Sweating Bullets at Wells Fargo

... there are still two big questions. First, has Wells judged Wachovia’s balance sheet right, particularly its $120 billion of option A.R.M. mortgages? Wells has categorized only half of them as impaired, a much smaller proportion than some rivals. But it did write the problem home loans down more aggressively.

Second, what capital levels will the government’s stress test examine? If it allowed the bank’s tangible common equity to dip below 3 percent, that would give Wells a bigger buffer. But a harsher test could mean capital ratios fall short at Wells. Until the terms of engagement are set, the bank’s pugnacious chairman might want to tone down his fighting words.