Neal St. Anthony/On Business: Wells Fargo gives back some of its go-go gains
Neal St. Anthony
Friday, June 8, 2001
Wall Street Thursday shook off the news that Wells Fargo & Co. was taking a $1 billion non-cash charge to cover a huge loss in the value of companies backed by its two
venture capital units.
The total after-tax charge of $1.13 billion, or 65 cents per share, essentially will wipe out anticipated second-quarter earnings and includes a smaller charge involving an
auto-finance portfolio.
The stock closed at $47.66, down about $1 from its high-water mark for the week on Tuesday but still up for the week.
Several analysts Thursday were surprised at the magnitude of the hit, as they quickly revised downward their earnings estimates from about $2.85 to $2.20 for 2001.
"The question is, couldn't they have recognized some of that impairment ... in previous quarters to spread out the hit?" Edward Jones analyst Chris Blum told Dow Jones
News Service.
Larry Haeg, a Wells senior vice president in San Francisco, said company executives only recently concluded that, "based on all available evidence of the economy, the
prices of these securities probably would not recover our book basis in a reasonable amount of time. There's not a specific definition in the accounting literature. But if you
assume a prudent investor, anything over 18 months would require you have to explain or justify it."
Regardless, what's happening here is that the venture capital units of Wells Fargo -- Minneapolis-based Norwest Equity Partners and Palo Alto, Calif.-based Norwest
Venture Partners -- are giving back some of the phenomenal success they enjoyed during the tech-company go-go years of 1999 and 2000.
Wells Fargo booked pre-tax gains that totaled a stunning $2.95 billion in its venture capital portfolios in those two years.
That's more than it made from mortgage banking -- and it's the biggest residential lender in the land.
Wells Fargo Chief Financial Officer Ross Kari would cite only two portfolio examples. But they are indicative of the worst that has happened to technology stock valuations
-- or at least among companies still around.
They are Cerent Inc., which was acquired by Cisco Systems in late 1999, and Siara Systems, acquired by Redback Networks in early 2000.
Cisco has fallen 72 percent to about $21.50 since April 2000. Redback closed Thursday at $15.17, off 92 percent from its 52-week high of last July.
Since 1989, the Norwest venture units have invested more than $3 billion into technology start-ups, turnaround situations and leveraged buyouts.
Norwest also was an investor in Dantis, one of Minnesota's most exciting Internet initiatives of the past two years, which shut its doors this month after attracting more than
$140 million in debt and equity last year.
In all, Norwest invested in 172 venture-backed companies with other partners between 1998 and 2000, according to the PricewaterhouseCoopers Money Tree Survey.
There's plenty of pain to share after the exuberance of last year.
"Venture capital investing is a volatile business," Kari said in the understatement of the year. "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."
Online filing
No matter whether a state-government shutdown occurs next month, the Minnesota Secretary of State will launch a long-awaited, Internet-based system that will enable
lenders to go online to file notice of their claim on a borrower's collateral.
The service eventually will increase disclosure, provide immediate, uniform access, cut confusion and fraud and take this portion of the Uniform Commercial Code (UCC)
into the 21st century, backers say.
Under the UCC, lenders who rely on a collateral pledge in their financing must file a public notice, showing their interest in the asset backing the loan, in order to "perfect"
their claim in case the loan goes bad. This notice typically is filed in the debtor's county of residence.
The 2000 Minnesota Legislature joined with 28 other states in authorizing Minnesota to spend $4 million toward a new system that will include a central filing system,
all-electronic filings, uniform filing forms and a flat fee of $20.
Bipartisan bills that appropriate $2.4 million to get the system up and running during the 2002-03 biennium are pending and expected to get through conference committees
and to the governor's desk for signature.
Secretary of State Mary Keiffmeyer said her office will make sure it can implement the system July 1 by taking funds from elsewhere in the event the House and Senate
cannot reach agreement on major funding bills.
"It's a good thing," said Gene Hennig, a lawyer with Rider Bennet Eagan and Arundel. "This statute affects the public and the business community. I think it will make
matters simpler, reduce filing errors with financial filings and make it easier to search records."
-- Reporter Patrick Kennedy contributed to this column.Neal St. Anthony can be reached at 612-673-7144 or Nstanthony@startribune.com.
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