Wells Fargo Looks Most Fit for Life After TARP

As for evidence of how this uncertainty will affect Bank of America, its board was still apparently unable to lure outside talent to take over the CEO job from Ken Lewis, despite its TARP repayment. The board chose internal candidate Brian Moynihan instead.

Wells Fargo is in the spotlight less than Bank of America. It is less troubled than Citigroup, and it isn't going through the same, large restructuring effort. And while post-TARP its capital ratios remain lower than Citigroup or Bank of America, it is also much smaller, with less exposure to riskier capital markets businesses that require higher reserves. Furthermore, Oppenheimer analyst Chris Kotowski notes, Wells Fargo is already "significantly profitable and is generating capital currently, while the other two are not."

While removing TARP "uncertainty" will benefit Wells Fargo, unlike Bank of America and Citigroup, its TARP repayment has tangible benefits too. Sandler O'Neill analyst R. Scott Siefers outlined them in a report on Tuesday.

"The fact that the combination of actions announced last night likely won't hurt earnings expectations for 2010 is a plus," Sandler O'Neill R. Scott Siefers said in a note on Tuesday. "Second, the size of the raise and dilution to the share count strike us as tolerable...Third, the completion of the raise should help the stock to find firmer footing, given that Wells Fargo has under-performed recently on the related uncertainty and speculation. Fourth, adding about one percent to the [tangible common equity] should help to alleviate capital adequacy concerns and allow investors to focus more exclusively on fundamental trends."

Wells Fargo shares are on track to close out 2009 down more than 10%, a performance that's worse than Bank of America's plus 5% gain, but much better than Citigroup's decline of nearly 50%. Considering the company's earnings potential, the relatively moderate dilution of its TARP-related stock sale, and the strategic avenues opened up by leaving government scrutiny behind, 2010 could be a year when Wells Fargo shares set the pace, instead of languish in the middle of the pack.

-- Written by Lauren Tara LaCapra in New York.

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