Wells Fargo’s Purchase of Wachovia Tested by Economic Crisis

Wells Fargo & Co.’s $12.7 billion acquisition of Wachovia Corp. faces immediate stress as economists predict home foreclosures will keep rising and some forecast unemployment in 2009 to reach a 26-year high.

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Since the acquisition was announced in October, an already bleak economic picture has gotten worse as carmakers neared bankruptcy, companies slashed jobs and home prices continued to drop. Economists on average expect U.S. unemployment to reach 8 percent by the third quarter, up from their September estimate of 6.2 percent, according to Bloomberg surveys. RealtyTrac’s Rick Sharga says more than 3 million homes may be in foreclosure this year, up from 2.8 million in 2008.

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Wells Fargo Chief Executive Officer John Stumpf said as recently as Dec. 10 that Wachovia’s $482.4 billion loan portfolio will produce $60 billion in losses over the next three years, with about 60 percent coming from option adjustable-rate mortgages. Wells Fargo, based in San Francisco, is the second- biggest U.S. mortgage lender, behind Bank of America Corp.