Wells Chief Went to Washington To Appeal Harsh Loan Evaluation
Wells Fargo chief executive Carl E. Reichardt flew to Washington last month in a futile attempt to persuade regulators to reverse the findings of a tough loan examination, according to sources close to the San Francisco-based company.
While Wells' dispute with regulators was previously reported, the news of Mr. Reichardt's trip underscores how strenuously the executive objected to the examiners' findings.
Interviews with people close to the issue have also provided new details on which loans were the source of contention between Wells and its regulators.
On June 24 - the day before Wells Fargo & Co. announced it would boost its loan-loss provision by a whopping $350 million - Mr. Reichardt was closeted with senior officials of the Office of the Comptroller of the Currency. The meeting represented a last-ditch appeal of preliminary results of the Shared National Credit Regulatory Examination, an annual interagency audit of large credits syndicated among lenders.
Accompanied by Wells president Paul Hazen, Mr. Reichardt met with senior deputy comptroller Stephen Steinbrink and deputy comptroller Jimmy F. Barton, asking for more lenient treatment of a number of real estate and highly-leveraged-transaction loans.
"He lost every single one of his appeals," said one source. "So he called the board that night and went public the next morning."
Wells' announcement said the large provision and the $180 million in loan chargeoffs it expected to take in the second quarter reflected the company's "own ongoing examination process and the recent [shared credit examination]." Of the chargeoffs, $106 million were for HLT loans.
The announcement tarnished Wells' reputation for sidestepping the types of loan problems that have plagued other major banks.
Asked about the meeting, a spokeswoman for Wells, which has $55.7 billion in assets, said the company never comments on dealings with regulators. A spokeswoman from the Comptroller's office also declined to comment.
By far the largest credit at issue, sources said, was the $102 million loan Wells made in 1986 as lead lender in the leveraged buyout of Revco D.S. Inc., an Ohio-based drugstore chain.
Revco was reorganized under bankruptcy laws in 1988, but as a senior lender, Wells has continued to collect interest of about $900,000 a month.
Wells has put the Revco loan on nonaccrual status, sources said, meaning that interest payments are used to reduce principal. Wells' current exposure is estimated at $85 million to $90 million.
In the shared credit examination process, an interagency audit team votes on the classification of every syndicated loan of $20 million or more and then ensures that the classification is applied in the same way with each lender.
Wells had classified Revco as "doubtful," sources said, meaning that the bank had set aside reserves to cover a portion of its exposure. But examiners insisted that the loan be classified as a "loss," requiring a full write-down and 100% reserves.
Mr. Reichardt argued that it was incorrect to write off entirely a loan that was current on interest and was valued at more than 50 cents on the dollar in the secondary market, sources said.
Analysts said that, while they had no knowledge of the dispute, they were concerned about the apparent harshness of the examiners' Revco classification.
"It seems like a very extreme judgment by regulators. I would like to know the basis for it," said Donald K. Crowley, analyst with Keefe, Bruyette & Woods, Inc.
PHOTO : Carl E. Reichardt Could not move regulators