The Pretenders - Wells Fargo Sugarcoats Balance Sheet

"Wells Fargo are pretenders," said a trader at one top hedge fund, who spoke on condition of anonymity because he is afraid of trouble from the Securities and Exchange Commission, in light of the regulatory body's recent threat to prosecute short sellers.

The trader said trimming the loan-loss reserves had the effect of boosting profits, which in turn boosted its share price, which in turn made it easier for the bank to successfully move forward with a move it announced this week to raise $20 billion of capital.

Meredith Whitney, a banking analyst with Oppenheimer, maintained a sell rating on Wells Fargo, even after the surprise third-quarter profit, in large part because she feels it is not adequately prepared for losses on its residential-mortgage portfolio.

The Field Check Group, which measures real-time residential defaults in California - where Wells Fargo has over 30 percent of its $74 billion first-lien mortgage portfolio - reports the default rate on loans originated by Wells Fargo's in 2008 is running 237 percent above last year.

That is just under the increases seen by Indymac Bank (239 percent) and over Countrywide (226 percent)...