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Wells Fargo veteran could help Wachovia
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Published: October 26, 2008
When Treasury Secretary Henry Paulson made nine of the nation's top banking executives an offer they couldn't refuse last week, telling them that the federal government wanted to buy stakes in their companies, the chairman of Wells Fargo & Co., Richard Kovacevich, pounded his fist on the table in frustration, according to people familiar with the situation.
Wells Fargo didn't need or want government help, he insisted. Kovacevich relented, but he hasn't been shy about expressing misgivings about the rescue plan.
"I admire what they are trying to do," he said in an interview, declining to discuss the specifics of the meeting. "That is not saying I agree with everything being done."
In the twilight of his career as one of the U.S. banking industry's top executives for more than a generation, Kovacevich has re-emerged in the past few weeks as a galvanizing and controversial force.
Always blunt, sometimes prickly and widely respected during his 81/2-year run as the chief executive of Wells Fargo, Kovacevich turned the government's push to sell ailing Wachovia Corp. into high drama, first by backing out of takeover talks and then blowing up Wachovia's agreement to be bought by Citigroup Inc.
Now that Wells Fargo has bagged Wachovia in a deal valued at $14.5 billion and is scheduled to close by year's end, Kovacevich is making plans to stick around. Even though he reaches the company's mandatory retirement age of 65 this week, he has been asked "to play some role going forward, which will be determined when everyone has time," Kovacevich said. Directors might have to change the bank's bylaws to keep him.
Kovacevich acknowledges that he is the sort of former CEO who can't let go. That could come in handy as Wells Fargo wrestles with the bad loans, dispirited employees and sprawl it will get as part of the Wachovia deal. John Stumpf, who took over as CEO in June 2007 and shows no hint of annoyance about being overshadowed by his old boss, has said that Kovacevich will have a key role in combining the operations of Wachovia and Wells Fargo.
Wachovia's third-quarter earnings report Wednesday could shed light on how hard that job will be. The downward spiral since Wachovia acquired mortgage lender Golden West Financial Corp. in 2006 pushed the bank close to failure at least twice in the past month. BB&T Corp. of Winston-Salem said last week it gained $1.2 billion in deposits from Wachovia during the third quarter.
Wells Fargo is known as a highly skilled acquirer, though it typically buys institutions that are much smaller than Wachovia. Kovacevich gets much of the credit for that reputation, purchasing 77 banks while in charge at Norwest Corp., a Minneapolis bank that merged with Wells Fargo in 1998. At the time, the $35 billion deal was the third-largest in U.S. banking history. Kovacevich became the CEO of the combined company.
Under Kovacevich, Wells Fargo became a selling machine that routinely talks customers into additional products and services. As of Sept. 30, retail customers had an average of 5.7 products, an enviable performance among banks that hype themselves as financial supermarkets but usually fall way short. Wells Fargo's track record will be tested at Wachovia.
Paul Hazen, the CEO of Wells Fargo from 1995 to 1998 and chairman until 2001, said he thinks that Kovacevich is using the Wachovia deal "to extend his time."
Kovacevich grew up in a lumber town called Enumclaw, Wash., where his father worked in a sawmill. He never wanted to be a banker, initially dismissing it as boring. Recruited as a pitcher by the New York Yankees, his prospects disappeared when the 6-foot-3 Kovacevich tore his rotator cuff.
After getting degrees from Stanford University, Kovacevich went to work for cereal-maker General Mills Corp. General Mills director Walter Wriston, then the chief executive of Citicorp, lured Kovacevich to New York, where he was eventually put in charge of the bank's local-branch network.
During 11 years at Citicorp, Kovacevich pushed the cross-selling of mortgages and credit cards that made him famous in the banking industry. He also displayed his trademark bluntness. When Citicorp CEO John Reed chose someone else as head of consumer banking, Kovacevich said he disagreed, then quit to take a job at Norwest, which was struggling at the time.
"I tend to talk in English, and I am very clear and said I didn't think it would work," Kovacevich recalls. Reed now says that passing over Mr. Kovacevich "probably was a big mistake."
The Norwest-Wells Fargo deal put Kovacevich atop one of the best-known brand names in banking. Wells Fargo was founded in 1852, but analysts worried that a three-year integration schedule laid out as part of the deal was too long and wouldn't successfully blend the cultures of the two banks. Kovacevich later reminded Wall Street analysts how wrong they turned out to be.
Kovacevich also crowed about steering clear of especially risky mortgages that came back to haunt other lenders. In a shareholder letter with Stumpf earlier this year, the two executives wrote that "swift retribution is one of the strengths of capitalism."
In a separate letter, Kovacevich looked ahead to his retirement, which Wells Fargo initially said would start by the end of 2008.
"I just wish I was 10 years younger," he wrote. "Please let me know when I can help you."
Nancy Bush, an analyst at NAB Research LLC in Annandale, N.J., who clashed with Kovacevich over the Norwest deal, predicts that he could make a big difference at Wachovia.
"There is no question in my mind (that) Dick is needed there," she said.
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