Wednesday, June 27, 2007
I was hoping to end the mystery of WFC's dividend hike today, as they completed their board meeting and made their usual announcements. I was disappointed to learn that they had pushed the decision on the dividend to their July meeting. My apologies that we will all have to hold our collective breaths for another 30 days to see how much additional cash money WFC will give us in the year ahead. As you remember, my focus on WFC's dividend hike was because they are such a huge factor in the mortgage business and their 2006 dividend hike was a bit light(See my previous Blog). My interest is still keen to see what July 24th will bring, but I believe a partial answer to questions surrounding the state of the mortgage business was revealed in a management change announced today: Richard Kovacevich, the legendary leader of WFC, has stepped down as CEO of the firm and is being replaced by John Stumpf (no relation to our own Carol Stumpf, even though her husband is also named John). I believe this management change should be viewed as good news for WFC and, by extension, their mortgage business. Here's the reason. Kovacevich is a relatively young man of 63. I do not believe he would have willingly retired unless the ship was in pretty good shape. He has built WFC into the premier-earning big bank in the country by thinking very differently about banking and the role of bankers. Indeed, he does not call his branch banks, banks, at all, he calls them stores. His employees are not bankers, but sales associates. He took the idea of "cross sell" to a whole new level. Years ago when he was at Norwest, I remember he had a goal of each "store" customer using 4.7 of the company's products and services -- checking, mortgage, credit card, investments, etc. WFC now has initiative called GR8, where they are trying to cross sell 8, count 'em, 8 products to their customers. Kovacevich would never have built WFC just to turn it over to his long time lieutenant John Stumpf if the "store" was in trouble. He would have ridden out the tough times just as he has done for these many years. In addtion, the board would never have agreed to promote John Stumpf to CEO if they had any worries about the strategy or current state of the bank because Mr. Stumpf has been "riding shotgun" for Mr. Kovacevich for the last 25 years. I take this change in leadership as saying that WFC is not experiencing any alarming acceleration in their loan losses, and by extension, since they are so big in the mortgage business, the troubles in the subprime mortgage business still do not appear to be spilling over to the mainstream segment of the business. Unless there is a health issue with Mr. Kovacevich, I think today's news is good news for WFC, because he will stay on as the non-executive Chairman; and good news to the US economy because one of the biggest players in the mortgage business thinks the times are good enough to make a leadership change. These are just my thoughts on a rainy day in Indiana.