Updated from Tuesday, March 24Wells Fargo's ( WFC) aggressive writedown of bad assets acquired in its deal for Wachovia may have better positioned the bank to take advantage of the massive government initiative to unburden bank balance sheets. The Public-Private Investment Partnership, the Obama administration's plan to finance up to $1 trillion worth of distressed-debt deals, intends to kick-start the credit markets, drive up prices, and allow banks to start lending more aggressively again. Regardless of how successful the government's plan is, Wells Fargo's decision to significantly reduce exposure to troubled housing debt and its minimal exposure to credit-card and auto debt -- which are expected to drive the next wave of consumer defaults -- set it apart from its peers. The company is better positioned to move forward in a tough economic environment, with a leg up to book bigger profits ahead if credit-market conditions improve, according to some experts. Bart Narter, senior vice president of banking at the analyst and consulting group Celent says Wells stands out from the herd in terms of risk management and timely, strong-fisted writedowns. "They're not getting any more of a windfall than other banks, they're just going to see it reflected in their financials more because they wrote it down more aggressively," Narter says. "If Wells marked
But while some sense a buying opportunity, investors at large don't seem to be convinced. Indeed, Moody's slashed ratings on Wells' debt and lowered its preferred rating into junk territory on Wednesday, citing concerns that "capital ratios could come under pressure in the short term."Wells shares have fallen 47% since the end of 2008. By comparison, the KBW Bank Index, which factors in 24 major banks, has dropped a less dramatic 35%. JPMorgan is down 17%, BofA 49% and Citi 56%, as of Tuesday's close. Wells shares closed up 5.9% to $16.41 on Wednesday. Of course, all bank shares have been volatile this year, and with Citi and Bofa trading in the single-digits few long-term investors are pleased. Those two firms required $20 billion more in government assistance than their peers to grapple with bad debt, receiving $45 billion in Treasury funds, versus $25 billion for Wells and JPMorgan and $10 billion for Goldman Sachs ( GS) and Morgan Stanley ( MS). The CEO of each firms has pledged to repay TARP dollars as quickly as possible to get out from under the government's wing. Reports surfaced Tuesday that Goldman's Lloyd Blankfein is pushing to repay funds sometime this year, while Bank of America's Ken Lewis has predicted its TARP money will be repaid in 2010. Lewis said he should have taken fewer dollars for the Merrill deal, while Blankfein, Wells' John Stumpf and JPMorgan's Jamie Dimon have asserted that they didn't need the money in the first place, but accepted funds to please regulators and help stabilize the financial markets. Wells declined to comment on whether it wrote down assets aggressively to gain in quarters ahead as market conditions improve, but the firm did strike a positive note on the Public Private Investment Program outlined by the Obama administration on Monday.