Monday, September 15, 2008

Wells Fargo takes Lehman Related Charge

by Calculated Risk on 9/15/2008 07:26:00 PM

From the Wells Fargo 8-K filed with the SEC today:

In connection with the filing today by Lehman Brothers Holdings Inc. (Lehman Brothers) of a Chapter 11 bankruptcy petition, Wells Fargo & Company (the Company) will record other-than-temporary impairment and take a non-cash charge to earnings in third quarter 2008 for investments in senior unsecured notes and perpetual preferred securities issued by Lehman Brothers. The Company’s investments in the notes and preferred securities are included in securities available for sale at a cost of approximately $90 million and $109 million, respectively. The notes currently trade at 25-30 cents on the dollar. The preferred securities currently trade at less than one percent of par value. The Company estimates that as of September 12, 2008, it had approximately $50 million of unsecured counterparty exposure to Lehman Brothers. The Company has no direct lending exposure to Lehman Brothers, and the Wells Fargo Advantage Money Market Funds do not have any direct exposure to Lehman Brothers.
So the $90 million in notes is worth about $25 million, and the $109 million in preferred securities is essentially worthless. With the unsecured counterparty exposure, this loss could be close to $200 million. Just last week, Wells Fargo reported $450 million (or so) in losses associated with Fannie and Freddie.

The Lehman confessional is open!