This was a very significant nonrecurring item, which had a great impact on Wells Fargo's financial ratios. According to their annual report, the purpose of this special charge was to write down the value of their venture capital portfolio. This one time write-down had a huge impact on Wells" financial performance. Without the special charge their earnings per share would have increased 14% over 2000 rather than the 15% decrease they experienced because of it.
A write-down such as the one experienced in 2001 may happen again sometime in the future, although one is not immediately foreseeable. According to the 2001 Annual Report, Wells Fargo continues to be committed to their venture capital business despite the recent losses in the stock market, which hurt earnings significantly last year. While always a risky investment, Wells Fargo's venture capital division has averaged 20 percent returns over the past 40 years.
The timing of revenue recognitions differ with the sector of Wells Fargo's business the revenue comes from. All methods are in accordance with generally accepted accounting principles. .
Because Wells Fargo is in the business of lending money, there is always a measure of uncertainty in the collection of customer receivables. Loans are considered impaired when, based on current information and events, it is probable that Wells Fargo will be unable to collect the amount due. The company made a $3.7 billion provision for loan losses in 2001 (roughly the same as last year). This is an amount that management, as well as most analysts, feels is an adequate amount. While there are always business risks associated with these estimates, Wells Fargo takes many factors into account, such as economic conditions, loan portfolio composition, prior loan loss experience, and evaluation of credit risk, when making these estimates (Wells Fargo Annual Report 2001). In addition, Wells Fargo began acquiring residual loss insurance, which protects their auto loan portfolio.