GregT

Wells Fargo: Signs of Stress?

Unlike BAC's purchase of MER which was decided over a tumultuous weekend during which Lehman went under, WFC purchase of Wachovia was well thought out and weighed. Furthermore, any comparison between the two is not valid. MER was an investment bank with much more difficult to evaluate risks. Wachovia was mainly hampered by the Golden West purchase. The risks to Wachovia were much easier to evaluate and understand. In simple terms, BAC made the MER purchase quite blindly when buying the more complex to understand investment bank, while WFC exercised a fair amount of due dilligence in buying a relatively traditional banking operation.

Having said that, the main conclusion that WFC could be in for a dividend cut and problems in the future is certainly valid. In fact, California's announcement yesterday that 20,000 state workers will lose their jobs is certainly not good for WFC.