SEC Questions Wells Fargo Regarding Loan Accounting Practices

The Securities and Exchange Commission (SEC) questioned Wells Fargo & Co. over its accounting practices for $20 billion worth of troubled loans. The SEC asked Richard Levy, the bank’s controller to explain how Wells Fargo valued its portfolio, which it acquired by buying Wachovia. The valuation assumptions affect Wells Fargo’s earnings in that, when banks acquire distressed assets, they must value them in a way that involves some guesswork about whether the loans will be repaid. Questions have been raised as to whether Wells Fargo’s earnings are supported by underlying business growth or accounting maneuvers. In September, regulators ordered Wells Fargo to pay $190 million in fines and restitution to settle charges that its employees created as many as two million deposit and credit card accounts without the consent of customers. It then failed to convince regulators that it was the only major U.S. bank that could go bankrupt without causing a major market disruption.

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