As other major UK banks grapple with major losses from their venture capital investment activities, Wells Fargo & Co has joined JP Morgan Chase as one of those ready to disclose the impact these valuation changes have had on their balance sheets.
The bank has said it expects to recognise charges of around $1.13bn after tax, $1.05bn of which will result from impairment write-downs of publicly traded and private equity securities, primarily in its venture capital portfolio.
The company expects to recognise “other than temporary impairment” in the valuation of securities, which it says is largely as a result of sustained declines in the technology and telecommunications industries. According to chief financial officer Ross Kari, the bulk of these charges are reductions of the non-cash venture capital gains recognised in late 1999 and 2000.
“Those gains resulted from the acquisition of several companies held in our portfolio of venture capital investments, by publicly traded companies,” he explains. Examples of such investments include Cerent Corp, which was acquired by Cisco Systems at the end of 1999, and Siara Systems acquired by Redback Networks at the beginning of 2000.
Wells Fargo, the fourth largest US bank with $280 billion in assets, has been in the venture capital business for over 35 years. It concedes that venture capital investing is a volatile business yet remains upbeat about the future expecting returns to be above its “minimum hurdle rate” of 20% in the years ahead.