Wells Fargo's Mortgage Woes

My friend B predicted this at lunch late this summer.

As we discussed the expected continuing bank loan losses, he mused that Wells had bought a truckload of trouble via Wachovia's purchase of Golden West Financial some years ago.

You may recall that the Golden West acquisition was a material cause of Wachovia's slide into insolvency, leading to Ken Thompson's ouster.

When Wells swooped in to take Wachovia out of the arms of failing Citigroup last year, many thought it to be a clever purchase.

However, Wells' own California-focused mortgage business, coupled with the Golden West loans, is now stressing Well's loan loss reserves. California was certainly among the most over-priced areas in the US during the mortgage finance excesses of the past few yeas, and Well's mortgage portfolio's delinquencies are now reflecting that.

As the unemployment rate continues to remain high and probably go higher, expectations for these delinquencies to not become defaults are low.

And just this morning, the Boston Fed's president expressed his view, on CNBC, that the economy is still very fragile, and interest rates will have to remain low for some time.

This doesn't look like economic recovery to me.