Wells Fargo posts $2.55 billion loss in Q4

Hampered by its move to bolster credit loss reserves, Wells Fargo saw a $2.55 billion loss in the fourth quarter of 2008.

Over 2008, Wells Fargo built up its reserves against credit losses by $8.14 billion to $21.7 billion, which it estimates covers 12 months of predicted losses on consumer loans and 24 months of predicted losses on commercial and commercial real estate loans.

Its acquisition of Wachovia, which was completed on December 31, also damped results, swinging to a $11.17 billion loss in the quarter. Wells Fargo has taken measures to unwind the risk on Wachovia's balance sheet, by writing down $37.2 billion in high-risk loans on its loan portfolio.

On October 29, Wells Fargo received a $25 billion capital injection from the US Treasury in exchange for 25,000 shares of preferred stock via the government's Troubled Asset Relief Program. Wells Fargo also stated that it would not request a second capital injection. Other banks have not fared as well, with Bank of America asking for a second government bail-out after suffering from heavier-than-expected losses after its acquisition of Merrill Lynch.

Wells Fargo's move to unwind balance-sheet risk pushed its tier-one capital ratio lower in the quarter - it stood at 7.9% at the close of the year, down from its September 30 level of 8.58%.

Commenting on steps the bank has taken to reduce balance sheet risk, chief financial officer Howard Atkins stated in a conference call: "While these actions and other significant items resulted in reported losses at both banks in the fourth quarter, the balance sheet of the combined organization was strengthened and the resultant 'de-risked' capital position of the new organisation remains strong."

See also: JP Morgan Q4 net income plunges 74%
Citi hit by $8.9 billion Q4 loss, splits company