Et tu, Wells Fargo?

Just having trouble with the juxtaposition of this:

NYT, October 14, 2008

The chairman of Wells Fargo, Richard M. Kovacevich, protested strongly that, unlike his New York rivals, his bank was not in trouble because of investments in exotic mortgages, and did not need a bailout, according to people briefed on the meeting.

with this:

NY Post, October 20, 2008

Wells Fargo, despite booking a near $1 billion increase in non-performing loans in the third quarter compared to the previous three-month period, cut its loan-loss reserve by $500 million.

The slick accounting moves, while perfectly legal, gave a false impression of just how strong Wells Fargo's balance sheet actually was, the analysts said in separate interviews and reports last week.

"Wells Fargo are pretenders," said a trader at one top hedge fund, who spoke on condition of anonymity because he is afraid of trouble from the Securities and Exchange Commission, in light of the regulatory body's recent threat to prosecute short sellers.

[snip]

The Field Check Group, which measures real-time residential defaults in California - where Wells Fargo has over 30 percent of its $74 billion first-lien mortgage portfolio - reports the default rate on loans originated by Wells Fargo's in 2008 is running 237 percent above last year.

That is just under the increases seen by Indymac Bank (239 percent) and over Countrywide (226 percent). IndyMac was seized by regulators, and Countrywide was forced into a takeover by Bank of America.

[snip]

On Friday, Moody's, the ratings agency which has Wells Fargo on review for a possible downgrade, said it was looking at the quality of the bank's loan portfolio and its future capital structure.

Moody's noted that Wells Fargo's loan-loss reserves are at 101% of annualized quarterly credit losses, which is below some of its peers.

The cut in the loan-loss reserve in the face of an increase in non-performing loans is not the first thing Wells Fargo has done this year to raise eyebrows on Wall Street.

Earlier this year, Wells Fargo increased to 180 days from 120 days the amount of time they take to book second-lien loans, that is, home-equity loans, as not paying. The move helped keep down the default rate in the second quarter. 

(H/t to The Big Picture)