WASHINGTON -- Wells Fargo, the nation's seventh-largest commercial bank, planned to convert to a thrift charter but dropped the idea earlier this month when regulators warned it would spark a political firestorm, according to several people familiar with the matter.

Wells, which is based in San Francisco, evidently planned the bombshell maneuver to take advantage of the broader powers permitted by a thrift charter.

But regulators feared that a charter conversion by such a prominent bank could start a stampede by other banks and raise the ire of Congress, which would likely view it as an at tempt to skirt banking restrictions.

As Wells Fargo's board prepared to vote on the plan earlier this month, Comptroller of the Currency Eugene A. Ludwig told the bank's management that the move would spur a congressional inquiry, according to a regulatory source and another source familiar with the matter.

Another source said a Federal Reserve official objected to the plans as well.

To change charters, Wells would need the permission of the Office of Thrift Supervision. But it would only have to notify the Comptroller's office, which regulates the bank, and the Fed, which regulates its parent, Wells Fargo & Co.

Business Considerations Cited

Wells' chief executive Carl E. Reichardt, reached by phone Thursday morning, said: "We are really not going to comment on it."

Later, a Wells spokeswoman said: "We had looked at this option and decided at this time that it did not make business sense."

Mr. Ludwig said Thursday he "simply will not discuss an individual bank matter." The Fed also declined to discuss the matter.

Jonathan L. Fiechter, acting OTS director, would only say that Wells never applied for a thrift charter.

It was not clear which thrift powers Wells was most interested in. Thrifts, for example, can branch nationwide and their parent companies can invest in or sell insurance, securities, and real estate.

There would appear to be major obstacles to a conversion by Wells.

Thrifts must hold 65% of their assets in housing-related investments such as home loans and mortgage-backed securities. But just 38% of Wells Fargo's assets were in such assets at the end of June, said Robert J. Warren, senior vice president at the Dallas-based consulting firm Ferguson & Co.

In addition, no more than 10% of a thrift's assets can be loans to businesses, whereas Wells is a major corporate lender.

It was not clear how Wells intended to comply with the asset requirements.

Stable Premium

But one problem Wells would not have faced is higher premiums for deposit insurance.

Thrifts pay higher premiums than banks because of costs associated with the thrift industry cleanup, but Wells would have continued to be insured by the Bank Insurance Fund. That's because Congress issued a moratorium on transfers between the bank and thrift funds.

The moratorium was aimed at preventing thrifts from evading the higher premiums by converting to bank charters, but it also prevents banks from joining the thrift fund.

Wells had evidently weighed a charter switch for some time. Months ago, it notified senior regulators about its plan. According to one regulatory source, the bank asked Mr. Ludwig if a conversion would be legal and if it would create political problems in Washington.

Mr. Ludwig reportedly replied that a conversion would be legal. But later he indicated that the maneuver might cause political problems, the regulatory source said. The comptroller reportedly said "this kind of conversion could raise eyebrows" and added that Congress would ask whether regulators should "allow charter shopping."

"It is true that there are certain conversions that do raise the likelihood of political inquiry and congressional concern," the regulatory source said. "For example, if an entity were perceived as trying to get additional powers out of strict regulations."

Since April of last year, healthy federally chartered thrifts have been allowed to branch nationwide. Few thrifts have taken advantage of the branching powers, which large banks have been unsuccessfully fighting for years to gain.

Boost for Branching

Treasury Secretary Lloyd Bentsen announced on Monday that the Clinton administration would support limited interstate bank branching, but did not go as far as some commercial banks had hoped. The Treasury approach, which faces a tough fight in Congress, would permit banks to convert their multistate subsidiaries into a single, multi-branch operations.

"A lot of people have been surprised by how little interest has been shown by thrifts in this [branching] authority," said Mr. Fiechter, the thrift regulator. "The big thrifts are pretty comfortable in their local markets."

Banks that convert to thrift charters would have a single regulator, the OTS, instead of being watched over by the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corp., as banks and their parent holding companies are.

The Grass Is Greener...

Wells Fargo wanted to switch to a thrift because it permits broader activities than a bank charter

Thrift holding companies can:

* Underwrite securities

* Invest in or sell insurance

* Invest in or sell real estate

Federally chartered thrifts can:

* Branch nationwide

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