Is Wells Fargo regretting its Wachovia acquisition?
Putting aside the all-but-irredeemable basket-cases BofA and Citigroup, there’s only one major bank which has yet to repay its TARP money: Wells Fargo. How come? I Wells has a reputation as being the best and most solid bank in America, a favorite of Warren Buffett, and a bank which managed to sidestep most of the worst excesses of the credit boom.
The answer, I think, is that Wells was ultimately undone by exactly the same thing which doomed BofA: a panicked and unwise acquisition. In this case, of Wachovia. Because the demise of Wachovia was structured with a different acquirer (Citigroup) already in place, Wells had to essentially outbid Citi for Wachovia, and is now suffering from the winner’s curse.
The other problem with the Wachovia acquisition is that Wells Fargo is now far too big — it has an astonishing $711 billion in US deposits, 11% of the total US deposit base — and as a result it will be under intense regulatory scrutiny for the foreseeable future.
Only one of America’s four megabanks seems particularly healthy: JP Morgan. Wells Fargo, which should by rights be the big boring safe one, is instead struggling with all the extra leverage it brought upon itself with the Wachovia acquisition; its sheer enormity also leaves it vulnerable to calls from people like myself who think that all banks of its size should be broken up into less systemically-dangerous chunks. One can’t help but think that with hindsight, Wells might rather have simply left Wachovia to Vikram Pandit’s tender mercies.