Watch What You Wish For

Wells Fargo managed to snatch Wachovia away from Citigoup, and Wells is now running full page newspaper ads trumpeting the great benefits coming to average consumers and investors from the merger.

Dick Kovacevich and the investor thesis he presented for Norwest, then Wells, over the years was clear, simple, and well executed. Growth was to come from delivering multiple products and relationships (e.g. checking and savings accounts, mortgages, investment management) to retail and corporate customers. Associates were to be rewarded on the basis of growth in relationships. It went well, and shareholders did very well over time. The Wells merger really put things to the test, but after years more than anyone imagined, the merger seems to have worked. I remember hearing a quote from Mr. Kovacevich myself to the effect, "I'll never do a merger of equals again."

Now comes the merger with Wachovia. Wachovia itself is a hash blended from First Union, Wachovia, Prudential Securities, Metropolitan West, SouthTrust, Westcorp, Golden West, and A.G. Edwards. It's not obvious how this melange blends with the beef at Wells Fargo. The argument is that it gives the combined company deposit strength in the Southeast; sure, but at what cost? The next argument being advanced in the newspaper ads is that the combined companies will provide superior investment advice and asset management. From where? Which fund management company will carry the banner for the combined companies: Wells Asset Management or Evergreen? Neither one has delivered a consistent record of performance with reasonable fees. Finally, in this merger, Wells Fargo stepped out of character, which is something which always triggers alarms for us.

In the past, Norwest/Wells were very circumspect about acquisitions---we take our time, we don't compete or get into bidding wars, we don't overpay, and we make them where there is a cultural fit. In the Wachovia scenario, where Wells ran to the altar and took the bride away from Citigroup, it seems like a significant departure from the successful practice of the past. Also, instead of a graceful exit as planned, after the integration of Wells Fargo and Norwest, the CEO extends his tenure to handle another transaction. It is out of character. Sometimes, you get what you wish for, but is it what you need?