November 15, 2007 / 2:10 PM / in 11 years

Wells Fargo: Housing worst since Great Depression

NEW YORK (Reuters) - Wells Fargo & Co (WFC.N), which has sidestepped many of the credit and liquidity problems plaguing U.S. mortgage lenders, believes the nation’s housing slump is the worst since the Great Depression and is far from over, Chief Executive John Stumpf said on Thursday.

Customers walk into a Wells Fargo bank branch in suburban Denver, Colorado October 18, 2006. Wells Fargo & Co , which has sidestepped many of the credit and liquidity problems plaguing U.S. mortgage lenders, believes the nation's housing slump is the worst since the Great Depression and is far from over, Chief Executive John Stumpf said. REUTERS/Rick Wilking

Stumpf said the second-largest U.S. mortgage lender and fifth-largest U.S. bank is “not immune” to the storm, but is well-positioned to ride it out, despite expectations for “elevated” credit losses from home equity loans into 2008.

He also said the San Francisco-based bank has “minimal” exposure to the collateralized debt obligations and other mortgage-related debt that have caused well over $40 billion of write-downs industrywide, with more expected.

“We have not seen a nationwide decline in housing like this since the Great Depression,” Stumpf said at a Merrill Lynch & Co banking conference in New York.

“I don’t think we’re in the ninth inning of unwinding this,” he continued, using a baseball reference. “If we are, it’s an extra-inning game.”

The gloomy outlook, from a bank considered among the best at managing risk through the recent market turmoil, weighed on investors, who pushed the Standard & Poor's Financials Index .GSPF down 3.1 percent and S&P 500 .SPX down 1.3 percent. Wells Fargo shares fell 3.8 percent, dropping $1.28 to $31.97.

“There’s just too much fear in the financials,” said John O’Brien, senior vice president at MKM Partners LLC in Cleveland.”

Stumpf’s comments came hours after Barclays Plc (BARC.L) announced a 1.3 billion pound ($2.7 billion) write-down for losses on securities linked to U.S. subprime mortgages.

Other banks to announce write-downs topping $1 billion this month include Bank of America Corp (BAC.N), Bear Stearns Cos BSC.N, Citigroup Inc (C.N) HSBC Holdings Plc (HSBA.L), Morgan Stanley (MS.N) and Wachovia Corp WB.N. Merrill Lynch & Co MER.N and Washington Mutual Inc (WM.N) have also suffered from losses tied to mortgages.

REBOUND?

At Wells Fargo, rising delinquencies and defaults limited profit growth to 4 percent in the third quarter, the slowest in more than six years, though net income was a record $2.28 billion. Wells Fargo said the credit losses related more to the severity of bad loans than the frequency.

The bank made $216 billion of home loans from January to September, second nationally to Countrywide Financial Corp CFC.N, and services about $1.5 trillion.

Stumpf pointed out that Wells Fargo never offered some exotic mortgages, such as adjustable-rate loans that let borrowers pay less than the principal due, that have caused problems for rivals.

Countrywide did, and is cutting up to 12,000 jobs after a $1.2 billion third-quarter loss. Its chief executive, Angelo Mozilo, in July lamented “home price depreciation almost like never before, with the exception of the Great Depression.”

Mozilo was born in 1938, around when the Depression was ending, while Stumpf was born in the mid-1950s.

Stumpf said the current downturn resulted in part from “froth, unscrupulous lenders, (and) borrowers who got too greedy,” and called it the “steepest, fastest, most prolonged decline in residential real estate” in a long time.

“Once we reach the bottom, the (housing) inventory is going to come off pretty quickly,” he said. “Once the secondary market gets comfortable with (credit) ratings again, and once you think you’ve hit bottom, I think we’ll see some turnaround, and it could be faster than we’ve seen in the past.”

Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) (BRKb.N) on Wednesday said it owned 8.3 percent of Wells Fargo, making it by far the largest shareholder, according to Thomson ShareWatch. Berkshire reported owning 280 million shares as of September 30, up from 258 million three months earlier.

Reporting by Jonathan Stempel; Additional reporting by Ellis Mnyandu; Editing by Gary Hill

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