people who are hell-bent on destroying us ~~~~ am  sick in my heart about this / we deserve better than this / what about the kids & grandkids .........

where's the justice ?

Wed, 02/16/2011 - 14:07 | Link to Comment Monday1929
Monday1929's picture

I bet the CFO is putting his departure money aside (realizing it might be clawed back). It sounds like those at WFC who do not cut a deal soon will be facing jail time.

 

Anyone who STILL does not realize that all these banks are insolvent really does deserve what they get.

Wed, 02/16/2011 - 14:34 | Link to Comment Temporalist
Temporalist's picture
Allstate Sues JPMorgan Over $750M in MBS

"Allstate(ALL_) filed a lawsuit on Tuesday against JPMorgan Chase(JPM_), alleging it received false information involving $750 million in mortgage backed securities it purchased between 2005 and 2008."

"Allstate has also sued Bank of America(JPM) for losses it allegedly suffered on $700 million of mortgage securities purchased from Countrywide Financial in 2003."

http://www.thestreet.com/story/11011495/1/allstate-sues-jpmorgan-over-75...

Wed, 02/16/2011 - 23:33 | Link to Comment Payable on Death
Payable on Death's picture

I have dealt with Wells for 10 years in a commercial lending niche vertical, and I can tell you that they are very sharp and not prone to making a bad deal. The loans I am familiar with are securitized. Thus, in this space I could see WF performing better than peers.

Do NOT follow this link or you will be banned from the site!