As The Atlantic correctly points out, Wells Fargo has recently suffered accounting losses as its MSR valuation rises.
In the third quarter, the bank added $462 million to its repurchase reserve. KBW analyst Fred Cannon estimated, in a note reacting to earnings, that a similar reserve for Wells Fargo's risk hedging portfolio put overall reserve increases at $729 million for the third quarter.
Still, Wells Fargo highlights that its 7.32% delinquency and foreclosure rate is a best of breed in the mortgage industry, and is roughly 4% lower than competitors. In contrast to peers like Bank of America, Wells Fargo, despite being the nation's leading mortgage underwriter, has seen below average putback claims.
If a case for Wells Fargo's prudent underwriting sounds familiar, that's likely because Warren Buffett has long highlighted the bank's lending standards as reason it's among Berkshire Hathaway's top holdings. Contrary to what The Atlantic alludes, Buffett's likely very capable of reading Wells Fargo's quarterly and annual filings to square out the bank's overall mortgage underwriting risk.And that is the point. Modern banking is inherently complex and it does require a thorough reading of financial statements and earnings transcripts, two investing basics Buffett has long highlighted. Complex earnings and the requirement of careful analysis, however, does not prove an intent to mislead or trick investors. Meanwhile, in the wake of Wells Fargo's muddled earnings picture TheStreet has questioned whether Buffett and other Wells Fargo investors may get blindsided by Fed-fueled interest rate risks that are in plain sight. Follow @agara2004 -- Written by Antoine Gara in New York
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV