Why did the Wells Fargo deal to buy Wachovia fall through at the last minute? The WSJ reports that Wells Fargo CEO chairman Dick Kovacevich blamed perceived weaknesses in a surprising area of Wachovia's loan portfolio:
Wachovia's advisers were surprised because the portfolio in question was smaller than many of its toxic mortgage portfolios and didn't have any obvious red flags.
For the next four hours, Wachovia's team tried to ease his concerns, but Mr. Kovacevich kept repeating: "It's not my call, it's our loan people."
Jeff Matthews has a very interesting take on all this. He points out that Kovacevich, a real buck-stops-here kind of guy, is not the kind of person to blame underlings. Could it be that "our loan people" weren't his underlings at all, but rather Warren Buffett?
Buffett, of course, had just taken on $10 billion of new exposure to Goldman Sachs. He owns 9% of Wells Fargo, which means that if Wells Fargo bought Wachovia, he'd essentially be taking on 9% of Wachovia's liabilities, including its $312 billion mortgage portfolio. It's easy to see that in the wake of the Goldman deal, he might not have been particularly excited about the Wachovia deal.
And it's almost unthinkable that Kovacevich wasn't talking to Buffett, his largest and most loyal shareholder.
But there's a conflict there: it's entirely conceivable that the deal would have been good for Wells Fargo even if it didn't fit into Berkshire Hathaway's broader risk strategy. If Kovacevich is taking marching orders from Buffett, that's kinda scandalous, especially now that Goldman Sachs, another core Buffett holding, is a bank and therefore a competitor.
But Buffett has rare and special powers. Just look at BRK-B: it rose on Monday, during the worst stock-market crash in years, and then fell on Tuesday when the rest of the market was up sharply. When things get really bad, it seems, people look to Berkshire Hathaway as a safe haven. Don't they know that it's extremely leveraged (like all insurance companies), doesn't pay any dividends, and is largely invested in the stock market?
This article has 22 comments:
You could be run out the industry for such heresy.
Some would think the WFC chief is derelect in his duty if he does not get WEB's ( Warren Edward Buffett) opinion on a major deal.
He probably got opinions from several people and 'listened' to half of them. This is a far cry from 'marching orders'
An article like this is Freedom of Speech gone wild.
Such articles based on guesswork need to be confined to the trash can of financial journalism.
"He [Buffett] owns 9% of Wells Fargo, which means that if Wells Fargo bought Wachovia, he'd essentially be taking on 9% of Wachovia's liabilities, including its $312 billion mortgage portfolio."
The author seems to not have even a basic understanding of the characteristics of corporate ownership in the US.
Does SeekingAlpha even screen at all for competency?
As for Wachovia, if we could get it for 60 cents on the dollar, I presume WB would okay it; if it isn't a good deal I expect him to advise against it.
I see no conflict of interest; what is a bad deal for a 9% investor is probably a bad deal for the other 91%. I don't want to attribute any super human powers to Buffett and he has made mistakes in the past, but let us recall that he is in his current position of influence (and in my portfolio) because he is provably the best stock and business analyst on the planet. IF he advised against the Wachovia deal, maybe this is just a chairman listening to the opinion of a proven expert with skin in the game, in a time of uncertainty, when prudence is the better part of investing.
There is no conflict of interest in telling somebody using YOUR money that in your opinion he is about to make a bad mistake. A conflict of interest is when somebody abuses official power. WB has no official power in WFargo. Should chairmen ignore their stockholders concerns altogether? Of course not, especially if they have relevant expertise.
Just sayin'
That's it i'm leaving. Seeking Alpha has lost credibility for me
Don't know what Buffet is thinking, but Obama will be forced to nationalize the way all of Europe is doing. China has a National Bank, and they seem to be growing.