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Wells Fargo Pick-A-Pay Portfolio: Presented without Comment*

Submitted by Stone Street Advisors on 03/04/2011 10:18 -0400

This story previously appeared at Stone Street Advisors.

Some of you have may have noticed the ongoing debate regarding the Pick-a-Pay portfolio of Warren Buffett’s beloved Wells Fargo (NYSE: WFC). In order to put this horse to pasture, I present the following with no pejorative words and only a few minor comments.

First, the before (for the entire document you can go here):

A Pick-A-Pay 2008

Next, the after (full document here):

Pick-A-Pay 2010

As promised, the limited commentary:

(1) On the latest conference call, management noted that the PCI portfolio was performing BETTER than expected;

(2) Notice the LTV for ALL PCI loans is higher than originally recorded (based on carrying values);

(3) Notice unpaid principal has dropped from $61.9 billion to $41.9 billion or 32%, yet the carrying value has only dropped 14% to $32.4 billion;

(4) See note (2) from the 2010 Form 10K – “unpaid principal balance includes write-downs taken on loans…”

(5) Finally, from the 2008 Form 10K, the following disclosure was made (emphasis mine):

In accordance with SOP 03-3, loans that were classifsied as nonperforming loans by Wachovia are no longer classified as nonperforming because, at acquisition, we believe we will fully collect the new carrying value of these loans. It is important to note that judgment is required in reclassifying loans subject to SOP 03-3 to performing status, and is dependent on having a reasonable expectation about the timing and amount of cash flows expected to be collected, even if the loan is contractually past due.

You the reader can now determine whether or not you consider the loan book better, worse or no different (please vote).

*Ok, minimal comments.

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Fri, 03/04/2011 - 12:56 | 1019081 Fearless Rick

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Fri, 03/04/2011 - 12:07 | 1018807 tahoebumsmith

Fuzzy math...Maybe the IRS should allow us to use the same formulas when we do our taxes? Bottom line is in California the ALT-A and Option Arm Tsunami is still rolling in and Warren Buffett is sitting in his speedo on the beach awaiting the arrival. Look at the facts, Almost 40% of mortgages in America are now underwater and by the end of 2011 that number will closer to 50%...Think about that for a minute? Pretty scary seeing how the majority of America's wealth is in real-estate. The majority of the underwater mortgages are these Option Arms and people are just walking away because in most cases they are upside down more then 200K. With the government now backing 85%+++ of all residential mortgages in the US the ultimate loser will be the taxpayers. Fannie and Freddie lost another 1.8 billion last quarter and requested 600 million in working capital to keep the doors open. This whole depression supposedly happened because of the subprime crisis???Remember.. Bawahahaha...The current situation dwarfs the subprime crisis and makes it look like a ride on the merry-go-round. If the financial meltdown happened because of the mortgage meltdown then our current situation should be twice as bad as it was in 07...Right? Got to love all the fuzzy math and deception going on right now. In the end when somebody takes the time to peel back all these layers and see how bankrupt we really are , I'm sure the number will be quite staggering.

Fri, 03/04/2011 - 12:06 | 1018801 Obaminator

Worse. Magically making outstanding balances disappear doesnt mean they are gone.

Accounting trickery, nothing more, nothing less.

WFC is NOT one of the 5 largest financial institutes in America, and they thus cannot be seen as TBTF. Once life support is pulled, they will faulter, and be absorbed by the TBTF banks, and all those losses will be erased. Its the Status-Quo at this point.

In 10 yrs when the dollar is devalued by 3 or 4 times, it wont matter. a $200K mortgage will be a small one. And all these huge losses of today will seem just as small as the Gigantic $10B LTCM loss in 1999....we have $100B losses today that dont even cause ppl to bat an eye, but 12 yrs ago $10B almost crashed the entire world?

Same shit, different canvas. Rinse repeat.

Fri, 03/04/2011 - 11:57 | 1018737 PulauHantu29

Why would anyone pay their mortgage? It looks as if the Fed's Bernank will pick up the Tab....and then pass it over to the Middle Class Taxpayers.

Fri, 03/04/2011 - 11:55 | 1018731 D1eeeeeNAHHHHH

Large banks historically overvalue their properties on their books. I know people who had tried to get their home loans modified only to find out that the lender was willing to value the home twice than what real comparables are.

As far as the Wacovia loans. Good research Tyler! It goes to show Well Fargo (WFC) isn't as strong as it pretends to be. Ever go to a WFC 3-4 times without a sales pitch? It rarely happens. They are begging customers to open savings accounts and second checking accounts with young cleavage showing college girls to help their fraction reserve banking.

From what I've been seeing, it appears WFC is on life support and we may be one crisis away from finding out that the WFC emperor CEO, accountants and auditing firms are naked.

Fri, 03/04/2011 - 11:36 | 1018621 WallStreetClass...

These banks never HELD any of the bad loans on their own books. They were held in SIVs (Structured Investment Vehicle), where they were chopped into toxic slices of AAA rated derivatives.

All of these insider trading charges and SEC "bonus tax" ideas are smoke screen and change of attention tactics. The same goes for the White House's recent push for "settlement" with "robo-signer banks". In the colossal cluster fk that banking has become, where does one place the blame? The industry itself had contributed over $10 BILLION over the last decade on "contributions" to both parties, as to continuously disband and repeal all meaningfull and structurally important regulation. Conspiracy to commit fraud, strict liability for failed financial products and instruments, wire fraud and obstruction of justice, RICO - all come to mind. At http://www.WallStreetClassAction.com we organize a class action against the banks, the ratings agencies and other financial institutions involved in staging the colossal securitization fraud and subsequently crashing the economy and resulting in over $5 Trillion in asset losses in the US alone. We realize that our own government is effectively a captured entity, so no criminal indictments will be forthcoming. But WE THE PEOPLE will hold the fraudsters accountable. Sign up on our site, we already have more than 3,000 users within last 2 days. UNITED WE STAND www.WallStreetClassAction.com

Fri, 03/04/2011 - 11:30 | 1018564 SwingForce

They took a lot of loans with low carrying values and stuffed them somewhere else, without recording a LOSS of any kind. This magical accounting trickery has the blessing of The Feds, The FDIC, and Uncle Warren apparently. (Insert Oscar's sound clip INSIDE JOB acceptance speech here).

One thing is certain: 1/3 of the portfolio did NOT pay down $20 Billion in principal.

Fri, 03/04/2011 - 10:44 | 1018348 LawsofPhysics

No difference - in a flat economy (and extend and pretend continues)

Better - if our creditors are going to actually buy these loans/properties at the inflated prices.

Hey, I guess it can't get any worse after all.

Wells Fargo Pick-A-Pay Portfolio: Presented without Comment*

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