|
Techs sting Wells Fargo
|
 |
June 6, 2001: 5:17 p.m. ET
Losses in venture capital portfolio will result in big 2Q charges
|
NEW YORK (CNNfn) - Wells Fargo & Co., the No. 4 bank in the United States, said Wednesday it will record $1.1 billion in charges against its second-quarter earnings, due mainly to losses on technology investments in its venture capital portfolio.
The San Francisco-based bank said $1.05 billion of the charges are related to losses in its investments in public and private companies, particularly in the technology and telecommunication industries.
The remaining $80 million of charges, which includes roughly $70 million from its auto finance portfolios acquired along with First Security Corp. last year, are mainly to adjust residual lease values to account for the drop in the used car market, Wells Fargo (WFC: Research, Estimates) said.
In conjunction with this write-down, the remaining residuals will be placed under a residual loss insurance policy, the company said.
"The bulk of these charges, in fact, are reductions of the non-cash venture capital gains recognized in late 1999 and 2000," Ross Kari, Wells Fargo's chief financial officer, said in a statement.
"Those gains resulted from the acquisition of several companies, held in our portfolio of venture capital investments, by publicly traded companies," Kari added.
He said examples of such investments include Cerent Corp. acquired by Cisco Systems Inc. (CSCO: Research, Estimates) in the fourth quarter of 1999, and Siara Systems acquired by Redback Networks (RBAK: Research, Estimates) in first quarter of 2000.
Kari pointed out that accounting regulations require that the company recognize a non-cash gain when companies in which it invests are acquired in an exchange of stock by a public company.
At the time of the exchange, Wells Fargo recorded the stock received based on the market price, even though the security's price was known to be extremely volatile and in some cases the company may have been subject to resale restrictions, Kari said.
He said many of those non-cash gains were later realized when the company sold down the resulting position in the publicly traded stock. However, Kari said Wells Fargo has not completely sold out of these issues, in some cases due to the size of our position and lack of liquidity.
Therefore, the company expects to write those positions down due to the sharp, sustained declines in the market values, and the uncertainty of price recoveries, he said.
"Venture capital investing is a volatile business, but over the long term it has earned very attractive returns," Kari added. "We have been in the venture capital business for more than 35 years. Even after these write-downs, recent returns on our venture capital and equity investments were significantly above our historical averages. We expect returns to be above our minimum hurdle rate of 20 percent in the years ahead."
In addition to the investment write-downs, Wells Fargo said its second-quarter results will include roughly $90 million, or 5 cents per share, of charges reflecting the cost of completing the integration of First Security and other acquisitions, and the company's normal level of $140 million of market-sensitive revenue each quarter is at risk due to the sharp and sustained decline of technology stocks.
Shares of Wells Fargo fell 93 cents to $47.84 in New York Stock Exchange trade Wednesday. 
|
|
|
|
|
 |
|
