wow........Wells Fargo to take $1.1 billion charge
By Chris Kraeuter, CBS.MarketWatch.com
Last Update: 5:01 PM ET June 6, 2001
SAN FRANCISCO (CBS.MW) -- Wells Fargo will take a $1.13 billion charge related to bad investments.
The noncash charge, which amounts to 65 cents a share, will be taken in the second quarter to write down the value of venture-capital investments, particularly in the telecommunications and technology industries. The write-downs are tied to both public and private companies.
"Even after these write-downs, recent returns on our venture capital and equity investments were significantly above our historical averages," said Ross Kari, the financial services company's chief financial officer. "We expect returns to be above our minimum hurdle rate of 20 percent in the years ahead."
Wells (WFC: news, msgs, alerts) shares closed down 93 cents, or 1.9 percent, at $47.84.
Charging
According to a company statement, Wells recognized gains on investments in several companies when those firms were bought with the stock of an already public company.
The company cited its investments in Cerent and Siara Systems as examples. Cerent was bought by Cisco Systems in late 1999, and Siara was bought by Redback Networks in early 2000.
In the months after those purchases, share prices of Cisco and Redback, along with the stock of many other technology companies, plummeted.
Since the Nasdaq Composite peaked in March 2000, the index has lost more than half its value.
Per accounting rules, Wells had to recognize its paper gains at market value, even though Wells might not have sold the shares. The company said it eventually realized "many" of the gains but did not sell out of all the holdings due to the size of the holding and/or lack of liquidity.
Also, Wells said its "core revenue trends" remain strong and added that it is controlling expenses. Credit costs are increasing as expected but, it said, are still "manageable."
Chris Kraeuter is a reporter for CBS.MarketWatch.com in San Francisco |
