Dick Kovacevich on Banks and This Financial Crisis

The Jan 2009 issue of The Commonwealth has a fascinating speech by Dick Kovacevich, Chairman of Wells Fargo (WFC). Most interesting is how quickly the banking sector grew.

Wells Fargo started as a business in 1852, and Norwest, where I worked before merging with Wells Fargo, started in 1873. By 1950, our combined assets were less than $3 billion...By 1985, both companies together were still only about $50 billion. Today, they are $610 billion. When our merger with Wachovia (WB) is completed, we will be nearly $1.5 trillion. So what happened...that caused this unprecedented growth? ... deregulation, new technologies, non-bank competition, and industry consolidation.

The banking sector is a rarity--despite multiple mergers, competition continues to be fierce. The internet banks, especially ING Direct, keep threatening the big players. Consumers owe (in the abstract) more to ING and other internet bankers than we realize.

The 1980s was a very difficult time for our economy. We had 16 percent inflation, 20 percent interest rates, double-digit unemployment and a severe recession.

Mr. Kovacevich differentiates between an economic crisis and a financial crisis. He says the 1980s was worse than today's crisis, because it was a full-blown economic crisis. Today, however, we have more of a financial crisis than an economic crisis:

We're probably in a recession; we'll be in one until early next year, but we've still got 6.1 percent unemployment, not 14 percent. We have 2 or 3 percent inflation, not 20 percent. We have interest rates at record lows, not at 20 percent...[So] It is a more serious financial crisis...We [the financial sector] really caused this crisis.

His willingness to accept blame should earn points. It's nice to see a Chairman of a major banking company speaking so frankly. He ends with a positive note:

I wouldn't want to bet against all the regulators and all the governments of the world -- this is a coordinated effort. If you want to bet against them, go right ahead, but I wouldn't. They'll get this thing fixed.

Very reassuring words from Wells Fargo's chairman.

Bonus: In the same issue of The Commonwealth, Meg Whitman, former CEO of eBay (EBAY), talks about California's budget:

Revenues have got to be greater than costs. This is one of the real laws of business. Otherwise, we go bankrupt. We need to change the structural way our budget is being done.

Although I live in California and consider myself a fairly comprehensive reader, I have no idea what's really going on with my state's budget. Last I heard, the Democrats were trying to call taxes "costs" to push through a budget over Republican objections. Come state election time, I may just vote against all the incumbents.

Disclosure: I own shares of Wells Fargo. Warren Buffett's Berkshire Hathaway (BRK.A) also holds WFC shares.

Comments

[skwestorange:]

Yes, I agree it is refreshing to hear a bank exec own up to his industry's culpability in sending the world down this big rat hole. Hope they all learn their lessons and get this fixed soon to avoid the calamity from getting worse for the lay people.
SK

2008 Dec 30 07:38 AM

[Ishortyou:]

the basics are simple supply and demand in the housing market needs to equilibrate before the rest of the economy gets better, there is not good or bad just a balance in it.

2008 Dec 30 08:07 AM

[I should know:]

If all banks, especially those who call themselves “banks” but are really stock and investment houses, legalized casinos that allow us to take a risk in hope of financial rewards such as Bear Stearns, Lehman Brothers, Goldman Sachs, Morgan Stanley, Merril Lynch, would have acted in the same conservative manner as Wells Fargo & Co in NOT hawking, buying and selling derivatives and other highly risky investments, and did NOT do Option ARMS, and did a limited amount of subprime loans with good underwriting standards and caps on all overages at 150 basis points versus the unlimited and average amount of 600 basis points, we would probably NOT be in this financial meltdown. Sure, Wells Fargo & Co did plenty of loans that they probably shouldn’t have done, but a minute percentage as compared to most other major mortgage lenders.

2008 Dec 30 08:39 AM

[johnbee:]

The DOW is a moving feast. Every time a stock does badly its taken out of the index and replaced by one that's doing well. So the DOW is a sham to fool investors and savers to buy stocks only in large companies.
The reality of capitalism (and why its beats any other system) is that real entrepreneurs see opportunities at low cost amongst the ruins of large non entrepreneurially managed companies (e.g the motor corporations) and re-shape them to meet current conditions and make new fortunes for new people and their backers by offering the public better bargains, and so the circle continues. What's happening now is that the Governemt and banks are preventng this by printing money to hold up false values in monoplies aided by protectionist Unions.
The Government should not hold up badly run over blown near monopolies that have been ripping us off with high prices for years and should let market forces go their own way. The pension funds which hold all small savers money are all the same - backing Alpha stocks while largely ignoring smaller firms with new ideas where only Venture Capital firms dare go (or are allowed by law to go for the so called "protection" of small investors) - whereas the real places where fortunes can be re-made by investors in these times are those to be made by cherry picking low level stock values in new creative companies. So some fail. So what? that's life. But some grow 100's of times. Where was Microsoft ten years ago? Many fail because they get no backing unless the owners mortgage their home and children's future to greedy risk averse banks.

The trouble is the banks never lend to these companies as they need show that values can be "accounted for" to suit audit rules which are subjective to say the least- as we are now seeing. Yet they devise their own non productive instruments that avoid valuatiion except by some strange maths alchemic formula which fools the auditors and the supervisory bodies who either are taken in by them or are complicit in them. I have run entrepreneurial businesses for over 50 years -most with great success- and in my experience bankers (inc. investment bankers) are an arrogant non- hands -on bunch living in ivory towers who know less about business then anyone and exist only to cover the own backsides or profit as moneylenders with very little interest in the borrower other than having enough "valued" assets to cover their loans when they want them back.

They leech of society and the rules need be changed that young new companies can be advertised to the public at large, and at will, by the entrepreneurs on the web so that they no longer need the so called "protection" of those investment experts who have brought the economy to its knees and lost so many investors their money with falsely valued profits while skimming vast bonuses off the top from them. They should return their ill gotten gains or be jailed.Lets hope Obama does just that.

I have a new company called prizemobilegroup for which I have good hopes. Can I raise money for it without having to rely on these people? Very unlkely in this market place until the ridiculous rules that largely exist to protect big companies from competition; and offer "alleged self acclaimed experts" first shots to invest over the public; and impede entrepreneurs from setting up new businesses and giving new employment opportunities- are removed, and normal people can make up their own minds and get into investments at the ground floor.

The value of anything is what people will pay for it- no other. That's something anyone can understand and make their mind up on. It doesn't need an accountant to do it. The Ifreedom of the nternet allows this but protectionist rules disallow it. This needs change now. Its as obvious as sin that the rules of the past have failed - other than to make a lot of crooks or incompetents a lot of money with not an ounce of productive effort.

2008 Dec 31 08:58 AM

[Matthew Rafat:]

Oops, the line above should be "$1.5 trillion," not "$1.5 billion":

I said, "Today, they are $610 billion. When our merger with Wachovia (WB) is completed, we will be nearly $1.5 billion." It should be $1.5 trillion, with a "t."

As Senator Everett Dirksen once said, "A billion here, a billion there, and pretty soon you're talking real money."

Jan 03 04:20 PM

[sweetpea42:]

Can you Please Help me find a way to save the house my daughter left behind with my son-in-law after losing her battle with Breast cancer..


My name is Sandra Vincent; I am originally from York , Pa. but now I reside in Richardson , TX . ( 1603 Woodoak Dr. Richardson TX 75082 ) I am 66 years of age; my only income is Social Security. I have no savings of any kind and no other retirement income. I am trying to save a house I share with my son-in-law after losing my daughter to cancer a few years back.


I know this is a long shot but I thought I would reach out to others and see if there are any options for buying a little more time until other means like funds and or options might become available. I realize the likelihood of receiving any help might not be there but I thought I would try. This house was very dear to my daughter and son-in-law.


Some History;

I moved to Dallas to be with my daughter, I no longer had work and the last remaining member of my family, my sister, passed away, so I packed up and moved and hoped to start a new life in Dallas .

Everything was going well, I found a job shortly after coming to Dallas , bought a new car and lived with my daughter in her apartment. Michelle was working two jobs and going to school. Michelle was dating a man named Allen who she was very fond of, he found a really good job working in IT Telecom Helpdesk for J. C. Penney in their corporate office and after her graduation they talked of marriage and wanted to get a house big enough for all 3 of us, because we all got along quite well.

Michelle was a Navy Seabee/carpenter for 5 years so she wanted a fixer upper with hopes of getting married and having a family. Michelle found this house in Richardson , TX , and she loved it and thought it would be a good place to start. However, although they started a lot of repair projects, such as painting, ceiling fans, some new doors, cutting down trees etc. all seemed to slow down to a halt when Michelle discovered she had breast cancer. I thought maybe she had a good chance of surviving as I am a breast cancer survivor myself of over 20 years

The doctors she worked with gave her a very poor outcome, so my soon to be son-in-law Allen started researching Cancer on the internet in order to buy her more time. Nothing was working, Michelle had a lumpectomy, chemotherapy, and than a mastectomy removing the right breast. Another small surgery to remove even more cancer, numerous rounds of radiation to no avail. The cancer became metastatic moving to the bones and spine. Michelle was spending quite a bit of time in the hospital while Allen and I and other church people kept vigilance at her bedside. Long story short, Michelle was labeled terminal and told she should get her affairs in order. My son in law found an experimental treatment IPTQ.com the treatment held a lot of promise with hope of managing the cancer or at least buying her more time.

Atlanta Georgia was closer then Mexico, Michelle’s cancer was now spreading to her face and shoulder and lower back so after some fellowship and prayer Michelle decided to try Atlanta and did OK the first few days, but the guy treating her was deceptive in his skills and grossly overdosed her on Methyltrexate. Because of the overdose Michelle suffered with failed kidneys, septic shock and passed away of congestive heart failure on Christmas Day a few years ago. It was like a horrible nightmare for me and my son-in-law who felt guilty or responsible because he was the one who found this nut.


My son-in-law and I were both at the hospital, my son-in-law begged the doctors to keep trying and she was revived 4-5 times to no avail; Michelle passed away at 3:20 AM Christmas morning. It was hard for both of us to return back to the house with all the projects that were started by my daughter. Allen ended up on many meds, with side effects as well as accidently over dosing on them. He did try to return to work but he couldn’t deal with the grief and guilt he felt along with some of the co-workers who bullied him and others. He lost his job and has had a very difficult time trying to find work since; he has been hospitalized several times at places like Green Oaks, Baylor, and Medical City etc , and is mentally and emotionally disabled still. He has been trying to continue the work on the house in memory of my daughter, while looking for work while being under psychiatric care, being treated for PTSD, anxiety disorder, depression, etc.


At Present;

Currently, Allen was just approved for SSDI, but we are behind on the mortgage almost 8+ months and Wells Fargo is threatening to start the foreclosure process on us after April 1st which can happen in 20-30 days, Wells Fargo told us they would do a loan modification after the moratorium time if we could bring more money into the house but now they won’t.

We were told to catch up the late payments in full, (12,274.22). I took an early retirement because of health issues. I have been basically taking care of Allen and in so doing, have used up all my funds, maxed out every Credit Card, hoping that I would find work or Allen would get well and find and keep work also. None of which happened although, he was told he would start to receive SSDI some time in March. There are days Allen is too depressed to get up out of bed and other days he seems to do better and works on the house trying to finish whatever he starts however, if someone or something upsets him he is back in bed, in a very depressed state for days.

The house still needs many repairs, wiring problems in the attic, no insulation, and the roof leaks and needs replacing, no yard, no fence, Inside flooring is bad and more. Allen has no one and we both have no where to go. Allen created documentation for the Dallas County Appraisal office which has kept the house low on taxes based on the condition. The only way to survive is to find some way to get the house paid off or at least a loan modification that would drop the payment and interest down and attach the back payments on the end.


Employment Options;

Allen has sent out thousands of resumes to no avail. Allen and I have been to many job fairs to no avail. The few who have called, told both of us they have so many applying that they have a long list of qualifying questions such as; Good Credit, recent work history and experience, Active up to date Certifications, Retail and more. I have witnessed Allen on the phone begging for a chance to work no luck. Allen did try and get his job back at Penney’s which ended up in the Sherman Federal court house with hopes of clearing his name and getting his job back, but to no avail, although there was a settlement and he did help to expose and get rid of some of the bad stuff and people.


(See - Civil Action No. 4:05CV238)

Allen has expressed interest in Writing and making short films – documentaries’ out of the house but I don’t know if he could make any money with that type of work or not. I was hoping to get some type of work as I guess it’s the worst time to hunt work, considering the economy, and the fact that I no longer could pay my bills, my Credit rating is so low that it is now, I believe, preventing me from getting work.


Seeking other help;

Allen and I have tried many Charities and organizations to get help, have gotten help with food but they can only do so much. I have always paid all my bills, always had a job, and provided for my children and I am not used to being this destitute. I want to stay in the house; I have a few pets, one of which was my daughter’s Rat Terrier named Sassy. With my present financial situation, I probably couldn’t find other housing because of income and credit. I really need to keep this house and not be homeless. Allen has called Wells Fargo Countless times begging them for more time or some type of Loan Modification etc. but they won’t work with him with his SSDI and my Social Security now.

Again, our only way out at present is to get out from under the mortgage; I might mention we are in an upside down situation with the mortgage. The appraised value of the house is more than it could sell for, so getting rid of the house is impossible and if we did, we would not have any money left to move anywhere else. With no mortgage payment or at least a loan modification I believe we might have a chance to stay in the home my daughter loved. I am still actively seeking work but to no avail at present.

We have several small dogs and birds that help keep both Allen and I from going nuts, they are like children and to lose one of them would be very hard. I realize this is a long letter, but I had to give you some background to show you that I have been trying to stay afloat, but I am now drowning. I have no family to help with anything. If you know of anything more that I can do or any other programs that will help me survive this situation, please let me know ASAP. The house in an FHA, 30 Year Fixed loan, at 6.5%, monthly payment amount of around $1230.00, and payoff of around $135,000 counting the 12,274.22 late payments. Allen has been talking with the Wells Fargo Corporate office – Matthew Heil, 515-324-2360 who has told him there is nothing he can do.

If you desire anymore information of any kind, or need to send paper work to be filled out, please write me at [e-mail] or mail to: Sandra L. Vincent, P. O. Box 852094 , Richardson , TX 75085-0294 – 972.234.9351

Hope to hear from you soon.

Sincerely,

Sandra L. Vincent


Michelle’s testimony, just moments before her baptism.

I share with you today, as briefly as possible, my calling from the Lord. I have had what you would call a "Wake-up call". I have always believed in God, but until this time that belief has held no meaning - who was He, and what was I to do? I never really pursued the answers until now. I always thought that being a good person who never meant to hurt anyone or anything intentionally was all that was needed to get to heaven. Oh, how wrong I was!

I have to say that I have thought about whether my getting sick was punishment for my fleshly past and disbelief. But then I realized that in my past I was completely ignorant of God, so how could I hold myself responsible for not knowing I needed to live with the divine Light inside me? And even though this illness could take my body at any time, I am at peace with it because I know that the Lord has given this suffering to me - not as a punishment, but as an awakening for starting my quest for the Kingdom. I have now been born of God and mature I must, as quickly as possible. I realize that I may not finish my quest for the Kingdom before my flesh is taken. But again I am at peace because I know that even 1000 years of outer darkness with all of its sufferings will be a small price to pay for the eternity that awaits me.

A dear friend introduced me to the saints here in Irving about 6 months ago, and from the very first meeting I felt a fellowship that I have never felt before. To be honest it was a bit weird and made me a little uncomfortable. But after speaking with some brothers and especially some sisters, who are now my dear friends, I’ve realized that being uncomfortable was ok. I’ve learned a lot from them and the meetings, and have received a new way of looking at my life and my world.

Suddenly my things are not really important anymore, and the little issues, problems, etc., that come about every day are no longer bothersome. I’ve learned that the big things that happen to me are not necessarily my only means of gaining the Lord inwardly. They are an opportunity to do so, but hopefully the big things are few and far between. It is the little things that happen everyday that are my big opportunities to gain Christ, because they are constant.

I’ve learned that to walk with our Father in the Kingdom, all I have to do is ask Him in prayer. I know that I’m expected to fail, and fail I have, and that’s ok, because by failing I’m just given another opportunity to gain Him in asking Him for forgiveness. And on those rare days when no little or big things occur, I just pray and thank Him for a wonderful day.

As I was writing this, and reading it, and re-reading to be sure it contains all I wanted to say, I realized again how very simple it is to gain the Lord. Then I wondered how anything so gracious, glorious and rewarding could be so easy - BUT I’m not questioning it. This reminded me of a young brother who shared a few weeks back on a Lord's Day that he didn’t know why a mathematical equation worked in calculus; he just knew that it did and relied on it. That’s kind of what I’ve gotten out of how easy it is to gain the Lord.

All of this is adding up to something very special: Today I am going to be baptized, and I have my family and friends here to witness and celebrate this occasion with me. Today is the day that I kick Satan to the curb. He no longer has a hold over me, because I know that whatever may come my way, I can handle it because I have the Lord, my Savior and Friend, on my side, and that with all the support I have from my brothers and sisters, and from my family and friends, I won’t be able to lose for trying. So with that said, I say, "Bring it On!" I’m ready to make the most out of every opportunity I’m given towards my quest for the New Jerusalem.

As I get baptized today I want to thank the saints for taking me by the hand and helping me to see that it’s ok to be human as long as I live with the divine life inside me. It is now my responsibility to live each day using my new awareness of prayer and the consciousness of the Lord within me, because thanks to the Father, my ignorance of Him no longer exists.


*Michelle*

Mar 08 03:35 PM