Wells Fargo & Co. Chairman Richard Kovacevich criticized the U.S. for retroactively adding curbs to the Troubled Asset Relief Program, which he said forced the bank to cut its dividend, and called the administration’s plan for stress-testing banks “asinine.”
When the U.S. Treasury persuaded the nation’s nine biggest banks to accept capital investments in October, it signaled the whole industry was weak, Kovacevich, 65, said in a March 13 speech at Stanford University in California. Even though Wells Fargo didn’t want the money, it must comply with the same rules that the government placed on banks that did need it, he said.
“Is this America -- when you do what your government asks you to do and then retroactively you also have additional conditions?” Kovacevich said. “If we were not forced to take the TARP money, we would have been able to raise private capital at that time” and not needed to cut the dividend to preserve cash, he said.
Kovacevich joins a growing list of bankers who are chafing at restrictions imposed by the TARP program, which affect lending, foreclosures, pay and perks. Lenders including Bank of America Corp. , U.S. Bancorp and Goldman Sachs Group Inc. have said they want to give back the money. More than 500 banks, insurers and credit-card companies applied for TARP capital, and the government has distributed almost $300 billion.
While Bank of America aims to return the funds, Chief Executive Officer Kenneth Lewis praised TARP last week for preventing a financial “meltdown.” JPMorgan Chase & Co. CEO Jamie Dimon said it helped stabilize the banking system.
Lower Payout
Wells Fargo slashed its dividend by 85 percent on March 6 to 5 cents a share, citing savings of $5 billion and the need to build a capital cushion in case the market deteriorates further. Last month the San Francisco-based bank made a quarterly payment of $371.5 million to the Treasury for interest on the $25 billion TARP investment.
The company reported its first loss since 2001 in the fourth quarter after accounting for the acquisition of Wachovia Corp., whose losses on home loans brought it within hours of bankruptcy last year. The deal helped make Wells Fargo third- largest by deposits among U.S. lenders.
In February, as the government made its third attempt to save Citigroup Inc., Wells Fargo suspended cash bonuses for executives including Kovacevich and CEO John Stumpf . Any bank receiving government funds has to limit annual pay for top executives to no more than $500,000. Wells Fargo has also canceled a sales conference in Las Vegas and removed Wachovia’s name from a professional golf tournament in its hometown of Charlotte, North Carolina, amid government pressure.
Retaining Capital
The dividend cut is “the right move for the company, as it will allow it to retain capital in this uncertain and challenging economic environment,” RBC Capital Markets analyst Joseph Morford in San Francisco wrote in a March 9 report.
The company sees the dividend as a “core part of its relationship with its shareholders and part of the long-term return they expect,” wrote Morford, who rates the shares outperform and owns some personally.
Kovacevich said the government is still making mistakes as it tries to save the industry. The “stress test,” designed to determine which of the 19 largest U.S. banks need more capital, provides opportunities for short-sellers to drive down bank stocks and can hurt confidence in the system even more, he said.
The Obama administration announced the test last month and said it will help determine which banks are healthy enough to withstand surging unemployment and tumbling home prices. Results are due by late April, according to the Treasury.
Stress Tests
“We do stress tests all the time on all of our portfolios,” Kovacevich said. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.”
Isaac Baker , a Treasury spokesman, said the stress test will protect the banking system.
“This program will help ensure banks have the capital they need to continue lending through an economic downturn that is more severe than expected and help restore confidence that our financial system is sound,” Baker said in an e-mail.
Wells Fargo fell 24 cents, or 1.7 percent, to $13.70 at 4 p.m. in New York Stock Exchange composite trading, leaving the stock down 54 percent this year.
But, if you hadn't taken the money the government could not control YOUR company Mr.Kovacevich! This was a scheme to get government control of the banks! And, this is America only as long as George Soros and the other Obama socialists allow it to be!
