Wells Fargo Chief Executive John Stumpf said on Wednesday the U.S. housing market may be bottoming, a development that could ease his bank's pending acquisition of Wachovia.
Stumpf's comments, at the Goldman Sachs U.S. Financial Services Conference, reflected his optimism that Wells Fargo will continue to avoid the credit problems that have caused billions of dollars of writedowns industrywide since the credit crisis began last year.
Stumpf said rising unemployment is the biggest threat to housing. But even in California "more stuff is selling," he said, and multiple bidders have begun to make offers on foreclosed properties. Wells Fargo is based in San Francisco and is the nation's second-largest U.S. mortgage lender.
"We're not at the end," Stumpf said. "My suspicion is there is some more to go. But we're starting to see some early signs that maybe we've reached the bottom in housing or close to it."
Wells Fargo agreed on Oct. 3 to buy Charlotte, North Carolina-based Wachovia after the latter was felled by soaring losses on "option" adjustable-rate mortgages it took on when it bought California lender Golden West Financial Corp in 2006.
The all-stock transaction, valued Tuesday at $13.1 billion, is expected to close by year-end. Wachovia shareholders will vote on the takeover on Dec. 23. Wells Fargo would become the fourth-largest U.S. bank, with $1.4 trillion of assets and $774 billion of deposits, and more than 6,600 banking offices.
Wells Fargo has said it expects to write down $71.4 billion of Wachovia loans, including $36 billion of option ARMs and $9.6 billion of commercial real estate.
Stumpf expects at least $5 billion of annual cost savings, and expects the takeover to boost earnings per share by 20 percent or more in 2011, and by higher amounts thereafter.
"I can't tell you how much I like this deal, despite the fact things are getting worse. But we expected that," he said, referring to economic conditions.
He said Wells Fargo does not make and still does not like option ARMs, and will run off Wachovia's portfolio.
Stumpf also said Wells Fargo remains a beneficiary of a "flight to quality" among deposits seeking stable banks.
The situation has become easier following the disappearance in the last six months of troubled lenders with large California operations that chased deposits with big yields.
Countrywide Financial was bought by Bank of America , while Washington Mutual, IndyMac Bancorp and Downey Financial failed.
Washington Mutual's operations were bought by JPMorgan Chase , and Downey's by U.S. Bancorp .
"There is no WaMu, there is no IndyMac, there is no Countrywide, there is no Downey. Who is paying the crazy rates?" Stumpf said. "That's hopeful to us."
Shares of Wells Fargo closed Tuesday at $30.50 on the New York Stock Exchange. They have risen 1 percent this year, while the KBW Bank Index is down 46.7 percent.
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