Wells Fargo chairman Dick Kovacevich has good reason to be mellow, enjoying the waning weeks of a cross-country career that he rode to the pinnacle of American banking.
The biggest laurel he could rest on: orchestrating last year's government-backed acquisition/rescue of Wachovia Corp., a deal that made Wells Fargo the fourth biggest bank in the country and, overnight, put it in a virtual tie with Bank of America to become Florida's biggest bank.
But going quietly into retirement Jan. 1 isn't his style. After all, this is the guy who pounded his fist on the table in protest when — as one of the country's top bank chieftains — the government told him in a meeting last year that Wells Fargo and other megabanks considered healthy would have to take TARP money along with troubled banks.
So, not surprisingly, Kovacevich, 66, was firm, impassioned and occasionally a bit feisty when he sat down with the St. Petersburg Times on Friday to discuss what comes next for the big, new player in Florida banking. To wit, Kovacevich said:
• Pressures aside, the bank will take it slow converting Wachovia's vast branch network into the Wells Fargo brand. Florida will be among the last locales for the signage and systems switch, likely close to a year away.
• As Bank of America signaled plans to start paying back TARP bailout money to the government, he's eager to follow suit and pay back the $25 billion that Wells Fargo received. If the government will allow it.
"We didn't want the $25 (billion) in the first place, and we'd love to pay it back. But it takes two parties to do that," Kovacevich said. "We just increased our capital by $50 (billion over the past year). You'd think we're able to pay it back but that's not in our hands."
Kovacevich rejects the notion that customers are becoming disenfranchised by banks in an era of souring credit card interest rates and federal bailouts. To the contrary, he said, rough economic times are the best to build long-standing loyalty, because customers need that financial lifeline and will remember who provided it.
"That's why we're so aggressive over here getting customers. Because loyalty over time is infinitely greater in the bad times," he said. "If we fail to do that, shame on us because someone else is going to do that."
To build that loyalty and capitalize on weaker competition, Wells Fargo has hired 100 additional bankers in Florida this year and plans to hire at least 300 to 400 more next year.
Here are highlights of a discussion with Kovacevich and two of his key lieutenants in Florida, state president Shelley Freeman and bay area regional president Carl Miller:
How important is Florida to Wells Fargo corporate?
It's our second-largest state to California. It's huge. It's mammoth. The whole Wachovia franchise is unbelievable ... and it's all connected down here. Our mortgage consultants for years have said, "When are you going to get a bank here?" Because as a generalization, our mortgage market share doubles in the states where we have retail distribution.
Your stagecoach ads have started and stopped, yet the process of changing Wachovia branches to Wells Fargo is going slowly. What's your timing?
It isn't going slowly according to our schedule. It's right on schedule. What you are observing is the difference in the way we do acquisitions. We said this one will take us three years.
The reason we can do this is we never do deals that are motivated by cutting costs. The reason other companies do it so fast is not that they think they can actually convert smoothly in that period of time, but that they had made a commitment they have to cut costs by "X" date and they try to force it.
But hasn't the Wachovia name been tarnished — with a virtual run on the bank at the end — so you'd want to move quickly?
People would like to see the name change. We've changed the names like Wachovia Advisors to Wells Fargo Advisors and the investment bank and so on when we have been able to convert the systems of those (units).
We're doing a stage at a time, starting with the states where there's overlap. We just did Colorado in November. ... We'll do the next five overlap states between now and July and then we'll move to the pure Wachovia states between July/August of next year up until 2011.
You want to make sure you do the smaller conversions first. You make sure everything is working well before you do a Florida. That's going to be a big deal. So Florida itself could be almost a year away?
It could be almost a year away.
Do you have customers approach you who are anxious for the change?
Miller: Every day.
Freeman: When I got here this morning, I had a team member come up and introduce herself and say, "When am I going to get those red awnings?"
How much of Wachovia's deposit base did you lose in its final days and how much have you recovered?
I don't think we've disclosed the number, but they were losing deposits. We've got most, if not all of them back. Relative to our forecast of what we thought we would lose, we are well, well above that number. Almost all of what we have lost is what we call "hot money" moving to whoever has the highest rates. That's not a customer relationship.
Describe how the deal came down last year, how you outmaneuvered Citibank to buy Wachovia at the last minute, their threat to sue. Is there an inside story you can tell?
Yes, but I'd have to kill you (laughing).
Well, tell me first; then kill me.
The only reason it went to an assisted deal (with the federal government involved in brokering a bank acquisition) is we didn't have enough time (to study an initial proposal to buy Wachovia). We never said we didn't want it. We said we couldn't decide on that Sunday night. The government decided they couldn't wait (and turned to negotiate with Citibank).
I think our assisted deal was better than Citi's but they didn't. Generally, when an assisted deal is done, it's very important it get done quickly and most of it is always done within 24 to 48 hours of the announcement Sunday night. For various reasons, that only Citibank would probably know, even by Friday it had not been done. That interim time gave us enough time to look at the things we did not have enough time to do and we were able to conclude by Thursday night that we could offer $7 a share. ...
And so all I did was call up (then-Wachovia CEO) Bob Steel and say I'm going to send you a contract, a contract that was already drafted by both parties when we had assumed we were going to do it Sunday. So it was already kind of agreed to. I said, "We're sending this thing. Talk it over with your directors. We're going to announce it tomorrow morning. Let me know what you all decide." Unbeknownst to me, three or four hours later he calls and says, "We've approved it." And he says, "Don't you think your announcement tomorrow, we should do it together?" Makes sense to me. The rest is history.
We don't think there was any basis for (Citi's) lawsuit because there was no contract. This was obviously a better deal. The board unanimously approved it. The FDIC joined in the call. I called all the regulators before I sent the contract informing them out of courtesy it was going.
With all that transpired in the industry the past two years, what's been most transformative?
Certainly this merger. And I'd say the next thing is more infamous than famous and that's the TARP discussions.
Jeff Harrington can be reached at firstname.lastname@example.org or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.