FAS 157 Mark-to-Market Accounting

FAIR VALUE AND ITS IMPACTS ON WELLS FARGO BANK MGP270-Corporate Financial Reporting “ Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” – Albert Einstein

AGENDA ,[object Object],[object Object],[object Object],[object Object],[object Object]

FAS 156 (Servicing of Financial Assets) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

FAS 157 (FAIR VALUE MEASUREMENT) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

FAS 157 ASSET CATEGORIZATION ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

FAS 157 VALUATION GUIDELINES ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

FAS 156 and159 (FAIR VALUE OPTION) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

JOURNAL ENTRIES (FAIR VALUED ASSETS) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

PROS AND CONS OF FV ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

EARNINGS MANAGEMENT 101 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

WELLS FARGO: FAIR VALUATION ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

FAIR VALUATION LEVELS ,[object Object],[object Object],[object Object],[object Object]

VALUATION GAINS AND NET INCOME Trading Assets Securities Available for Sale Mortgages held for Sale Mortgage Servicing Rights Derivative Assets and Liabilities Other Liabilities Net Income 2008 Q1 (40) (4) (5) (1794) (27) (66) 1999 2007 Q4 (86) (31) 1 (594) 6 (98) 1361 2007 Q3 (37) - (1) (603) (17) (20) 2283 2007 Q2 76 - - 1810 (76) (28) 2279 2007 Q1 (25) - - (10) (43) (6) 2244

VALUING WELLS FARGO’S MSRS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

THE EFFECT OF VALUATION MODEL Change in Valuation Model & Assumptions Change due Collection/Realization in Cash Flows 2008 Q1 ($1798) ($766) 2007 Q4 ($1935) ($711) 2007 Q3 ($638) ($719) 2007 Q2 $2013 ($808) 2007 Q1 ($11) ($788) 2006 Q4 $36 ($783) 2006 Q3 ($1147) ($663) 2006 Q2 $550 ($521) 2006 Q2 $552 ($477)

IS OTHER COMPREHENSIVE INCOME ALSO A WRITEDOWN? Total Available for Sale Mortgage Backed Securities Unrealized Gains Unrealized Losses Realized Gains Realized Losses 2008 Q1 79,126 60,848 1,630 (2,228) 378 (88) 2007 Q4 72,271 54,118 - (129) 472 (127) 2007 Q3 56,859 41,533 857 (276) 211 (23) 2007 Q2 60,857 72,179 568 (477) 21 (47) Actual OCI Citigroup 40.9 2 Merrill 31.7 5.3 HSBC 18.3 1.3 Actual OCI WAMU 8.3 0.8 ING 0.4 5.6

LEVEL 3 ASSETS TO EQUITY Level 3 Equity Ratio Morgan Stanley $88b $25b 2.51 Goldman Sachs $72b $39b 1.85 Lehman Brothers $35b $22b 1.59 Bear Sterns $20b $13b 1.54 Citigroup $135b $128b 1.05 Wells Fargo $23b $48b 0.47 Merrill Lynch $16b $42b 0.38

OTHER ASSETS THAT CAN BE LEVEL 3 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

SUMMARY ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

FAS 157 Mark-to-Market Accounting

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FAS 157 Mark-to-Market Accounting