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This Wachovia deal's going to need help to fly
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Wells Fargo Chairman Dick Kovacevich, one of banking's best strategists, is going to need some help from the economy and capital markets to succeed in his $12 billion acquisition of wounded Wachovia Corp. But in an interview Friday, he said he believes the housing and financial markets are ripe for a rebound
"It's just so important to reach the bottom and I think we're getting close," Kovacevich said. "I'm more concerned about the economy than the markets per se, and a deeper recession and higher unemployment. We're in a recession. We've just got to get to the bottom of the markets quickly and then get the 'real' economy going. Once we hit bottom, you will see money coming into all markets."
San Francisco-based Wells Fargo swooped in to grab Wachovia from Citigroup last week. After a flurry of lawsuits, Citigroup walked away from the bidding Thursday, although it promised to continue the legal battle. Kovacevich, confident but not boastful, made his move amid the biggest credit crisis and most volatile stock markets since the Great Depression.
Whatever he has to pay in legal damages to Citigroup will be minuscule if this deal works.
On Friday, federal antitrust regulators quickly approved the Wells Fargo deal, which is now valued at $12.2 billion in stock. Wachovia finished trading Friday up 43 percent, to $5.15 per share; Wells Fargo finished up 4 percent, at $28.31.
When the merger is completed by year-end, Wells Fargo will become a coast-to-coast financial services provider.
Citigroup had expressed concerns about Wachovia's mortgage-related securities portfolio and its accounting. Kovacevich declined Friday to specifically address the pending acquisition or the risks surrounding his biggest deal. Earlier in the week, he dismissed speculation that Wells Fargo was biting off more than it could chew.
"Given our broad-based operating expertise and specific understanding of these individual businesses, we believe we have adequately evaluated the risks inherent in the portfolios as of the time of this merger agreement," he said in a prepared statement.
Kovacevich, a vigorous 66-year-old, became one of banking's most celebrated bosses a decade ago, when his Minneapolis-based Norwest Corp. acquired the larger Wells Fargo, took its name and executed a near-flawless integration in an industry known for disastrous mergers.
No mass layoffs seen yet
The consolidated financial services giant grew faster and more profitably than its peers and expanded employment. Wells has indicated that it will not need mass layoffs in the Wachovia deal.
Wells Fargo's biggest investor is Warren Buffett's Berkshire Hathaway.
The two men talk occasionally, although Kovacevich has said that he didn't talk with Buffett before the Wacovia deal. Buffett also has been a buyer lately, making billion-dollar bets on General Electric and Goldman Sachs.
Kovacevich said Friday that he's confident that the U.S. government, in concert with other nations, will do whatever it takes to buttress the country's financial system and avoid a severe recession. He'll need that to grow Wachovia's strong banking and investment management businesses as he deals with its questionable assets. Separately Friday, Moody's Investors Service placed its ratings on Wells Fargo under review for a possible downgrade because of the Wachovia merger. The firm also raised Wachovia's preferred stock rating by six notches, to A3 -- which designates satisfactory credit quality -- in response to Wells Fargo's intent to assume all debt obligations of Wachovia.
"Things seem dire, really dire at the moment," Kovacevich conceded Friday. "That doesn't mean it will continue to be bad for a long time. The quicker you get to the bottom, the better. Let's get there. ... [Then] money will come out of mattresses and government bonds and people will invest in things."
Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com
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