Putting aside the all-but-irredeemable basket-cases BofA and Citigroup, there’s only one major bank which has yet to repay its TARP money: Wells Fargo. How come? Wells has a reputation as being the best and most solid bank in America, a favorite of Warren Buffett, and a bank which managed to sidestep most of the worst excesses of the credit boom.
The answer, I think, is that Wells (NYSE:WFC) was ultimately undone by exactly the same thing which doomed BofA (NYSE:BAC): a panicked and unwise acquisition. In this case, of Wachovia. Because the demise of Wachovia was structured with a different acquirer (Citigroup) already in place, Wells had to essentially outbid Citi (NYSE:C) for Wachovia, and is now suffering from the winner’s curse.
The other problem with the Wachovia acquisition is that Wells Fargo is now far too big — it has an astonishing $711 billion in US deposits, 11% of the total US deposit base — and as a result it will be under intense regulatory scrutiny for the foreseeable future.
Only one of America’s four megabanks seems particularly healthy: JP Morgan (NYSE:JPM). Wells Fargo, which should by rights be the big boring safe one, is instead struggling with all the extra leverage it brought upon itself with the Wachovia acquisition; its sheer enormity also leaves it vulnerable to calls from people like myself who think that all banks of its size should be broken up into less systemically-dangerous chunks. One can’t help but think that with hindsight, Wells might rather have simply left Wachovia to Vikram Pandit’s tender mercies.