Wells Fargo CEO sees 'rays of hope,' but not ready to predict when bank will repay taxpayers
By: MICHAEL LIEDTKE
Associated Press
06/20/09 8:30 PM EDT
SAN FRANCISCO — Wells Fargo & Co.'s chief executive says he thinks the 16-month-old recession may finally be nearing an end, but he still isn't feeling optimistic enough to predict when the bank will be able to repay the $25 billion it owes U.S. taxpayers.
"There are rays of hope," CEO John Stumpf said Tuesday at Wells Fargo's annual shareholders meeting. "We are starting to see a few signs that either the rate of decline is lessening or maybe even getting to the bottom in certain markets."
But he emphasized the economy remains too shaky for the San Francisco-based bank to forecast when it will return the $25 billion infusion it got last fall. The money was part of the federal government's effort to help the banking industry recover from a home-lending spree that triggered the worst financial crisis since the Great Depression of the 1930s.
Wells Fargo so far has paid the government a $372 million dividend on its investment.
With assets of about $1.3 trillion, Wells Fargo is widely regarded to be among the healthiest of the major U.S. banks — thanks mostly to its refusal to make the risky mortgages that destroyed several big lenders and endangered others.
The bank raised hopes that it's getting stronger with its first-quarter profit of $3 billion, a 52 percent increase from the same time last year.
But there are still worries Wells Fargo could stumble badly, primarily because it bought troubled Wachovia Corp. for $12.7 billion four months ago. The Wachovia deal brought along a huge portfolio of mortgages that aren't likely to be repaid, prompting Wells Fargo to absorb a $37.2 billion writedown in the fourth quarter.
Some analysts believe the trouble still lurking in Wachovia's portfolio, coupled with rising losses in other lending areas, could still require Wells Fargo to raise billions of dollars more to cushion the blow. Stumpf didn't rule out that possibility Tuesday as he fielded shareholder questions.
Including the government's investment, Wells Fargo has already raised nearly $40 billion in capital since last fall and expects to be able to hold on to another $5 billion annually from its recent decision to cut its stockholder dividend by 85 percent.
More specific information about the health of Wells Fargo and other big banks may emerge next week when industry regulators are scheduled to release the results of a review of the lenders' ability to withstand more economic turbulence. Wells Fargo and others already have received the preliminary findings. Stumpf declined to answer a question about the "stress tests" Tuesday.
Stumpf told shareholders he is more confident than ever that the Wachovia acquisition will turn out to be one of the best moves in Wells Fargo's 157-year history. He said the bank already has pored through Wachovia's loan portfolio five different times and the projected losses remain about what management envisioned from the deal's outset.
Wells Fargo shareholder Matthew Rafat said he isn't as confident about Wachovia, likening its home loan portfolio to a mysterious "black box" in an interview after the meeting. "Wells Fargo was managed more conservatively than any other big bank, but Wachovia worries me," he said.
In a telling sign of his concern, Rafat recently sold most of the 9,000 shares he held in Wells Fargo. Boosted by its strong first-quarter performance, Wells Fargo has rallied from a 52-week low of $7.80 in early March. The shares fell 82 cents, or 4 percent, to close Tuesday at $19.48.
Although the stock has fallen 35 percent since Wells Fargo's last annual meeting and the dividend has been slashed, the shareholders at Tuesday's meeting in San Francisco were largely in a sanguine mood. They often laughed at the jokes of Stumpf and Chairman Richard Kovacevich, sometimes even when they were trying to avoid directly asking questions.
