By Greg Hunter’s USAWatchdog.com
The story below is what I call the canary in the banking coal mine. Wells Fargo was downgraded today by top banking analyst Dick Bove. He didn’t downgrade them because they were making too much money. What the article doesn’t say is before Wells Fargo bought Wachovia, Wachovia bought Golden West Financial in 2006. Golden West was a leader in a little something called a Pay Option ARM. Golden West had about 120 billion in these loans when Wachovia bought them. Payment Option Arms are also called “pick a payment” loan because you literally pick what kind of mortgage payment you make to the bank every month. You know, pay as a 30 year fixed, or 15 year fixed or interest only or negative amortization. Negative amortization adds to the principal every month. Guess what most people are choosing to pay? You guessed it, negative amortization which is the cheapest payment possible. One analyst called these loans “payment option insanity.” Most of these loans are now, not profitable. Plenty of folks default when they realize they will owe more than the home will ever be worth! Wells Fargo grabbed the headline today, but the other banks are still in trouble too and weak banking equals a weak economy. Check out the article below.
Oct. 21 (Bloomberg) — U.S. stocks tumbled in the final hour of trading after analyst Dick Bove downgraded Wells Fargo & Co., erasing an earlier rally spurred by better-than-estimated results at Morgan Stanley and Yahoo! Inc.
Wells Fargo, the largest U.S. home lender this year, slid 5.1 percent after Bove of Rochdale Securities cut the shares to “sell” and said earnings were boosted by mortgage-servicing fees rather than improving business trends. Wal-Mart Stores Inc., the world’s largest retailer, tumbled 2.1 after saying it expects a “tough” holiday shopping season. The Standard & Poor’s 500 Index reversed a 0.9 percent advance as nine of 10 industry groups retreated, led by financials.
“Wells Fargo’s downgrade spooked investors,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages about $2 billion in San Antonio. “Investors are concerned because that’s one of the biggest in the industry and most of the recent news has been positive so far. So that could be an indication of problems ahead for other big names.” (more from Bloomberg)