Wells Fargo & Co. (NYSE: WFC) Abused Tax Break Relating to Wachovia Issue, FCIC Says

The Financial Crisis Inquiry Commission is accusing Wells Fargo & Co. (NYSE: WFC) of taking advantage of a tax-break that was never approved by the Congress during its 2008 takeover of Wachovia, adding billions of dollars to the cost of bailouts.

Former Representative Bill Thomas said that Wells Fargo’s interpretation of IRS rules during the take-over amounted to “an unprecedented executive branch usurpation of tax law” during a hearing yesterday.

The panel is questioning the government’s decision to try to save such large firms as American International Group and Wachovia, while leaving others such as Lehman Brothers to fail.  The firm is also looking at subsidies that banks received, including Wells Fargo & Co. (NYSE: WFC)’s tax break, which analysts said may have been worth billions of dollars.

In September 2008, the IRS gave tax breaks to companies which acquired struggling banks. The issue was never approved by Congress and was later reserved. The change allowed acquiring firms to write-off more losses from the merger bank, which helped Wells Fargo & Co. (NYSE: WFC) offer a more competitive bid for Wachovia than the previous high offer from Citigroup, Inc (NYSE: C).

Thomas said that the break “changed the fundamental rules of the game.”

Initially, Wachovia had planned to be purchased by Citigroup, Inc (NYSE: C) in a deal with government aid for $2.16 billion, however, Wells Fargo & Co. (NYSE: WFC) then offered $15 billion in stock in a dela which did not include any direct U.S. support.

Wells Fargo & Company is a diversified financial services company. The Company provides retail, commercial and corporate banking services through banking stores located in 39 states and the District of Columbia. It provides other financial services, through subsidiaries engaged in various businesses, principally wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency and brokerage services, computer and data processing services, trust services, investment advisory services, mortgage-backed securities servicing and venture capital investment. The Company operates in three segments: Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement. As of December 31, 2009, the Company provided banking, insurance, investments, mortgage and consumer finance from more than 10,000 stores under various types of ownership and leasehold agreements.

Shares of Wells Fargo & Co. (NYSE: WFC) traded up 0.65% during mid-day trading on Thursday, hitting $24.82.