Wells Fargo & Company at RBC Capital Markets Financial Institutions Conference - Final.(Broadcast transcript)

GERARD CASSIDY, ANALYST, RBC CAPITAL MARKETS: We'd like to get started with our lunchtime panel. But before we do, I want to introduce Jamie Anderson, Deputy Chairman of RBC Capital Markets, who would like to extend his welcome to you all for attending this conference. Jamie?

JAMIE ANDERSON, DEPUTY CHAIRMAN, RBC CAPITAL MARKETS: Thanks, Gerard. We like to have conferences when it's pretty topical, and it may be just a little too topical for all of our liking right now. But I have absolutely no doubt that the financial system will come through this better, stronger, with better insights as to what assets people have, why they have them, how they're managing them. Having said that, getting there from here is obviously unpleasant.

One of your panelists apparently three years ago predicted banking hell, and it was to last until 2010. We're clearly in it, and I think I'm not sure it's going to take until 2010. In talking with some of the people I've met with this morning, one of the great things about the US banking system in the US in general is -- I've been impressed and I've had the good fortune to live in the United States on and off over the years -- the speed with which you tend to absorb the pain and move on. Easier to say that if you're not at Lehman Brothers or AIG. But nonetheless, you watch industries get revitalized, reorganized, capital reallocated and we're right in the middle of that.

I think that makes a conference like this all the more important as investors try to fully understand the management teams they're meeting with. And as management teams really have the opportunity to explain to investors what their strategies are, the strategies of many companies are quite different. There is no doubt some of them will succeed, and succeed tremendously well. Regrettably, some may not, and we'll find out over time which those are. But it's a good opportunity and a good forum, and we very much appreciate you attending. I know it's got to be a distracting time for all of you right now, so taking the time out to spend time with us and with investors and issuers is important.

We hope you enjoy the panel at lunch. I think you'll find it very interesting. I know at least a couple of panelists reasonably well, and I'm sure that will be entertaining and intriguing. And we hope you gain some insights from this conference.

I'd be remiss if I didn't thank you for the business that you do with us. We always want to do more. I'd be remiss if I didn't say that. But thank you very much. And I look forward to the afternoon. And again, I hope you enjoy the lobster dinner this evening. And thanks for attending.

GERARD CASSIDY: As the panel works its way up to the dais here, I do want to remind everybody about tonight's lobster dinner at The Lobster Shack. We'll have buses, or vans I should say, leaving her at 6:15 if you need transportation. If you want to drive yourself, directions are on the back of your tag that you're wearing. Also, if you cannot -- if you've signed up to go to the dinner and you cannot attend, please let Stephanie or any of the women know that you're not going to attend. It is casual. Some of you that might be familiar with The Lobster Shack -- it is a casual evening, so you can wear, obviously, casual clothes.

What I'd like to do is quickly -- just two seconds -- introduce the folks that are on this dais to share with you our outlook for the re-capitalization possibly of banks with private equity, or the M&A activity that we might see over the next 12 to 24 months.

To my immediate left is Alison Davis from Belvedere. This is one of the early private equity firms focusing in on the banking industry. It is a bank holding company, or qualifies as a bank holding company, and they have raised over $250 million. I understand they're on a third fund as we speak now to primarily invest in the banking industry.

Rich Schaberg is to her left. He's a Managing Partner for Thacher Proffitt, one of the leading law firms here in the United States. And Rich has got a great history of the community banks here on the East Coast.

To Rich's left is Bruce Helsel, Executive Vice President and Head of Corporate Development for Wells Fargo. We were talking at lunch over the salad, and we were comparing numbers. And Wells has probably acquired or has sold off over 200 companies over the last ten years. So Wells has been a very active player in the M&A market.

And then to his left is John Kanas, who is the former Chairman and CEO of North Fork Bank. He is currently a Senior Consultant at WL Ross & Company, and is involved on the private equity side and recently has filed for a bank holding company qualification as well. John does have to leave about 15 minutes early, so when he gets up to leave, you'll know why.

But with that, maybe we can kick it off with the first question, which is M&A. As all of you know, there's been a lack of activity in the M&A market for banks over the past 12 months.

GERARD CASSIDY: Possibly starting with you, Alison, we can kick it off with what your view is or what you're hearing. Why has the M&A activity been so slow? And do you see it changing in the next 12 months?

ALISON DAVIS, BELVEDERE: Well, I think -- you know, one of the bigger issues of the last 12 months has been that -- you know, potential sellers are -- you know, unwilling to sell. And those that are reasonably healthy are unwilling to consider selling or raising dilutive equity capital in the current market environment. And so a gap between buyers -- you know, buyers that are willing to pay and sellers has been an issue.

And then -- you know, on the distress end is companies that really need to raise capital are in trouble. I think this has been an unwillingness to invest in banks that have big holes in their loan portfolios. And then you add to that -- you know, bigger banks who might be acquired -- I mean, everybody's multiples are down, everybody's trying to conserve capital and people are pretty distracted.

There have, though -- I think M&A activity is off 90% versus last year in volume. But in terms of number of deals, it's only off 50%. And there have been quite a few deals at the smaller end of the market.

GERARD CASSIDY: Rich, your thought from the legal perspective? Your clients?

RICH SCHABERG, THACHER PROFFITT, MANAGING PARTNER: Well I think that -- you know, primarily the traditional buyers' currencies have been hit. And so -- you know, stock acquisitions are tough to do from a dilution standpoint. And traditional buyers as well are looking at their own balance sheets and looking to preserve capital relative to their own loan portfolios. You put those two together and it's difficult to really jump and pull the trigger on a deal. And I think Alison's comment is true. Both buyers and sellers are all looking at their own loan portfolios, or more recently their investment portfolios, to see if they have impairment issues and the like. So it's just volatility that's really held things up for the first -- you know, three-quarters of this year. I do think that the pent-up demand will eventually overtake those factors, and you will see a pick up in volume of transactions as well.

GERARD CASSIDY: Bruce, before we jump to you, just -- Rich, another question for you. The clients that have hired you in the past that have sold -- could you share with the audience what was the final factor that the Chairman or CEO said we're ready to sell? Is there any one common link?

RICH SCHABERG: Other than the size of the [surp]? No, seriously it's -- you know, there are competitive factors that are present in this marketplace, in this sector. And smaller institutions are just finding it much more difficult to compete. And the resources that are necessary to -- you know, meet compliance and technological costs can be daunting. And so mostly it's just a recognition that the franchise is better served by partnering with someone with greater resources.

GERARD CASSIDY: Bruce, what's happened in the past 12 months and what you might see over the next 12 months, from your perspective?

BRUCE HELSEL, EXECUTIVE VP AND HEAD OF CORPORATE DEVELOPMENT, WELLS FARGO & COMPANY: Yeah. From my perspective it's been primarily credit-driven. You know, the problems with the credit cycle is that assets are very difficult to value. And so there's a huge bid-ask spread on any asset level on franchise. And so as you're looking to buy a bank or a company with assets and loans, it's just very difficult to get agreement on …