Wells Fargo (WFC) has been basking in its status as one of the only US financial companies not to implode. As the WSJ’s Peter Eavis notes, however, its balance sheet raises questions, and its disclosure leaves much to be desired.
- Q2 “Level Three” assets rose $3.3 billion to $5.28 billion, with only a cursory accompanying write-off and few details. These are illiquid assets that have no easily observable market value and that banks therefore value using their own estimates. Level Three assets, in other words, are worth whatever the bank says they’re worth…until market realities force them to say they’re worth something else. WFC’s level three assets include CDOs, the mortgage-backed securities that blew Merrill’s balance sheet to smithereens. Given the vast increase in Level Threes in the quarter, moreover, one wonders what else is hiding on the balance sheet currently classified as Level One and Two.
- Short-term debt jumped 60% in Q2, to $86 billion. The loss of short-term financing is what killed Bear Stearns. It’s obviously readily available to Wells now, but it can dry up in a hurry.
The most concerning point is that Wells won’t provide more details. If everything’s fine, as it maintains, it should share enough information to put these questions to rest.
Wells is already perceived as arrogant for raising its dividend last quarter, and a refusal to disclose as much detail as others in the industry will only heighten that perception. “We don’t disclose that” is usually a euphemism for “That will make us look bad.” If this is not the case at Wells, it should just open up the books and prove it.
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