Richard M. Kovacevich is in the midst of the biggest merger integration he has ever attempted. But don't count him out of dealmaking just yet.

"There isn't a place that we don't think we'd benefit from increased market share and presence," the president and chief executive officer of Wells Fargo & Co. said in an interview. "And as it turns out, acquisitions are still the most effective way to increase presence."

Seven months after the former Norwest Corp.'s purchase of Wells Fargo, Mr. Kovacevich says the new, $201 billion-asset Wells could absorb a banking company up to a quarter of its size.

That appears to put Comerica Inc.-a $36.4 billion-asset banking company with headquarters on Wells' eastern frontier-atop the short list of companies he considers to be both geographically appealing and within Wells' financial reach.

To be sure, doing more deals does not seem to be the top priority for Mr. Kovacevich right now.

In a wide-ranging interview in his office at Wells' San Francisco headquarters, he also discussed the progress of the merger that created the seventh-largest U.S. banking company, the rise of Internet banking, and the flap over the popular pooling-of-interests method of merger accounting.

The market is taking a wait-and-see attitude toward the Wells/Norwest merger, given the company's unusually long three-year time frame for completing the conversion of systems. But Mr. Kovacevich gives himself and his colleagues high marks.

"If you put it all together, it certainly appears that we are doing, if not the best of all the big mergers, then one of the best," he said. "Most of the major decisions have been made about business models, people, and corporate policy. We've gone from spending 90% of our time on these decisions and 10% on implementation to the reverse."

Such progress is one reason why some market watchers have turned to speculating about Mr. Kovacevich's next acquisition. Reports circulated last Friday that Wells was bidding for $11.3 billion-asset Associated Banc- Corp of Green Bay, Wis., for as much as $3.2 billion.

No deal had been announced as of press time, and the companies have declined to comment. Mr. Kovacevich, too, declined to comment on the Associated rumor.

However, he said the fact that Wells Fargo has a team of acquisition specialists separate from its integration group would allow such a deal to come to fruition "without much of a problem."

"Continuing to increase our market share, particularly in our existing geographies, makes a lot of sense," Mr. Kovacevich said. He stressed that a major factor would be the complexity of an acquisition target, along with the geographical layout and the makeup of its business lines.

Branches-or "stores," as Mr. Kovacevich prefers to call them-have not lost their appeal with the former Norwest Corp. chief executive. He expressed great satisfaction that the merger with Wells Fargo brought with it one of the highest-rated on-line banking operations. But he said it was premature to discount the value of brick and mortar.

Giving customers the option to engage a teller face-to-face is "still extremely important," Mr. Kovacevich said. "Our competitive advantage is that we are strong in all distribution channels. I don't waste a lot of time wondering whether five years from now branch banking will make up 40% or 20% of customer usage."

For the most part, the bank is likely to focus on smaller deals, an area in which the former Norwest of Minneapolis developed an expertise. Last year, the banking company acquired 18 banks averaging $175 million of assets.

"We've got it down to a very efficient process," Mr. Kovacevich said.

Mr. Kovacevich, showing his retail background, likened Wells Fargo's acquisition strategy to that of big retail chains like Target, Safeway, and Wal-Mart, which are constantly opening locations around the country.

"You might ask, 'Yeah, why do I need one more? I've already got 13,000 (branches), and it doesn't mean anything,'" he said. "But if we keep doing that, someday it will mean something, and there will be 1,000 more stores out there."

Analysts said Wells Fargo's strategy of continually building its franchise through incremental acquisitions makes sense, because buying large chunks of market share tends to carry a bigger premium.

"If you buy a guy who has 10% of the market, you are going to pay more than if you buy three guys with 3% and one with 1%," said R. Jay Tejera, an analyst with Ragen MacKenzie Inc. in Seattle. "The sum of those parts is worth a lot more."

Texas is a good example of this strategy in action, Mr. Tejera noted. The state offers many potential community bank targets, of which Wells Fargo has snapped up 31 since 1994 to become the state's fourth-biggest bank. The latest deal came last month, when Wells Fargo bought $388 million-asset Texas Bancshares.

"They can do one deal after another in Texas," he said, noting that Wells Fargo's decentralized management allows regional executives to set up small acquisitions with the blessing of the bank's headquarters.

As it has done in Texas, Wells Fargo most likely will focus on in-market acquisitions, Mr. Kovacevich said. When asked where he thought his retail banking franchise needed filling in, he answered: "Everywhere."

Even in California.

Wells Fargo has a powerful distribution network there, but there is significant potential for bulking up, he said. In Southern California, he said, "we are not even close to where we want to be."

But Mr. Kovacevich also is eyeing territories beyond Wells Fargo's current 21-state retail franchise. He is interested in entering a "handful of midwestern-type states," pointing specifically to Missouri, Oklahoma, and Michigan, three states where the bank lacks branches.

One area of little interest to Mr. Kovacevich is the Northeast.

"We have so much opportunity in the Midwest and West, why dilute our priorities by going into a new geography?" he asked.

Nine of 10 of the fastest-growing states lie within Wells Fargo's franchise, and 50% of the nation's population growth will come from these states, he noted.

"Maybe in the next generation or 20 years down the road, someone else will head east, but it makes much more sense now to get a greater share where we already have this infrastructure," he said.

The looming elimination of the pooling-of-interests method of accounting for mergers has not created a sense of urgency for Mr. Kovacevich, as it has for many other bankers. Banks have long favored the pooling method because the acquisition premium being paid need not be deducted over time from earnings.

However, Mr. Kovacevich questioned the logic of the change, arguing that forcing banks to deduct goodwill for many years following a merger makes little sense.

"Why is it obvious to everybody else and not obvious to me that goodwill is a depreciable asset over some length of time?" Mr. Kovacevich said.

As an example, he pointed to the Wells/Norwest deal, arguing that it makes no sense to write off the goodwill of one company and not the other. "Why is this depreciating? If it were depreciating, I'm not sure I'd buy it," he said. "If anything, I think we are appreciating the franchise by buying it."

He suggested that a solution that "might be better than pooling" would allow merging banks to avoid amortizing the goodwill for years simply by writing it off right away. Regardless, Mr. Kovacevich said his bottom line is that he would like to see some logic injected into the writing of accounting rules.

"I didn't invent Monopoly, I just play it; I didn't invent these accounting rules, I just follow them," Mr. Kovacevich said. "But it would be nice if there was some logic to it, so I could at least tell my children, 'Well you see the reason you do goodwill is because it is logical.'"

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