Charlotte Business Journal Morning Edition
Former Wells Fargo CEO Dick Kovacevich tells CNBC: Bank of America settlement 'politics'
Najib Joe Hakim
Dick Kovacevich, Wells Fargo's former chairman and CEO, pictured here in his San Francisco office in 2008.
Dick Kovacevich, Wells Fargo's outspoken former chairman and CEO, told CNBC on Thursday that Bank of America's nearly $17 billion settlement with the Justice Department is simply a case of the government extorting money from banks.
"It's definitely politics. It has nothing to do with justice or restitution to the innocent victims. In fact, more of the money is going to the coffers of the states and various departments than the victims," Kovacevich told CNBC.
Kovacevich said it's not surprising that Charlotte-based BofA is paying the largest legal settlement between the federal government and a single U.S. company. The settlement stems from misconduct by the bank and its predecessors that contributed to 2008's historic financial crisis.
"If indeed J.P. Morgan should pay $12 billion or $13 billion for the sins of Bear Stearns and Washington Mutual, certainly Merrill Lynch and Countrywide did two or three times the volume," Kovacevich said, adding that J.P. Morgan Chase (NYSE:JPM) or BofA (NYSE:BAC) and their employees didn't do anything wrong. "They just bought companies that did wrong."
Kovacevich questions why the government isn't going after individuals that did wrong at these banks.
"They aren't going after the individual because it takes a long time to do so," he told CNBC.
The federal government may be getting the message. The Financial Times reported that prosecutors are preparing a civil case against Countrywide Financial co-founder Angelo Mozilo. Countrywide was among the nation's most aggressive lenders leading up to the financial crisis. Bank of America bought Countrywide in 2008 in one of the most ill-conceived purchases ever. The bank has spent tens of billions of dollars in legal bills, settlements and related costs.
Kovacevich has long been known for speaking candidly. In March 2009, he called the government's stress-test of U.S. banks "asinine."
"We do stress tests all the time on all of our portfolios," he told those attending that year's economic summit held by the Stanford Institute for Economic Policy Research. "We share those stress tests with our regulators. It is absolutely asinine that somebody could announce we're going to do stress tests for banks and we'll give you the answer in 12 weeks."
He also correctly predicted at the March 2009 summit that the nation wasn't heading into another Great Depression, just as the stock market was hitting bottom from the financial crisis at that time.
And he was critical of the government's Troubled Asset Relief Program, or TARP, in that speech and another one at Stanford three years later.
In 2012, Kovacevich said TARP was an "unmitigated disaster" and laid much of the blame for the financial crisis on "ineffective regulators."
"The decision by the U.S. Treasury and the Federal Reserve in October 2008 to make banks take TARP money even if they didn't want it was one of the worst economic decisions in the history of the United States," Kovacevich told his audience at the 2012 Stanford Institute for Economic Policy Research event.
Kovacevich criticized TARP, saying that it spooked the financial markets, tarnished the reputation of banks that did nothing wrong and sparked the biggest onslaught of new banking regulations in history.
"TARP contributed to an unnecessary panic in the marketplace," Kovacevich said. "The facts suggest that it was an unmitigated disaster that should never be repeated."
Apparently regulators on the other side of the table at that October 2008 meeting may have had their own criticisms of Kovacevich. Former FDIC Chairman Sheila Bair wrote in her book Bull by the Horns, that she considered Kovacevich rude and abrupt.
At the 2012 Stanford event, Kovacevich said some in his audience might ask, "Why didn't I just say no and not accept the TARP money?"
"As my comments were heading in that direction in the meeting, (Treasury Secretary) Hank Paulson turned to Fed Chairman Ben Bernanke sitting next to him and said, 'Your primary regulator is sitting right here. If you refuse to accept these funds, he will declare you "capital deficient" Monday morning,' " Kovacevich recalled. "'Is this America?' I asked myself.
"This was truly a 'Godfather moment.' They made us an offer we couldn't refuse," Kovacevich said, adding that he might have put up more of a fight if his bank wasn't trying to buy Charlotte-based Wachovia at the time. Kovacevich can take some satisfaction that his former employer has become the nation's most valuable bank by joining forces with Wachovia in 2008 and providing financial services to Main Street from coast to coast.
There might be some common ground for Bair and Kovacevich. Bair wrote about the TARP meeting in her book, saying: "Kovacevich complained, rightfully, that his bank didn't need $25 billion in capital. I was astonished when Hank shot back that his regulator might have something to say about whether Wells' capital was adequate if he didn't take the money."
Still, Kovacevich has little patience for today's conventional wisdom that praises TARP for saving the nation's economy. To that, Kovacevich said, "the spin never ends in Washington, D.C."
After he spoke that warm June day in 2012, I asked Kovacevich whether he was harboring political ambitions, perhaps eyeing the Treasury secretary's seat. He laughed.
Mark Calvey covers banking and finance for the San Francisco Business Times.
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