Friday, March 28, 2008

Wells Fargo exec optimistic about economy

Wells Fargo exec optimistic about economy
By Russ Wiles The Arizona Republic

Short, if not necessarily sweet.

Wells Fargo Executive Richard Kovacevich said he expects the economy and financial system will recover in good shape provided that a recession, if one materializes, doesn't linger.

"The best thing that could happen would be to get all the bad news out fast," he told a Phoenix audience Thursday. "The biggest risk is a prolonged slowdown."

Kovacevich, 64, Wells Fargo's chairman who recently resigned as chief executive officer, said he felt the economy is fundamentally solid, with rising exports, modest unemployment, high levels of corporate cash and an expanding money supply helped by recent interest-rate cuts.

Excluding beleaguered sectors such as housing and automobiles, roughly 90 percent of the economy is growing. "Given all that . . . I'm an optimist long term," he said.

Kovacevich spoke to business leaders and Arizona State University faculty and students during a lunch where he was honored as executive of the year by ASU's W.P. Carey School of Business.

Dean Robert Mittelstaedt praised Kovacevich for his overall leadership and the firm's ability to sidestep the worst of the credit crunch and subprime-mortgage writedowns.

"We looked hard at the fact we haven't been seeing Wells Fargo's name in the news," Mittelstaedt said.

Kovacevich admitted that Wells Fargo made mistakes in not pricing certain risks accurately but also noted the company steered clear of most bad practices that afflicted competitors. He predicted the biggest 15 or so U.S. financial firms, which already have written down about $180 billion in assets, could face further writedowns of $200 billion or so.

Still, he said he doesn't worry about a spike in the number of bank failures or the overall strength of the system. The industry "had an amazing five-year run of record earnings" before the downturn, he said. "Mainstream banks, even with their problems, have very high capital levels."

Kovacevich also expressed confidence in Wells Fargo. "We believe as a company we're going to come out of this stronger than our competitors."

The company is one of the state's largest employers, with an Arizona workforce of nearly 15,000 people.

The firm regards Arizona as a promising growth state and an increasingly important center for some of its operations, he said.

Kovacevich took exception to the notion that credit standards have tightened appreciably, arguing that they've really returned to realistic levels.

"Things have tightened compared to the stupidity of nine months ago," he said. "But we were way too loose then."

He expressed confidence that the current financial slump will end when pessimism reaches extreme levels, as shown by the widening spread on fixed-income investments and other indicators.


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