Wells Fargo (WFC) and its chairman Dick Kovacevich are the subject of a long-ish Fortune profile on how the bank avoided subprime risk by maintaining strong loan discipline and otherwise bucking industry trends.
But mainly, it’s another outlet for Kovacevich to vent about having been forced to take TARP cash last October.
… Kovacevich, at 65 a pugnacious and famously outspoken banker, is peeved, to put it mildly. He’s miffed at short-sellers who have hammered Wells Fargo as if it were one of those troubled-asset repositories. He bemoans the media for failing to recognise Wells Fargo’s achievements. Most of all, he’s seething with anger at Washington for all sorts of bad decisions, from making a show of big-bank stress tests (which he has publicly called “asinine”) to giving him exactly one hour to accept a $25 billion investment in October from the controversial Troubled Asset Relief Program, or TARP.
“I’m willing to say the emperor has no clothes,” Kovacevich says, his face reddening as he loudly denounces the government’s behaviour. “The facts are so obvious,” he booms. “It’s just not credible that you would give $25 billion to someone who didn’t need it.”
Two weeks later, on Oct. 13, Kovacevich was sitting at a long conference table with eight other bank chiefs in Washington, listening to Treasury Secretary Hank Paulson tell them why they should take the government’s money. Kovacevich says he protested, telling Paulson that compelling banks to accept TARP funds would lead to unintended consequences. It would erode confidence in the banking sector by making investors question the healthiest banks rather than instilling confidence in the neediest. Other industries undoubtedly would come to expect a bailout themselves. Still, Kovacevich took the money.
His displeasure leaked to the public, but what hasn’t been reported is exactly how Paulson flipped the seasoned banker so quickly. In what an observer in the room describes as a “true Godfather moment,” Paulson told all the assembled bankers, “Your regulator is sitting right there” – actually the industry’s two biggest overlords were in attendance: John Dugan, comptroller of the currency, and FDIC chairwoman Sheila Bair – “and you’re going to get a call tomorrow telling you you’re undercapitalized and that you won’t be able to raise money in the private markets.“
For Kovacevich this broadside was the horse’s head on his pillow.
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