Wells Fargo: the least bad big bank

Wells Fargo is looking like the best horse in the big-bank glue factory, judging by one measure of its apparent exposure to souring mortgages.

That is one message out of Wells' (WFC) investor presentation, issued Wednesday morning following the San Francisco bank's announcement of a $3.3 billion third-quarter profit.

Less is more, and vice versa

It is not exactly shocking that Wells sees itself as superior, but the bank did present an interesting graphic at page 28. That graph (see right) helps to explain why news of foreclosure improprieties at the big banks have hit Bank of America (BAC), the biggest U.S. mortgage lender, especially hard.

The chart shows about 1 mortgage in 12 on Wells' books is either late or in foreclosure. That is a depressingly high ratio, but things being what they are it compares favorably with 1 in 11 at Citi (C), 1 in 9 at JPMorgan Chase (JPM) and 1 in 7 at Bank of America.

The number is worth watching because it is becoming clear the banks have a big fight on their hands as more loans go bad and other parties, ranging from bondholders to mortgage insurers, try to shield themselves from the resulting losses. Pimco and the Federal Reserve Bank of New York are pressing BofA on what they call its failure to inform investors of problems with mortgages it services.

BofA has pledged to fight. For now, the other banks are content to claim they are appropriately managing their exposure.

That's not to say Wells is out of the woods on this issue, by any stretch. Some skeptics note that the bank's mortgage repurchase reserve – the amount it has set aside to buy back loans that go bad and turn out to have been poorly underwritten – amounts to less than 1% of the $144 billion or so of private securitizations including loans that Wells originated.

By the bank's own admission, by originating the loans Wells "therefore has some repurchase risk." But it points out that actual mortgage repurchases in the third quarter amounted to just $69 million. So far, so good on that message, with the stock up 2% Wednesday.

(With apologies to Richard Fisher.)