A 7% Drop in Wells' Shares Preceded News of Provision
Who knew what, when, about Wells Fargo & Co.'s loan problems?
Monday, Wells Fargo's stock tumbled by 7%, or $6.375 a share, to $81.50. Wells said it had no explanation.
But Tuesday morning, trading in its shares on the New York Stock Exchange was frozen, pending an announcement that the company would take a hefty $350 million provision in the second quarter for possible loan losses.
Was There a Leak?
Monday's price drop, much larger than the 1.7% decline in the Dow Jones industrial average, raised speculation that the company's plans had become known in the market.
"It obviously leaked somehow," said a longtime analyst who asked not to be named. Added Livia Asher, an analyst at Merrill Lynch & Co.: "This magnitude causes me to scratch my head and wonder."
While Wells is often the biggest mover among bank stocks, the high volume and sharp drop Monday were unusual. The activity likely spurred the San Francisco-based banking company to make its announcement, analysts said.
Watchdog Agencies Silent
Wall Street's watchdogs would not say whether their eyebrows were raised. A spokesman for the New York Stock Exchange said that, as a matter of policy, it does not discuss possible investigations. And a spokeswoman for the Securities and Exchange Commission said the agency does not comment on possible investigations.
Wells Fargo declined to comment.
One investor said a prominent Wall Street analyst suddenly increased his projections Monday of Wells' loss provision and nonperforming loans.
Focus on Shared National Credits
One reason the stock could have moved, one investor said, is that investors and analysts have begun to focus on exams that regulators are conducting on loans syndicated among many banks.
Wells has one of the highest ratios of high-risk loans - both highly leveraged transactions and commercial real estate - to equity of any U.S. bank.