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FRESH OUT OF COLLEGE 31 YEARS AGO, John Stumpf landed a job as a repo man in Minneapolis. He would show up at the bank at 10:00 a.m. and work the phones until 5:00 p.m. trying to track down borrowers whose auto loans were past due. Then, after a short break for dinner, he would change into casual clothes and head out to hunt down and seize cars, often long past midnight.

"When you collect bad loans," says Stumpf, "you sure learn a lot about making good ones."

That streetwise education has served Stumpf, 54, well. Perhaps nothing could have prepared him better for the challenges he faces today as CEO of Wells Fargo & Co. In late June, when he succeeded retail banking legend Richard Kovacevich, things were looking rosy enough. The bank was finishing a record second quarter that would produce $2.28 billion in net income, 9 percent better than a year earlier, on $9.9 billion in revenue, up 13 percent. The performance capped a sterling two-decade run of 17 percent compound annual growth in profit that coincided with Kovacevich's tenure -- first as vice chairman and, since 1993, as CEO of Norwest Corp., which bought San Francisco­based Wells in 1998 and took its name.

Stumpf had barely taken over when the nation's already wounded mortgage markets descended into the chaos that has cost three financial services CEOs -- Peter Wuffli of UBS, Stanley O'Neal of Merrill Lynch & Co. and Charles Prince of Citi -- their jobs and led to tens of billions of dollars of write-offs. An entire industry, it seems, must relearn lessons about making good loans and bad loans. Not Wells, though. It's bigger than any of these institutions in the mortgage business and more dependent on it. But it has come through the crisis relatively unscathed -- so far.

In the dismal third quarter just ended, as one bank after another tallied up its write-offs -- or losses -- Wells held steady. Net income, in fact, rose to a record $2.283 billion, up 4 percent on the preceding year's quarter, while revenues, at $9.85 billion, climbed 10 percent. Per-share earnings, at 68 cents, fell 2 cents short of the analyst consensus estimate.

It's a remarkable achievement. Wells Fargo, after all, is a dominant force in a market in near shambles. The fifth-biggest U.S. bank by assets, with $549 billion, Wells draws nearly one fifth of its income from mortgage and home equity: In 2006 it ranked second in originations in the U.S. and first in loans serviced, according to newsletter "Inside Mortgage Finance." In early November, brimming with confidence, Wells announced a plan to buy back up to 75 million shares, worth $2.3 billion at current prices. By contrast, consider the travails of Wells's nearest competitor, Countrywide Financial Corp. -- No. 1 in originations and No. 2 in servicing. It posted a loss of $1.2 billion in the third quarter, is laying off 12,000 employees and in August turned to Bank of America Corp. for an emergency $2 billion capital infusion.

Wells is sporting its share of bruises, to be sure. Like other banks it took a hit in subprime mortgages and had to boost its credit-loss provisions by 46 percent, to $892 million, in the third quarter. Analysts were surprised by a sharp rise in losses in Wells's big home-equity portfolio. And there could be more mortgage-related damage to come. But all in all, considering the carnage in the financial world, Stumpf and Kovacevich, who plans to remain as chairman through 2008, have had plenty of reason to smile.

Can Wells continue to perform as well -- especially when it appears the mortgage crisis is deepening? Announcements by Merrill Lynch that it was writing down $8.4 billion in loans, $7.9 billion of them subprime, and by Citi that it would write off an additional $8 billion to $11 billion in bad loans have spooked the markets.

So far, analysts are keeping faith with the West Coast bank. "With the continued market deterioration, there could be greater write-downs," notes Joe Morford, an analyst at RBC Capital Markets in San Francisco, who retains an outperform on the shares. "But relative to other banks and brokers, there will probably be fewer write-downs at Wells Fargo."

Investors can thank the idiosyncratic business model and corporate culture of Wells, which likes to do things its own ornery way. It won't give earnings guidance to Wall Street and does not break down business-unit performance details as much as the market might like. But investors (the biggest is Warren Buffett's Berkshire Hathaway, with 6.5 percent) have been won over by its steady long-term performance, rock solid capital base -- it is the only triple-A-rated bank in the country -- and its approach. Wells combines widespread diversification across 84 separate business lines with a gung ho sales spirit and a no-nonsense approach to credit.

"We think the way to eliminate volatility from earnings is to have a breadth of businesses," says Kovacevich, adding that Wells's businesses "operate in different geographies, against different competitors, under different conditions, at different stages of maturity, and the culture is what holds it all together."

Kovacevich's emphasis on the soft side of management is anything but lip service. It is spelled out in a 36-page "Vision and Values" handbook known internally as "the bible" that all employees are asked to read and keep for reference. Wells's style can feel hokey -- its 5,900 retail branches are called "stores" and its customers are known as "guests" -- but it works. In community banking, where Wells serves 11 million households, the average customer uses 5.5 Wells products; 22 percent of its customers use more than eight. No other bank approaches those cross-selling figures.

Wells also got it right online, treating the Internet as a co-equal convenience for customers, who are free to choose branches and telephone contacts too. Today, 9.5 million, or 64 percent, of Wells checking account customers are active online users. No major bank worldwide has done better at bringing its customers online.

The sensitivity to cultural values also meant that when Kovacevich chose to step down early, in June, he had a handpicked successor in place, unlike such firms as Merrill and Citi that are hastily conducting searches for new CEOs. And his pick knows the ropes. As Kovacevich notes: "John Stumpf has lived and breathed that culture for more than two decades."

During Kovacevich's reign, Wells, and its predecessor, Norwest, have eschewed financial industry trends to focus almost single-mindedly on building the premier consumer banking franchise. Commercial lending and real estate contribute less than 10 percent of profits. Wary of clashing cultures, Wells has avoided the investment banking business and has virtually no footprint overseas: Just $7.9 billion of the bank's $362.9 billion total loan portfolio is foreign. It has thus forgone many of the great growth opportunities chased down by rivals -- particularly in such areas as China; but it has also steered clear of the periodic crises that have dinged the finance industry, from the Russian collapse of 1998 to the popping of the tech stock bubble in 2000.

"They've done a good job of zigging when the rest of the industry zags," says John McDonald, banking analyst with Banc of America Securities in New York.

In mortgages Wells has been doing more zagging. The bank's third-quarter net credit losses, $892 billion, rose $172 million, or 24 percent, from the second quarter; half of the increase came from its $83 billion home equity loan portfolio. Declines in mortgage servicing assets and mortgage production cost Wells $1 billion in revenue. That was offset by an equivalent gain from "hedging against a decline in the valuation of their servicing," says McDonald. He believes that Wells will have to bolster its reserves from 1.11 percent of loans, down from 1.17 percent in the second quarter. He recently lowered his 2008 earnings estimates on 13 of 17 large banks; he shaved Wells to $2.90 per share, from $2.95.

Yet McDonald remains a fan, and Wells maintains a high level of investor confidence. At a recent stock price of about $33, Wells was trading at 11.4 times projected 2008 earnings. That compares with Bank of America's 8.8, Citi's 8.1, JPMorgan Chase & Co.'s 9.7 and Wachovia Corp.'s 9.4. Among regional banks, SunTrust Banks and U.S. Bancorp equaled Wells's 11.4, PNC Financial Services Group weighed in at 11.9, and others were below 11.

Wells made its share of subprime loans, but it avoided the more reckless lending practices -- negative amortization loans and option adjustable rate mortgages, for instance. Nor did it rely on conduits or assemble the structured investment vehicles (SIVs) that have caused havoc for others. In the past 18 months, the bank grew increasingly cautious. It sold off some $60 billion in loans with troubling risk profiles, according to Victoria Wagner, a credit analyst with Standard & Poor's. It also halted purchases of riskier loans from brokers where it hadn't done the underwriting and moved away from adjustable-rate offerings.

"They stuck to a certain underwriting discipline during the boom times and limited their risks by being very careful about what loans were left in the portfolio," Wagner says

Wells might even profit from the market mess. With its steady profitability, watertight balance sheet and appetite for deals, it's positioned to be an acquirer or merger partner of choice. Kovacevich built the bank through 250 acquisitions. The biggest by far was Norwest's $34 billion acquisition in 1998 of Wells Fargo, which became vulnerable after system integration problems plagued its $11.6 billion purchase of First Interstate Bancorp. two years earlier.

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