Wachovia acquisition puts Wells Fargo into trouble

Acquiring the sinking Wachovia Corporation has had an impact on Wells Fargo. Wells has reported a loss of $2.55 billion in the fourth quarter.

Though Wells Fargo & Co. had reported loss in the fourth quarter yet its situation much stronger than its contemporaries in the field. The bank is making loans, getting more money from depositors and maintaining its dividend. The situation seems to be strong as it has no plans to seek more federal financial help.

It is quite evident that Wells Fargo's loss grew after its decision to acquire Wachovia's risky assets and to utilize its reserves to cover future losses of Wachovia.

Wells is showing better results than many analysts had expected. But the overall result is not as per the expectations as anticipated a few months earlier. Wells Fargo was viewed to be one of the banking industry's healthiest players. Its executives had a faith that stringent lending standards and strong balance sheet of Wells would enable it to weather any financial storm.

In mid-October, Richard M. Kovacevich, Wells Fargo's chairman, was so confident that he insisted to the Treasury that his bank did not want or need government money, even though later he did accept it. But Wachovia's staggering condition laid extra burden on the company. The biggest cost during the quarter came from a write-down of $37.2 billion on Wachovia's loan portfolio.


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