Why Wells Fargo isn’t paying back TARP

Fortune’s Colin Barr has an interesting story (it’s almost a week old but I just discovered it via Jim Kim) about why Wells Fargo still hasn’t paid back the $25 billion it borrowed (under duress) from us taxpayers last year, even as Bank of America has and Citigroup hopes to. His main explanation is that, unlike BofA and Citi, Wells isn’t willing to raise any more money via secondary offerings that would dilute existing shareholders. With Warren Buffett as one of those existing shareholders, that’s not surprising.

That sounds about right, but I think there’s another factor at work here that Barr fails to mention. It’s that Wells, unlike BofA and Citi, doesn’t employ legions of investment bankers and traders who expect to be paid millions of dollars a year. It’s a financial institution that caters to consumers and small-to-medium-sized-businesses, not a creature of Wall Street. So Kenneth Feinberg’s pay restrictions aren’t nearly as big a problem for it as they are for the companies with significant Wall Street operations. (See the update below for why Feinberg’s pay restrictions really aren’t a problem for Wells.) And so Wells Fargo can take its time and concentrate on what’s best for its shareholders rather than scrambling to escape government restrictions that only appear restrictive to the inhabitants of a few neighborhoods in Manhattan and southwestern Connecticut.

I’m tempted to launch here into a rant about this being yet more evidence of how disconnected Wall Street and its pay practices are from the rest of the economy. But why bother?

Update: My colleague Stephen Gandel points out that, um, Wells Fargo—unlike BofA and Citi—is not one of the seven companies receiving “exceptional financial assistance” for which Feinberg has outlined detailed pay restrictions. So Feinberg’s pay limits aren’t a problem for it at all. Which sort of supports my point, but also makes me look kinda silly. (What? It’s endangered species?!? Never mind.)

Stocks Rally Further in Run-up to EU Summit

MOSCOW — Global stocks enjoyed one of their best days in weeks on Tuesday ahead of a summit of European leaders that’s expected to be dominated by calls to boost economic growth.

Europe remains the focus of attention across all financial markets in the run-up to the June 17 Greek election that could go a long way to determining the country’s membership of the euro as well as the future of the single currency zone.

deconstructiva

Thanks for Barr’s article. Wells seems to be better run than Citi. Given C’s mess, no wonder “Citi never sleeps.” Maybe C shareholders don’t sleep either, but I digress. But re: upcoming spe accounting change mentioned, the article said Wells might not be affected much, but do you think this is a time bomb for other big banks, or not? Did many banks play spe’s too often to stay afloat? thanks
beatfan

But Wells is NOT helping those in real need. I tried to get a mortgage modification. Tried for nine month and continually got the delayed run around. These banks need to have “case workers” like you have with AAA . One person for you to have contact with over the duration. All time is wasted explaining your story over and over. I finally sold my home and barely broke even. I had to pay of about 17K to make the sale work. Wells got all their money and added interest due to the delays. They day after I closed I got a letter denying my modification.

Also I have been self employed for 24 years, successful until this past year. Applied for an ARC SBA loan via WFB and sponsored by the US Gov. It is to pay off an exciting now closed Wells Fargo business credit line. I got an approval email and then two weeks later the changed their mind. Wells Is NOT helping those who need help temporarily, Also Ive been with Wells since 1975.
doug374

How much of this is Wells Fargo being a more responsibly run institution versus their ability to piggy-back off of the myriad government bailouts outside of TARP? For example, with or without TARP money, they still benefit from low rates, quantitative easing, and the post-Lehman all but explicit government guarantee of financial institution debt. Why keep TARP money when you can pay yourself large bonuses and let the government bail you out if things don’t work out, as was demonstrated repeatedly by C and BAC after Lehman collapsed?
http://www.rodgermitchell.com Rodger Malcolm Mitchell

I pray that Wells Fargo never pays the money back. Sending money to the government (aka ” paying tax”) does nothing for the government (which neither needs nor uses tax money) and wouldl hurt the economy (by removing money from the economy).

Thus we have the common fallacy that the federal government maintains a fund from which it spends tax money. It doesn’t Wells Fargo could send the government $100 trillion tomorrow, and this would not add one cent to the government’s ability to spend — but it would reduce the money supply by $100 trillion.

Now repeat after me: “Sending money to the government hurts the economy.” Keep saying it until you understand why — or see: http://rodgermmitchell.wordpress.com/2009/09/07/introduction/

Rodger Malcolm Mitchell
http://melvinwagley.wordpress.com melvinwagley

I think the point about salary pressures is valid, that WellsFargo have much less pressure in this area and management is avoiding making reckless decisions to step away from TARP prematurely. It actually makes much more sense to the shareholders (aka Buffett) that the company live with the modest TARP restrictions and avoid diluting shareholder capital at this early time in the recovery. It is very likely they can replace the TARP money with much less shareholder dilution in a year.

This also shows how dumb CitiBank are being! What a shock!
Bill Woodard
Famous Philanthropists Customer Service Team