Wells Fargo – Today’s Community Bank?

In his recent appearance before the House Financial Services Committee John Stumpf, President and CEO of Wells Fargo & Company, stated “We are a community bank.” In effect his statement was designed to create the impression that Wells Fargo was in much better shape than other large banks and not burdened by toxic assets. He specifically mentioned that he spent his career living and working in different cities and states implying that Wells Fargo’s closeness with customers enables them to make better loans.

His views are understandable given the storied pasts of Wells Fargo and Norwest Corporation prior to their merger in 1998. At the time of that merger Norwest was composed of 37 subsidiary banks located in 16 states with 930 locations, while Wells Fargo was a single bank with many branches in communities throughout California.

The uniqueness of this organization and its dominance in many locations certainly helped attract the attention of Warren Buffett. The fact that these banks tended to be consistently high earners persuaded him to load the boat with Wells Fargo & Company shares.

As of September 30, 2008 Buffett’s Bershire Hathaway owned 290,407,668 shares of common stock in Wells Fargo valued at $10.899 billion. Those shares represented 8.7% of the common shares Wells then had outstanding.

The October 3, 2008 announcement that Wells Fargo intended to acquire troubled Wachovia Corporation forever shattered the market’s perception that Wells was a traditional community bank. That merger also destroyed the belief that Wells Fargo & Company was immunized against the economic storms sweeping the nation.

Wall Street has voted on the wisdom of that acquisition by slamming Wells Fargo stock. This past Friday, February 20th, Wells Fargo traded as low as $8.81 before closing at $10.91. You have to go back more than a decade to find a lower close after adjusting for splits.

Wells Fargo’s most notable investor has watched the value of his known Berkshire Hathaway ownership stake fall by about $7.731 billion or 70.9% in the past 153 days. While such a huge loss in value may not make him flinch, his fellow Wells Fargo investors are rapidly curling up in fetal positions.

When it decided to buy Wachovia, Wells Fargo forfeited any right to portray itself as a “community bank” that was not burdened with toxic assets. The plain fact is that it can no longer escape the intense scrutiny and deep suspicion being bestowed on the banking giants.

Unfortunately, Wells Fargo is now one of those giants whose future is being questioned by members of the media who are totally incapable of analyzing a bank balance sheet and income statement.