Wells Fargo & Co. investors will find out this week whether the lender, like Bank of America Corp., underestimated the risks of buying a failing competitor in the middle of a credit crisis, Bloomberg reported.
Wells Fargo, the second-biggest U.S. home lender, will post fourth-quarter results on Jan. 28, the last of the four largest banks to report. The bank may also update the status of Wachovia Corp., the North Carolina lender that almost collapsed before Wells Fargo Chairman Richard Kovacevich and Chief Executive Officer John Stumpf outbid Citigroup Inc. for control.
"They're going to be under tremendous pressure to explain clearly the rationale for the merger and how they're dealing with billions of dollars of tainted, toxic assets," said Frederic Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, which manages $20 billion. "Every bank that's reported has missed their numbers by a country mile and indicated more reserve write-off requirements are coming."
Wells Fargo may report a 9.3 percent decline in fourth- quarter profit to $1.23 billion, or 33 cents a share, according to the average estimate of analysts surveyed by Bloomberg. That doesn't include Wachovia, acquired this month. With foreclosures at a record and the jobless rate at a 16-year high, analysts have speculated San Francisco-based Wells Fargo will need to raise more cash and cut its dividend to cover defaults from Wachovia's $122 billion option adjustable-rate mortgage portfolio.
Wells Fargo spokeswoman Julia Tunis Bernard declined to comment.
Of Wells Fargo's three biggest competitors, only JPMorgan Chase & Co. reported a fourth-quarter profit. Earnings at the New York-based company fell 76 percent to $702 million as the bank added $4.1 billion to its loan-loss reserves. New York's Citigroup reported an $8.3 billion loss, announced plans to split in two, and then removed Win Bischoff as chairman.