PhillyDeals: Wells Fargo thrives, its stock dips. Why?

Wells Fargo & Co.

, which became Philadelphia's largest bank when it bought

Wachovia Corp.

last year, reported higher-than-expected profit yesterday.

So why did the stock fall 5 percent?

The bank's reported profit "seems to be due to two factors," reports veteran Wall Street analyst Richard X. Bove, now with Rochdale Securities L.L.C.: huge earnings from its home-mortgage servicing and investment business - which are notoriously "volatile" - and lower tax rates.

"It is an unsustainable profit," Bove told clients in a report. "Loan losses seem to be accelerating." The bank is lending less to business and home buyers in the recession. It's buying government-backed bonds instead.

He doesn't see Wells' lending profits improving for another year.

Bove says Wells is doing a "superb" job integrating Wachovia into its nationwide network. Too bad it brought along a "cancerous loan portfolio," he added.

So Bove recommended investors sell the stock, and some did.

The

Federal Reserve

did too much, and the elected government planned too little, in fighting the financial collapse that started last year.

That's what I read from Philadelphia Federal Reserve President Charles I. Plosser's remarkable speech Tuesday night at Stanford University.

"During the past year, the Fed has taken extraordinary actions to ensure financial stability that have gone far beyond" the sound central-bank concept of making money available to solvent banks at not-too-attractive rates when they need some, Plosser said.

First, he said, the Fed "supported the ongoing survival of institutions deemed too big to fail." Then, he added, "we offered no systematic view as to how and when the Fed would intervene," investing in American International Group Inc., letting Lehman Bros. Holdings Inc. fail, and sparking a frenzy of lobbying by groups wanting bailouts.

"No firm should be too big to fail," Plosser said.

When giant companies fall, Plosser contended, "a body other than the Fed should have the authority to fail these firms, wipe out shareholders' stakes in the firm, force uninsured creditors to take haircuts, and unwind the firm in an orderly manner . . .

"We strayed into credit allocation that, in my view, should be the purview of fiscal authorities and not the central bank."

The Fed should stick to "independent monetary policy," focusing on interest and inflation and the money supply.

If the peoples' representatives want to bail out industries, leave the Fed out of it, he suggested.

"Times of crisis are precisely when sound principles and a systematic approach to policy are most needed," Plosser concluded.

The U.S. government's role as a big owner of

General Motors Co., Citigroup Inc.

, and other large companies means that, sooner or later, it's going to get sued in

Delaware.

That's where those and other big companies are legally incorporated, and where the state Chancery Court hears cases when shareholders sue.

"The state could quickly lose its lucrative but tenuous position as king of the corporate hill if its courts get caught in the middle of a turf war" between federal and state law, University of Pennsylvania law professor Edward Rock told the Delaware corporate bar earlier this month, reports Thomson Reuters.

"Shareholder activists already see Delaware as overly protective of officers and directors who wrecked their companies in a quest for short-term subprime profits, and there is mounting pressure on the Obama administration to federalize" state business laws, Rock said.

So the best thing Delaware judges can do, the professor concluded, is "duck" and find reasons not to hear shareholder cases likely to get the government mad.

Not a call to self-sacrificing courage. But practical.

Rock's speech at the Hotel du Pont in Wilmington was this year's annual lecture sponsored by Francis G. Pileggi, still active in the bar at age 82.

His children include Pennsylvania State Sen. Dominic Pileggi, lately famous for beating back Gov. Rendell's attempted increase in the income tax, and Francis G.X. Pileggi, partner in the Philadelphia law firm Fox Rothschild L.L.P.

Delaware has reason to fear retaliation, the younger Francis Pileggi told me.

Citing figures from the Delaware secretary of state, he noted that as much as 40 percent of the state's yearly budget is paid from corporate taxes, unclaimed corporate property, and taxes paid by the specialized lawyers, accountants, trust banks, incorporation firms, and office-furniture companies that service the state's business-law sector.

"There's always been efforts to scale back Delaware's special role," he told me.

Why do big companies pick Delaware? Low taxes - and a century-old tradition of business-friendly courts.

"Delaware court decisions are more like the Sermon on the Mount than the Ten Commandments," young Pileggi said. "They sometimes give room for interpretation." Which he says is a good thing.