SAN FRANCISCO Evoking Depression-era memories, Wells Fargo & Co. President John Stumpf on Thursday became the latest banker to predict continuing difficulties in the U.S. housing market as risky mortgages made to overextended borrowers disintegrate into large loan losses.
Speaking at an investment conference in New York, Stumpf said the current real estate conditions are the worst he has experienced during his 30-year career. He then punctuated his gloomy assessment by harking back to the deepest downturn of the 20th century.
"We have not seen a nationwide decline in housing like this since the Great Depression," he said.
Stumpf, who became Wells Fargo's chief executive 4 1/2 months ago, isn't the first prominent banker to liken the housing market's current slump to the financial despair of the 1930s.
Angelo Mozilo, CEO of Countrywide Financial Corp., made a similar comparison in July as his mortgage company sank deeper into a morass of losses that forced it to raise billions of dollars and lay off thousands of workers to stay afloat.
San Francisco-based Wells Fargo, the fifth largest U.S. bank, so far has fared far better than virtually all of its peers.
That's because Wells Fargo sold most of the $2 trillion in home loans that it has originated since 2001 and invested relatively little money in the mortgage-backed securities
that have been saddling other big banks with huge losses. In contrast, Wells Fargo ended September with $581 million in unrealized investment gains on its books.
Stumpf said he didn't even know about some of the exotic mortgage investments that enticed other banks until he read about them in the newspaper.
"It's interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine," Stumpf said.
He blamed much of the real estate turmoil on low interest rates, unscrupulous lending practices and outright greed as housing prices steadily climbed until 2006.
"The losses have turned out to be greater than expected because home prices have declined faster and deeper than expected," said Stumpf. He cited the Midwest's "auto-belt" states and California's Central Valley a swath stretching from Sacramento to Bakersfield as Wells Fargo's biggest headaches.
Stumpf indicated 2008 will be even more challenging, particularly if home prices continue to erode while more adjustable-rate mortgages reset to higher payments. The result is that some families can't pay or stop paying their mortgages.
"I don't think we're in the ninth inning of unwinding this," Stumpf said. "If we are, it's an extra-inning game."