With much of the banking industry focused on mergers and acquisitions, Wells Fargo & Co. stands out like a sore thumb.

Instead of expanding its portfolio, the $51 billion-asset bank has been shedding units. It has not made a bank acquisition in nearly five years. And local observers say the San Francisco-based bank is closing branches.

Amid the general merger mania, the bank has come under criticism for standing to one side. Some observers have recently touted the idea of a Wells acquisition of in-state rival First Interstate Bancorp - and have complained that neither bank seems to be interested.

Why has Wells chosen the road less traveled?

One reason is its shareholder return. It has been so strong that acquisitions that wouldn't generate similar results are hard to justify. It is especially hard for the bank officials to justify acquiring branch systems that they believe may be outmoded in 10 years.

Wells executives "are not interested is buying brick-and-mortar branches," said Campbell Chaney, a banking analyst at Rodman & Renshaw, San Francisco. "They find it more beneficial in the long run to develop strategies around branchless banking."

In the last 10 quarters, Wells' stock has risen 66%, while the Salomon Brothers superregional average has inched up only 4%. Warren Buffett has a large stake in Wells, and his presence undoubtedly has helped boost the stock.

Wells had a 24.31% return on average common equity in the second quarter. That was 39 percentatge points better than the superregional average, although Wells' number was inflated by its not taking a loan-loss provision in the quarter.

Wells makes better returns for shareholders than it would by "just scooping up a bunch of assets, liabilities, and deposits," Mr. Chaney said.

"What they are telling Wall Street is that they find investing in their own stock, which has a 25% return, a better deal than buying someone else's," he added, noting that since 1994 the bank has initiated two share repurchase programs for a total of 20% of its stock.

When it comes to mergers, Wells' pencil has always been sharper in demanding returns, said Carole Berger, senior bank analyst at Salomon Brothers. The bank's internal hurdle rate is probably at least an 18% return on investment, a threshold that is very difficult to reach when sellers are demanding at least twice book value for their stock, she explained.

One reason Wells this year sold the money manager it jointly owned with Nikko Securities Co. to Barclays PLC year was that the returns were not up to Wells' high standards, Ms. Berger noted.

Wells Fargo's high-tech strategy also counts against participation in bank mergers.

The bank is widely viewed as being at the forefront of developing alternative delivery systems, and is one of the first to wade into the brave new world of electronic commerce.

Two weeks ago Wells became the first U.S. bank to use Mondex, the European electronic cash system, on a trial basis. The bank is widely expected to be one of the U.S. owners of the infant system.

Wells remains in the minority in its disdain for traditional branches. Banks have agreed to spend nearly $30 billion this year - already an annual record - to buy other banks.

First Union Corp.'s chief executive Edward Crutchfield said in June when announcing his bank's agreement to buy First Fidelity Bancorp. that he was not just buying its 706 branches, but its customers. And he pointed to the new banking behemoth economies of scale.

Of course there is a future for bank branches, said Rick Zona, chief financial officer of Minneapolis-based First Bank System Inc. The $34 billion-asset superregional has announced six acquisitions since 1994.

"Branches will still be viable even 10 years from now with other forms of customer service," he said. "Even today, if you look at a number of branch systems, including ours, business contributions exceed the contribution from consumers."

Nonetheless, Mr. Zona conceded Wells had a point about the declining value of branches. First Bank System has shed 26% of its branches in the last five years.

"Most banks say they buy the branches to buy the customer," Ms Berger said. "But Wells' view is we are not even sure that is what we are buying. If delivery systems change materially over the next two decades, then we may not even be able retain those customers."

Wells does not release information on the number of branches it has closed. However, Mr. Chaney said he sees at least anecdotal evidence that Wells is thinning out its network of conventional branches while opening microbranches in malls and supermarkets.

And what about the dream merger with California rival First Interstate? "It would be a merger made in heaven," Mr. Chaney said, citing the potential cost savings implied by the overlap in their California operations.

But the chief executives of the two banks are both new and under 50 years of age, Mr. Chaney noted. Other superregionals are almost obsessed with asset size and top-10 rankings, but Wells has never been interested in pecking orders, he said.

"They are looking longer-term, and the real competitors will not only be banks but the likes of the technology companies, the nondepository financials, the Fidelity mutual funds," Mr. Chaney said.

Wells needs a low-cost delivery system, he said. "I think they are far and away ahead of the other banks."

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