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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S MARIA BARTIROMO INTERVIEWS WELLS FARGO CHAIRMAN, RICHARD KOVACEVICH, TODAY ON "CLOSING BELL"

Richard Kovacevich
AP
Richard Kovacevich

CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S MARIA BARTIROMO INTERVIEWS WELLS FARGO CHAIRMAN, RICHARD KOVACEVICH, TODAY ON "CLOSING BELL"

WHEN: Today, Friday, Oct. 3rd at 3:15PM ET

WHERE: CNBC's "Closing Bell"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Wells Fargo Chairman, Richard Kovacevich, today on CNBC's "Closing Bell."

All references must be sourced to CNBC.

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BARTIROMO: JOINING US NOW ON A CNBC EXCLUSIVE THE MAN WHO IS LEADING WELLS FARGO'S BID RICHARD KOVACEVICH THE CHAIRMAN OF WELLS FARGO. DICK KOVACEVICH NICE TO HAVE YOU ON THE PROGRAM. WELCOME

KOVACEVICH: GOOD TO BE WITH YOU MARIA

BARTIROMO: CAN YOU GIVE US A SINCE OF HOW THIS HAPPENED? MONDAY MORNING WE COME IN AND WE HEAR OF A DEAL WITH CITI GROUP. WE WERE UNDER THE IMPRESSION THAT WACHOVIA WAS DEALING WITH CITI, THERE WAS A SIGNED DOCUMENT IN PLACE THAT THEY WERE GOING TO DO A DEAL AND YOU DECIDE TO COME IN AND DO A DEAL. HOW DID THIS HAPPEN?

KOVACEVICH: WELL WE HAVE BEEN STUDYING THE BOOKS OF WACHOVIA OVER THE WEEKEND AND UNFORTUNATELY, THERE JUST WASN'T ENOUGH TIME TO ANALYZE IT COMPLETELY. WE RECEIVED A LOT OF DATA IN THE WEEKEND AND WE SPENT THE NEXT FEW DAYS ANALYZING THAT DATA AND DETERMINING WHAT THE RISK IN THE PORTFOLIOS WERE AND ALSO WHAT THE OPPORTUNITIES WERE, AND WE CAME TO THE CONCLUSION ON THURSDAY THAT WE COULD OFFER THE STOCK HOLDERS OF WELLS FARGO A MUCH IMPROVED STOCK PRICE. PERHAPS EVEN MORE IMPORTANTLY THAT THEY GET TO SHARE IN THE UPSIDE AS WE GROW AND SUCCEED WITH THIS TERRIFIC COMBINATION. IT'S GOOD FOR THE GOVERNMENT, BECAUSE WE DON'T USE A PENNY OF THE TAXPAYERS MONEY, AND ITS GOOD FOR THE TEAM MEMBERS OF WACHOVIA. WE SHARE SIMILAR VALUES AND ETHICS. WE LIVE IN SIMILAR COMMUNITIES, AND WORK IN THOSE COMMUNITIES, SO ITS A GOOD DEAL FOR EVERYBODY.

BARTIROMO: AS OPPOSED TO THE DEAL WITH CITI WHERE THE FDIC WAS THE BACKER THERE. HAVE YOU HAD CONVERSATIONS WITH THE FDIC?

KOVACEVICH: YES, WE HAVE CONVERSATIONS WITH REGULARS ALL THE TIME.

BARTIROMO: ABOUT THIS DEAL?

KOVACEVICH: AH, YES.

BARTIROMO: DID YOU GO TO THE FDIC AND DISCUSS THIS WITH THE FDIC?

KOVACEVICH: WELL, NOT IN ANY GREAT DEPTH, BUT WE'VE HAD CONVERSATIONS.

BARTIROMO: LET ME ASK YOU THIS. CITI ALREADY ASSUMES SOME RISK HERE, RIGHT? PROVIDING LIQUIDITY TO WACHOVIA MONDAY MORNING. THEY SAY THEY HAVE A SIGNED DOCUMENT AND OF COURSE THEIR SAYING THAT THIS MAY VERY WELL NOT GO FORWARD WITHOUT A FIGHT. HOW FAR ARE YOU WILLING TO GO? THEY MAY FILE A LAWSUIT. THINK THIS IS GOING TO TURN INTO A BIDDING WAR?

KOVACEVICH: WELL WE HAVE THE ONLY SIGNED MERGER AGREEMENT. NO AGREEMENTS WERE SIGNED AND THE TWO BOARDS HAVE APPROVED AND SIGNED THE AGREEMENT AS OF LAST NIGHT.

BARTIROMO: WHAT ABOUT THE IDEA THAT CITI HAS ALREADY ASSUMED RISK HERE, PROVIDING LIQUIDITY TO WACHOVIA MONDAY MORNING?

KOVACEVICH: I'M NOT AWARE OF THAT.

BARTIROMO: DID THE ECONOMICS CHANGE FOR YOU, DICK, IN THE LAST COUPLE OF DAYS? FOR EXAMPLE, ARE THERE TAX BENEFITS NOW THAT A BILL HAS BEEN SIGNED IN TERMS OF WRITE DOWNS FROM WACHOVIA? DID THAT GO INTO YOUR DECISION MAKING IN TERMS OF MAKING THIS MUCH MORE DESIRABLE?

KOVACEVICH: WELL, THE MAIN THING THAT MADE IT DESIRABLE WAS THAT WE HAD THE TIME TO ANALYZE PARTS OF THE PORTFOLIO THAT WE DID NOT HAVE TIME TO DO OVER THE WEEKEND. THAT WAS THE MAIN POINT. BUT WE ALSO DID GET SOME CLARIFICATION ON ISSUES SUCH AS TAXES AND OTHER IMPORTANT ISSUES THAT ALLOWED US TO MAKE THIS BID ON THURSDAY, THAT WE JUST DID NOT HAVE THE TIME AND INFORMATION ON TO DO ON SUNDAY.

BARTIROMO: SO THE TAX TREATMENT CLEARLY DID ENCOURAGE THE DEAL AS WELL?

KOVACEVICH: IT ALLOWED US TO GET SOME CERTAINTY AS OPPOSED TO AMBIGUITY.

BARTIROMO: LET ME ASK YOU ABOUT THE CERTAINTY OF THE ASSETS ON THE WACHOVIA BOOKS, AND REALLY YOUR OWN BOOKS. A LOT OF PEOPLE SAY LOOK, WE'VE GOT CREDIT RISK ALL AROUND HERE. ARE YOU COMFORTABLE THAT YOU HAVE ACTUALLY THE PROPER RESERVES HERE? WHAT ARE THE RISKS OF THE LARGE HOME EQUITY PORTFOLIO FOR ONE, AND THE DEBT CONSOLIDATION PORTFOLIO?

KOVACEVICH: WELL, AS WE ANNOUNCED TODAY TO INVESTORS, WE LOOKED AT THE CREDIT RISK OF WACHOVIA AND THINK THE LIFE OF LOAN LOSSES ARE ABOUT $74 BILLION AND WE THINK THAT IS AN ACCURATE AND GOOD NUMBER, AND WE CAN LIVE WITH THAT NUMBER, AND WE WILL OBVIOUSLY WORK TO MAKE THAT LESS AND IT COULD GO A LITTLE MORE, BUT WE THINK THERE IS ALSO SOME OPPORTUNITY. BUT WE THINK THAT THAT IS A VERY GOOD MOST LIKELY NUMBER, UNDER SOME STRESS SCENARIOS THAT OUR ECONOMY IS OBVIOUSLY IN.

BARTIROMO: AND, OF COURSE, WE KNOW THAT TODAY STANDARD AND POORS PUT WELLS ON CREDIT WATCH AND WE KNOW THAT -- YOU HAVE TALKED ABOUT RAISING FURTHER CAPITAL, OBVIOUSLY, $24 BILLION. WHERE DOES THAT MONEY COME FROM AND HOW COMFORTABLE ARE YOU ABOUT TAKING ON THIS ADDED PORTFOLIO GIVEN THE FACT THAT YOU ALREADY HAVE YOUR OWN ISSUES IN TERMS OF LEVEL THREE ASSETS? WHERE IS THE MONEY GOING TO COME FROM?

KOVACEVICH: WELL, WE ARE ALREADY IN TALK WITH INVESTORS AND WE THINK THAT THERE ARE A LOT OF INVESTORS WHO WANT TO INVEST IN THE OLD WELLS FARGO BUT NOW IN COMBINATION WITH WACHOVIA, THEY SEE THIS AS A POWERHOUSE AND IT'S NEVER EASY TO RAISE CAPITAL, PARTICULARLY IN THIS ENVIRONMENT BUT WE'RE VERY CONFIDENT THAT WE WILL GET THE CAPITAL THAT WE NEED.

BARTIROMO: WHY WOULD AN EQUITY INVESTOR STEP UP WHEN YOU HAVE TO RAISE $24 BILLION AND YOU DON'T HAVE ANY HELP FROM THE GOVERNMENT. CLEARLY YOU'RE COMFORTABLE KNOWING THAT YOU DON'T HAVE THE BACKING THAT CITIGROUP HAD. WHY WOULD AN EQUITY INVESTOR THEY STEP UP AT THIS ENVIRONMENT WHEN THE STOCK IS TRADING AT A PREMIUM VERSUS YOUR THE COMPETITORS?

KOVACEVICH: WELL, MAYBE IT'S BECAUSE OUR STOCK IS SELLING AT A PREMIUM. OUR REPUTATION SPEAKS FOR ITSELF. WE HAVE DONE SIMILAR DEALS IN THE PAST. WE KNOW HOW TO ANALYZE CREDIT. WE KNOW HOW TO ANALYZE RISK. WE HAVE THE BEST SALES CULTURE IN THE UNITED STATES. WE ARE THE ONLY AAA-RATED BANK IN THE UNITED STATES, ONE OF ONLY TWO IN THE WORLD, WHICH ILLUSTRATES THE SUCCESS WE'VE HAD IN THE PAST. WE'RE THE ONLY BANK THAT HAS HAD 20 CONSECUTIVE YEARS OF ANNUAL COMPOUND INCREASES IN REVENUE OF 12% AND EARNINGS OF 17%. WE HAVE A LONG TRACK RECORD OF DOING SMART DEALS AND PRODUCING FOR THE STOCKHOLDER, SERVING OUR CUSTOMERS WELL, AND LIVING IN OUR COMMUNITIES.AND IT'S WORKED FOR US. OUR CROSS SALE RATIOS ARE TWICE THE INDUSTRY AVERAGE.MOST OF THE PEOPLE INVESTING IN THIS DEAL ARE LONG-TERM INVESTORS WHO KNOW US WELL WHO BELIEVE THAT THIS IS JUST AN UNBEATABLE COMBINATION LIKE I DO AND OUR TEAM DOES.

BARTIROMO: SO TELL ME WHAT YOUR LEGAL TEAM HAS TOLD YOU ABOUT THE DEAL THAT WAS ALREADY IN PLACE WITH CITIGROUP AND HOW YOU ARE GOING TO FIGHT THIS? YOU KNOW YOU ARE UP AGAINST A FIGHT AND IT'S INTERESTING WHERE CITIGROUP IS WHERE YOU BEGAN YOUR CAREER. HOW ARE YOU ARE LOOKING TO GET AROUND THIS. WHAT IS ALREADY IN PLACE?

KOVACEVICH: WELL, AGAIN, WE HAVE THE ONLY SIGNED AGREEMENT. THERE WAS NO SIGNED AGREEMENTS, TO MY KNOWLEDGE, AT LEAST, WITH CITIBANK IN TERMS OF THIS MERGER AND IT'S THE BEST THING FOR THE SHAREHOLDERS, IT'S THE BEST THING FOR THE GOVERNMENT. NOT A PENNY OF TAXPAYER MONEY IS BEING USED. AND IT'S BEST FOR THE TEAM MEMBERS OF WACHOVIA. AND THEIR COMMUNITY. SO THOSE CONSTITUENCIES ARE VERY IMPORTANT TO THE DECISIONS AND WE BELIEVE THAT WE WILL SUCCEED.

BARTIROMO: IF THE DEAL DOES IN FACT GO THROUGH AND YOU DO SUCCEED, HOW WILL THE EXPENSES OF THIS DEAL AFFECT FUTURE EARNINGS? WHEN WOULD YOU EXPECT THE INTEGRATION TO TAKE PLACE? IS A YEAR AN AGGRESSIVE AMOUNT OF TIME OR IS IT BEYOND THAT?

KOVACEVICH: IT WILL TAKE ABOUT TWO YEARS TO INTEGRATE THE COMPANY AND WE EXPECT IT TO BE ACCRETIVE ON A FULLY LOADED BASIS BY YEAR THREE.

BARTIROMO: GIVE ME A SENSE OF HOW SIGNIFICANT THAT TAX TREATMENT IS IN TERMS OF WRITING DOWN ASSETS NOW THAT THE BILL IS IN PLACE FOR WACHOVIA.

KOVACEVICH: WELL, AS I SAID, IT WAS AN ELEMENT -- IT WAS MORE OF AN ELEMENT OF THE CERTAINTY OF WHAT THE EXACT SITUATION WOULD BE. IT IS, YOU KNOW, TAXES ARE A SIGNIFICANT PART OF THIS BUT IT WAS RECEIVING THE CERTAINTY THAT WE KNEW WHAT THE NUMBER WAS THAT ALLOWED US TO -- WAS ONE OF THE ELEMENTS, NOT THE MOST IMPORTANT ELEMENT. THE MOST IMPORTANT WAS OUR ABILITY, AGAIN, TO HAVE THE TIME TO ANALYZE WHAT THE ISSUES WERE AND THE TAX AND OTHER MATTERS, WE ALSO HAD A TIME TO FINALIZE THOSE AND THERE'S SOME UNCERTAINTY IN ANY OF THESE THINGS AND TO DO ALL OF THAT IN TWO DAYS WAS JUST IMPOSSIBLE.

BARTIROMO: NOW DICK, YOU SAY THAT YOURS IS THE ONLY SIGNED AGREEMENT IN PLACE AND YET CITIGROUP IS DEMANDING THAT THE TALKS STOP RIGHT NOW AND THAT YOU TERMINATE TALKS, NOT PROCEED WITH ANY PROPOSED TRANSACTION, THAT THEY HAVE AN EXCLUSIVITY AGREEMENT IN PLACE. HAVE YOU SPOKE WITH ANYONE FROM CITIGROUP?

KOVACEVICH: I HAVE NOT.

BARTIROMO: HOW ARE YOU RESPONDING TO THEIR DEMANDS THAT THE TALKS STOP IMMEDIATELY?

KOVACEVICH: OUR LAWYERS HAVE BEEN LOOKING OVERALL OF THE VARIOUS PAPERS AND IT WILL ADVISE US ON WHAT ACTIONS WE SHOULD TAKE.

BARTIROMO: THE COMPANY SAID IN A STATEMENT THAT CITI WAS NEGOTIATING IN GOOD FAITH AND NEARLY COMPETED THE DEFINITIVE AGREEMENTS REQUIRED TO MAKE THE TRANSACTION. THAT WAS IN A STATEMENT.IN GOOD FAITH MEANS JUST THAT. NOT NECESSARILY A WRITTEN DOCUMENT, AS YOU PUT IT. SO HOW WOULD YOU RESPOND TO THE CITIGROUP STATEMENT?

KOVACEVICH: I REALLY DON'T KNOW ANYTHING ABOUT THE TRANSACTION BETWEEN CITIGROUP AND WACHOVIA AND WHAT STAGE IT WAS IN OR NOT.WE SIMPLY SENT OUR AGREEMENT TO WACHOVIA AND THEY RESPONDED TO THAT. I'VE HAD NO DISCUSSIONS WITH WACHOVIA ON THEIR SITUATION WITH CITIGROUP.

BARTIROMO: CLEARLY IT WAS A SMART MOVE ON YOUR PART GIVEN THE FACT THAT THE COMPETITIVE LANDSCAPE HAS CHANGED QUITE A BIT FOR YOU JUST IN THE LAST WEEK OR SO WITH JPMORGAN AND WASHINGTON MUTUAL AND THEN WOULD HAVE CHANGED CONSIDERABLY WITH YOU COMPETING WITH CITIGROUP, IN CALIFORNIA. DID THAT ALSO GO INTO YOUR PLANS?

KOVACEVICH: WELL, NOT REALLY.YOU KNOW, THE MOST IMPORTANT DETERMINATION WE HAD TO MAKE WAS WHAT IS THE RISK IN THEIR PORTFOLIO AND WHAT ARE THE OPPORTUNITIES?AND THE REASON WE DID NOT MAKE THE DECISION ON SUNDAY AND HAD THE SAME ELEMENTS, WE KNEW WE KNEW WHAT WAMU WAS TAKEN OVER AND WE KNEW THAT CITI WAS IN THE MIX HERE BUT WE WILL NOT DO A DEAL UNTIL WE ARE SURE THAT IT MAKES SENSE FOR OUR STOCKHOLDERS AND FOR OUR TEAM MEMBERS AND WE NEEDED SIMPLY MORE TIME TO MAKE THAT DECISION. WE NOT ONLY MADE THE DECISION BUT WE MADE A DECISION THAT IS IN THE BEST INTEREST OF THE STOCKHOLDERS OF WACHOVIA, THE BEST INTEREST OF THE GOVERNMENT,AND THE BEST INTEREST OF THE TEAM MEMBERS OF WACHOVIA.

BARTIROMO: HOW DOES THE BAILOUT PASSED TODAY IMPACT YOU AT THIS POINT, THEN?

KOVACEVICH: IT HAD NO IMPACT ON THE DECISION OF THIS DEAL.WE HAPPEN TO SUPPORT THE BAILOUT AND THINK ITS GOOD TO GET THE ECONOMY MOVING AGAIN BUT IT HAS ABSOLUTELY NO IMPACT ON OUR DECISION.

BARTIROMO: REALLY AN EXTRAORDINARY TIME, DICK. CAN YOU GIVE US A SENSE OF HOW THE COMPANY IS DOING AND WHEN YOU WOULD EXPECT THE LOSSES TO REVERSE, GIVEN THE TOXIC ASSETS ON YOURS AND YOUR COLLEAGUES BOOKS?

KOVACEVICH: WELL, WE'RE OBVIOUSLY IN TROUBLED TIMES.I ACTUALLY THINK THAT WE ARE IN A RECESSION AND ARE LIKELY TO BE SO AT LEAST THROUGH THE END OF THE YEAR. BUT I WOULD ARGUE THAT THAT'S A SIGN OF THE BOTTOM. I THINK THE MOST IMPORTANT THING FOR THIS ECONOMY IS THAT WE REACH THE BOTTOM AND WE REACH THE BOTTOM AS QUICKLY AS POSSIBLE AND PARTICULARLY THE BOTTOM IN HOUSING PRICES.I CAN TELL YOU FROM SIGNS THAT WE'RE ALREADY SEEING THAT ONCE HOUSING PRICES REACH BOTTOM AND ASSUMING THE ECONOMY DOESN'T TOTALLY COLLAPSE, THERE'S GOING TO BE A LOT OF MONEY COMING INTO THE HOUSING MARKET. WHEN YOU PUT UP A FORECLOSED HOUSE AT ABOUT 10 TO 15% BELOW THE CURRENT VALUE, WE CAN GET 10 TO 12 BIDDERS FOR THAT HOUSE. THAT GIVES YOU AN INDICATION THAT WE'RE 10% OR SO FROM THE BOTTOM, MAYBE EVEN LESS. AND YOU GET A LOT OF BIDDERS FOR THAT. SO I THINK PEOPLE ARE GOING TO BE SURPRISED, ONCE THERE'S A DECLARATION AT THE BOTTOM, AT HOW FAST MONEY COMES INTO THAT INDUSTRY.

BARTIROMO: ISN'T IT FASCINATING THAT VIRTUALLY EVERY MAJOR BANK AND REALLY FINANCIAL SERVICES INSTITUTION OUT THERE DID THE SAME THING DURING THE EUPHORIC TIMES OF THE HOUSING BUBBLE? CAN YOU LOOK BACK AND TELL US HOW YOU BELIEVE AS A STUDENT OF THIS INDUSTRY FOR SO MANY YEARS WE GOT HERE?

KOVACEVICH: WELL, I WOULD ARGUE THAT ONE OF THE FEW INSTITUTIONS THAT DID NOT DO THE THINGS THAT OTHERS DID DURING THE EUPHORIC TIMES WAS WELLS FARGO WHICH I THINK WAS WELL DOCUMENTED BY ANALYSTS AND SO FORTH. WE DID NOT MAKE ANY NO DOC, LOW DOC, OPTION ARMS., NEGATIVE AMORTIZATION LOANS, FADED INCOME, TEASER RATE ARMS THROUGH SUBPRIME BORROWERS. NONE. WE LOST 4% MARKET SHARE AND ABOUT $160 BILLION IN ORIGINATIONS IN 2006 ALONE BECAUSE WE DIDN'T DO THAT AND WE'RE THE BENEFICIARIES OF THAT TODAY. I CANNOT IMAGINE WHY THIS HAPPENED OR HOW THIS HAPPENED. IT SHOULD NOT HAVE HAPPENED. IF I HAD TO PICK ONE WORD, I'D PICK GREED.

BARTIROMO: DICK, GREAT TO HAVE YOU ON THE PROGRAM. WE SO APPRECIATE YOU SPENDING THE TIME. THANK YOU

KOVACEVICH: THANK YOU MARIA.





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