The events of the last 18 months came so fast and furious, it’s often difficult to remember what in any other time would be singular historic moments, let alone the chronology of the financial meltdown. So Don Luskin does a great service reminding us about just one of many dramas from 2008 — the Wells Fargo acquisition of Wachovia. This week Wells reported a $3 billion profit for the first quarter, shocking the Nationalizers and Depresionistas. How did this happen? Weren’t all the banks supposed to be insolvent? Au contraire:
Last September, Wachovia was the last domino to fall in the horrific sequence of financial firm failures — Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, Washington Mutual, and finally Wachovia. The Federal Deposit Insurance Corporation forced its acquisition by Citigroup. The deal was that Citi would pay a measly $1 per share of Wachovia, and the FDIC would invest $12 billion and insure Citi against any losses above certain threshold.
Then Wells came on the scene. It offered to buy Wachovia for $7 a share and told the FDIC that it didn’t need any investment or any guarantees. Believe it or not, Citi had the gall to sue to block Wells’ offer even though in every dimension it was superior for Wachovia stakeholders and for the American taxpayer.
You have to wonder what the FDIC was thinking in the first place. Citi had to take two huge capital injections from the U.S. Treasury under the TARP program in order to survive, and it had to have the Federal Reserve guarantee $300 billion of its toxic assets. So what was the point in having a bank that screwed up take over Wachovia?
Inquiring minds want to know. Maybe Wachovia wasn’t in trouble at all in September. Maybe it was always the diamond in the rough that it now so clearly is in Wells’ hands, and the whole idea was really to prop up Citi with Wachovia, not prop up Wachovia with Citi.
But now, even though Wells was conservative and well-managed during the boom, and could help lead the way out of the crash, it is nonetheless forced to comply with all the silly restrictions imposed by Treasury’s TARP.
no good deed goes unpunished. Back in October when Treasury Secretary Henry Paulson first implemented the new TARP program, he forced every major bank — including Wells — to take TARP money whether they wanted it or not. Wells Chairman Richard Kovacevich told Paulson no, but the Treasury Secretary said it was Wells’ patriotic duty to take the taxpayers’ money like all the rest. So Wells played the good soldier and took the money.
And now it’s sorry it did. Now, because it took government money it didn’t even want, its executives have been made subject to new compensation restrictions enacted by Congress and enforced retroactively. The idea was to make sure that the risk-happy fools who created the financial crisis in the first place now don’t benefit at taxpayer expense — but surely Wells shouldn’t be punished: it was one of the good guys.
Wells’ Kovacevich isn’t shy about complaining. In a speech last month, he said “Is this America — when you do what your government asks you to do and then retroactively you also have additional conditions? If we were not forced to take the TARP money, we would have been able to raise private capital at that time.”
Kovacevich isn’t fond of the Treasury’s latest rescue schemes either, especially the “stress tests” to be applied to the 19 largest banks including Wells. He said, “We do stress tests all the time on all of our portfolios. We share those stress tests with our regulators. It is absolutely asinine…”
This crash is going to look much different upon reflection, isn’t it?
