Earlier this week, Wells Fargo (NYSE:WFC) CEO John Stumpf told Bloomberg Television that the San Francisco lender is set on repaying the government's $25 billion TARP investment soon without resorting to an extra share offering. That reminds me of General Electric (NYSE:GE) CEO Jeff Immelt's assurances in January that GE was committed to maintaining both its dividend and its triple-A credit rating (GE kept neither). Is Mr. Stumpf guilty of wanting to return his Treasury cake and eat it, too?

Laggard or leader?
The better-run institutions that received the first round of TARP investments -- including JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), and US Bancorp (NYSE:USB) -- have all repaid the government's funds by now. By that criteria, Wells Fargo is lumped in with two lower-quality peers Bank of America (NYSE:BAC) and Citigroup (NYSE:C). Nonetheless, Wells still trades at the upper end of sector valuations -- at least on the basis of price-to-book value and price-to-tangible book value:


Price / Book Value

Price / Tangible Book Value

P/E (Current Fiscal Year + 2)

US Bancorp (NYSE:USB)




Wells Fargo (NYSE:WFC)




JPMorgan Chase (NYSE:JPM)




Bank of America (NYSE:BAC)




Citigroup (NYSE:C)




The bottom line
Wells Fargo certainly has the capacity to earn its way out of the capital shortfall the government identified in its stress test -- over time. But with a current Tier 1 Capital ratio of 9.80%, it's only in the middle of the pack in terms of capital adequacy, so it's far from clear that the immediate repayment of TARP funds would elicit a positive reaction from investors. This proud firm may be better off biding its time in the company of the industry's "dunces" for now -- I expect its results will set it apart again over the next few years.

Wells Fargo is a high quality company. Morgan Housel has identified three other high-quality companies that are still cheap.

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Alex Dumortier, CFA, has a beneficial interest in Wells Fargo, but not in any of the other companies mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. Motley Fool has a disclosure policy.