Wells Fargo CEO Says Bank has Prepared for Housing Slowdown

Dude likes his bubbles.

Wells Fargo CEO Dick Kovacevich told a crowd attending Bank of America’s 36th annual investment conference at the Ritz-Carlton Hotel in San Francisco, ?We were getting into bubble territory.? Those who expected Kovacevich to don a sparkle crown and wield a magic wand were sorely disappointed, though, when he continued, ?As everyone knows, when a bubble bursts, the smaller the bubble, the better it is.”

What could have been a cool beginning to a Doug Henning-style magic show instead turned out to be a lot of self-congratulation on Kovacevich?s part about Wells Fargo?s response to the housing market.

According to a BizJournals.com article, Kovacevich said Wells began pulling back about a year ago in the nation’s hot housing markets. Specifically, he said the bank’s home equity lending began to require lower loan-to-value ratios and higher credit criteria.

Kovacevich went on to say that the bank has avoided controversial mortgage products such as option ARMs, which are adjustable rate loans that give borrowers various options on how much they want to pay each month. The loans can result in negative amortization because deferred interest is added to the loan balance.

Kovacevich also regaled the audience with a little finger-pointing, telling those present from the mortgage industry, ?You’re taking risks we believe are inappropriate.” Later, when asked to comment on Wachovia?s planned purchase of Golden West Financial Corp, he said, ?It might be good for Wachovia because it gets them into the mortgage business and it gets them into California.”