Wells to face home loan stress

Wells Fargo & Co.’s $12.7-billion acquisition of Wachovia Corp. faces immediate stress as economists predict home foreclosures will keep rising and some forecast unemployment this year to reach a 26-year high.

Wells Fargo, the biggest bank on the West Coast, closed the purchase Wednesday, nine days after it was approved by Wachovia shareholders, the companies said. The combination creates the country’s second-largest bank by deposits and the top coast-to-coast branch network with more than 6,600 offices.

Since the acquisition was announced in October, an already bleak economic picture has gotten worse as carmakers neared bankruptcy, companies slashed jobs and home prices continued to drop.

Wells Fargo Chief Executive John Stumpf said as recently as Dec. 10 that Wachovia’s $482.4-billion loan portfolio will produce $60 billion in losses over the next three years, with about 60% coming from option adjustable-rate mortgages.

“There are a lot of unanswered questions that will take time to play out,” said Jennifer Thompson, an analyst at Portales Partners. “How quickly will they be able to write down the value of loans, how aggressive are they going to be, and how are the loans that they’re acquiring going to perform in this type of environment?”