Wells Fargo is among first batch of banks being required to sell stakes to the U.S. government, which will invest up to $250 billion in the banking industry in hopes of ending the worst financial crisis since the stock market crash of 1929.
When U.S. Treasury Secretary Henry Paulson laid out his plan to invest in Wells Fargo at a meeting last week, Kovacevich protested because he didn't think his San Francisco-based bank should be forced to sell stock that might dilute other shareholders, according to published reports in The New York Times and The Wall Street Journal.
Wells Fargo so far has been able to avoid the staggering losses that have hit other major banks stemming from risky home loans made to borrowers with shoddy credit records or inadequate income to repay the debts after real estate prices began to plunge last year.
Wells Fargo's ability to keep churning out profits while other banks have been posting big losses has helped boost its stock by 8 percent so far this year. The company's shares closed Tuesday at $32.64, up 41 cents.
Kovacevich said elements of the media accounts about the meeting with Paulson were inaccurate, but didn't deny he originally opposed taking the government's money. He emphasized, though, that he is confident the extraordinary measures taken by the United States and other countries will restore confidence in the financial markets and stabilize the economy by the middle of next year.
"There may be doubts how long (the recovery) will take, but it will get done and sooner than most people think," he predicted.
Wells Fargo may emerge as one of the biggest winners in the turmoil because it was able to buy another major banking company, Wachovia Corp., at the sharply discounted price of about $14 billion.
Although Wells Fargo already plans to write off $74 billion in losses on loans inherited from Wachovia, the deal will catapult the bank into Atlantic and Southeastern states for the first time. Wells Fargo also will become the largest U.S. bank in terms of deposits, with $787 billion, and branches, with 10,500.
Kovacevich, 65, has already agreed to delay his plans to retire in December to oversee the combination of the two banks.
Wells Fargo's bid trumped an earlier agreement that banking regulators had brokered to sell Wachovia's banking operations to Citigroup Inc. for $2.1 billion in a deal that would have required the U.S. government to absorb some of Wachovia's loan losses.
Citigroup tried to reach a compromise that would have split up Wachovia, but those efforts unraveled last week. Citigroup has filed a lawsuit against Wachovia and Wells Fargo seeking $60 billion in damages.