Wells Fargo Will Take Write-off of $1 Billion

Wells Fargo & Co. said Wednesday that it will take a second-quarter write-off of more than $1 billion due to venture capital losses, an announcement that may become commonplace in the banking industry in the aftermath of last year’s severe drop in technology stocks.

The San Francisco-based banking company said it will take an after-tax charge of $1.13 billion, of which $1.05 billion is largely tied to a drop in the value of the firm’s venture capital holdings.

The charge will total about 65 cents a share, most likely wiping out quarterly earnings, analysts said.

Wells made the announcement after the market closed. Its shares finished at $47.84, down 93 cents, on the New York Stock Exchange.

New York-based J.P. Morgan Chase & Co. issued a similar warning Tuesday, and analysts speculated that other large banks may soon divulge large venture capital losses.

“The important point is, who’s next?” said Campbell Chaney, a banking analyst at Sutro & Co.

Many banks dramatically beefed up their venture capital operations throughout the 1990s bull market, betting that the units could be highly profitable compared with the more staid business of lending.

And for a time they were. The venture units racked up sizable gains in 1999 and 2000 as many of the small technology companies in which the banks invested went public in enormously profitable initial stock offerings.

Wells’ venture operation, for example, earned about $1.9 billion on an after-tax basis in the last three years.

But banks have been hurt by the sharp reversal in most tech stocks in the last 15 months.

In some cases, venture investors paid high prices for their equity stakes in private start-up firms, which have since shriveled in value. Under accounting rules, companies must write down the value of assets that have tumbled and aren’t likely to recover soon.

“We’ve basically said the prospects of this turning around are not good,” said Ross Kari, Wells’ chief financial officer.

In other cases, venture investors have been hurt by declines in shares of well-known firms they received when the larger players bought start-ups.

For example, Wells had a stake in fiber-optic firm Cerent Corp., which was acquired by Cisco Systems in late-1999. Wells got Cisco shares valued at about $35 each in the deal, Kari said. Cisco stock now is worth $20.76.

As long as the market doesn’t head into another free fall, Wells doesn’t expect to report large venture losses in the second half, Kari said. Wells has estimated the current value of its holdings “conservatively,” he said.

Some analysts said they were taken aback by the magnitude of Wells’ charge. “Write-downs in the venture capital portfolio are to be expected, but $1 billion is higher than we anticipated,” said Joe Morford, analyst at brokerage Dain Rauscher Wessels.