Wells Fargo Braces For Mortgage Losses

Wells Fargo(WFC) is attempting to bolster its reserves in anticipation of mortgage-related hits in the fourth quarter.

The San Francisco-based bank expects to record a fourth-quarter provision for mortgage-related losses that could total about $1.4 billion, in a sign that trafficking in some of the hardest-hit housing markets in the U.S. -- including Nevada, Arizona and California -- may take a toll on the institution.

In a Securities and Exchange Commission filing issued late Tuesday, Wells said its pretax provision was slated to impact areas of the bank, primarily third-party, wholesale mortgage lending platforms that it has since shuttered.

As a part of the financial institution's loss preparation, it will establish a so-called "special liquidating portfolio" that will house nearly $12 billion of either third-party loans, loans with high loan-to-value ratios, or those that otherwise are considered high-risk by the bank.

Calls to CEO John Stumpf were directed to a spokeswoman, who declined to provide further details about the bank's moves beyond its public filing.

The liquidating fund, which will be managed by a special credit team, represents about 3% of total loans outstanding as of Sept. 30.

Losses in this liquidating portfolio are expected to be approximately $1 billion over the course of 2008 and 2009. Wells is hoping that loan write-offs will diminish as the loans are paid off.

Wells said it also will tighten its lending standards across the board in a mortgage market that has significantly deteriorated over the past several months, amid credit worries and increasing loan defaults.

>To order reprints of this article, click here: Reprints