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Why wells fargos loan losses are plunging

´╗┐Wells Fargo & Co's (WFC. N) loan book is performing better than many of its peers and better than even the bank expected in the middle of the last year, thanks to factors including higher house prices and tougher loan standards. In the third quarter, Wells posted its lowest quarterly loan loss rate in at least nine years. The lower losses allowed the bank to dip into funds it set aside to cover bad loans, boosting profits by about $600 million after taxes. Part of the improvement stems from a 2009 move to tighten underwriting standards for consumer loans, like more stringent requirements for verifying prospective homeowners' income. Residential real estate loans made since then "have virtually no losses," Chief Financial Officer Tim Sloan said at an investor conference in September. Another factor helping loan performance: post-crisis loans make up a larger share of Wells Fargo's portfolio overall now, driving quality higher. Nearly half the commercial loans and around 45 percent of consumer loans on the books at the end of the third quarter were made after the financial crisis. Meanwhile, home prices increased 12.4 percent nationwide in August from a year earlier, according to CoreLogic. That had a big impact on the quality of Wells Fargo's home equity loans, where losses, also called charge-offs, fell by nearly 3/4 since the third quarter of 2012. Many of these loans are hovering just below or just above the value of the home, so as home prices go up, the losses on the loans can change dramatically, a spokeswoman said. Over half of the decline in loan losses between the third quarters of 2013 and 2012 came out of Wells Fargo's home equity portfolio.

"When you put all that together," Sloan told Reuters in a recent interview, "it makes for a rapid improvement in credit quality."To be sure, Wells Fargo is not the only U.S. bank to benefit from more of its customers paying their bills. Bank of America's total loss rate declined to 0.73 percent in the third quarter, a level not seen at the bank since 2005, Chief Executive Brian Moynihan told analysts. Bank of America reduced its allowance for bad loans by $1.4 billion in the third quarter."I don't think anybody expected charge-offs a few years ago to be as low as they are now," investor Warren Buffett said in a October 16 CNBC interview, in which he highlighted the low loss rates at both Wells Fargo and Bank of America. Buffett is a major shareholder in both banks."HUGE NUMBER" OF RESERVES

Wells' overall loss rates were even better than Bank of America's at just 0.48 percent of the loan book, a steep drop from a year earlier. The numbers may be better because of its mix of business - commercial loans often perform better than credit card loans, for example. But credit performance has outperformed even the bank's expectations. Wells Fargo chief risk officer Mike Loughlin said in May 2012 he expected loss rates to be about 1.00 percent through the credit cycle. These improvements in overall credit have allowed the bank to set aside less money to cover future losses. It stashed away just $75 million to cover bad loans in the third quarter, down 95 percent from the $1.6 billion set aside a year earlier. As losses continue to decline, Wells Fargo can also dip into funds set aside previously to cover bad loans, known as "releasing reserves." The bank released $900 million of loss reserves in Q3, before taxes, or about $600 million after taxes.

But the extent to which some banks are leaning on reserve releases to boost profits has caught regulators' attention. In September, Comptroller of the Currency Thomas Curry said some banks had become hooked on re-purposing reserves in the form of earnings. Citing some signs of rising credit risk across the banking system, Curry said it seemed like a "singularly bad time for banks to be scrimping on their allowances against their loan losses."Analysts said the current rate of Wells Fargo's reserve releases might not be sustainable. Jennifer Thompson, research director at Portales Partners, said the money that Wells Fargo set aside for future losses every quarter was coming down faster than its current losses, a process that would bottom out eventually and require the bank to build reserves back up. Sloan said the bank was mindful of regulators' views, but at the same time was bound by accounting principles that dictate reserve releases. "When your loan portfolio improves as much as ours did, it's appropriate to release reserves," he said. Even with the release, the money the bank has set aside over time covers four times the losses the bank could expect to have in a year at current rates, up from 3.6 times in the second quarter."That's a huge number," Chief Executive John Stumpf told Reuters in a recent interview.; var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $(' ul'); var $relatedContentGroupTwo = $(' ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Business News/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Business News U.S. December auto sales on pace for record high, led by GM DETROIT U.S. sales of new cars and trucks hit a record high in 2016, automakers said on Wednesday, and investors bid up shares in the sector as strong consumer confidence and relatively low fuel prices bolstered the industry's outlook. Exclusive: Amazon, Forever 21 vying for bankrupt American Apparel - sources Online retailer Inc and teen apparel store chain Forever 21 Inc are among the companies weighing offers to acquire bankrupt American Apparel LLC, people familiar with the talks said on Wednesday. Trump's SEC pick Clayton points to capital formation, not enforcement WASHINGTON With his selection of deal-making attorney Walter "Jay" Clayton to head the U.S. Securities and Exchange Commission, President-elect Donald Trump is signaling that the agency will try to reduce regulations that critics see as burdensome or hindering corporate growth. MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push

Your money when bipolar disorder leads to extreme shopping

´╗┐(The writer is a Reuters contributor. The opinions expressed are his own.)By Chris TaylorNEW YORK, June 19 For some people, overspending might mean ordering the lobster or splurging on an extra pair of shoes at Macy's. For Julie Fast it's different. The Portland, Oregon, author woke up one day and decided to go on a trip to China. She obtained a visa, hopped on a flight, enrolled in language school and was conversing in Mandarin within weeks. Along the way, she blew through around $10,000. Shortly after that, and partly as a result of the impromptu and costly spree, she was diagnosed with bipolar disorder. Wild overspending often goes along with the manic highs that, when interspersed with depressing lows, characterize the disorder, which afflicts roughly 5.7 million Americans."When you have manias, that voice of caution is literally taken away. It is gone," says Fast, 49, who co-wrote the book "Take Charge of Bipolar Disorder" and helped advise actress Claire Danes for her role as a federal agent afflicted with bipolar disorder on the popular TV series "Homeland."One sufferer she knows impulsively spent $40,000 on a piece of art. Another bought an entire mini-mall - the whole building and the shops within it."I have known people who have used up their whole 401(k)s, who have gambled it all away, who have taken their kids' college money," she said. At the time, "it feels so good that you don't even worry or feel guilty."WHEN SPENDING IS A SYMPTOM Overspending is one of the primary tip-offs that someone is in a manic state, experts say.

"Typically when folks become manic, they get overconfident and lose the ability to evaluate the consequences of their actions," says Dr Jair Soares, chairman of the psychiatry department at the University of Texas Health Science Center at Houston. "In that mind-state, when it comes to spending, they are bound to get into trouble."Then, of course, there is the crash. In a depressed state, those with bipolar are actually unlikely to spend much money at all, since they are often cocooned at home. But at that point they have to deal with the consequences of their previous overspending."If they bought a $10,000 watch, they might try to return it," says Dr Igor Galynker, director of the Family Center for Bipolar at New York City's Beth Israel Medical Center. "Or they might try to hide the purchases, or get that money back by gambling on other investments."And those morning-after bills and bad feelings don't just flow to the bipolar spender; their families feel the pain too.

BEST DEFENSE A GOOD OFFENSE Once a mania is in full effect, it is very difficult to rein in. That is why the most powerful way to limit overspending is to recognize the signs of an approaching mania and take action early. If your bipolar partner starts talking about splurging on extravagant trips or cashing out a 401(k) to fund a new business, it is likely time to apply the brakes. Check to make sure they have been taking their medication, get them to a doctor if possible, and involve any existing support network to help your partner stick to the plan."That might involve confiscating their credit cards, taking their car keys for a while, keeping them at home so they don't get into trouble," said Soares. "Otherwise they might take out a lot of debt that they won't be able to pay back later."

SET SPENDING CAPS Keep relatively low borrowing limits on your credit cards, and consider not having the name of the bipolar disorder sufferer on all of the family spending accounts. Julie Fast prefers to pay cash for everything. In extreme cases, when one partner in a marriage is likely to spend all the family savings in short order, consider setting up preventative measures with your banker."You can go in and say, 'If you see more than $500 going out of my account, please contact my partner," advises Fast. "Those kind of checks and balances can stop you from spending like crazy."SEEK SPECIALIZED HELP You can also seek out the right support team to help navigate these issues. In addition to your own mental-health professional, you could seek additional counseling from a therapist who specializes in money matters. When it comes to financial planning, look for an adviser who understands the condition and is comfortable talking about it. That is not always easy to do, says Celia Brugge, a principal with Dogwood Financial Planning in Memphis, Tennessee, who recently advised a couple in their 30s in which the husband was bipolar. By doing a little digging, Brugge discovered both partners grew up in families where money was never discussed. When Brugge opened the lines of communication, the husband found the ability to talk to his partner when he felt the urge to splurge, and was able to get his manic spending under control.