Wells Fargo Chairman Dick Kovacevich says the battered banking industry is rife with buyout opportunities.

The San Francisco banker has a long-standing reputation as a disciplined buyer who often sits on the sidelines when banks are selling at robust prices. But he doesn’t mind picking up damaged goods when the price is right.

“Wells Fargo often buys fixer uppers,” Kovacevich said in a speech at the Association of Corporate Growth 2008 conference in Beverly Hills Wednesday. “Given the financial conditions today I feel like a kid in a candy store.

“There is a lot out there today,” he said.

“We are buying with both hands right now, as we have done for the past year,” he added.

Many of those acquisitions are in the insurance brokerage business -- a key growth area for the bank. Other recent deals involved snapping up community banks in promising markets where Wells was eager to expand market share.

As for acquisitions involving major banks, Wells Fargo CEO John Stumpf told the San Francisco Business Times earlier this year that he was open to considering a merger in which the Federal Reserve offered assistance to make a deal more attractive for Wells.

California’s second-largest bank is reportedly looking at Seattle-based Washington Mutual, (NYSE: WM) which is on the auction block and may require government assistance to get this huge headache off regulators’ hands.

Kovacevich also told his audience Wednesday that the current economic decline differs from earlier downturns he’s witnessed.

“I’ve been through six cycles and this is the only cycle where the problems started with financial services companies,” he said. “Usually what happens is our customers get into problems, then we get into problems, but we caused this.”

However, Wells Fargo’s prudent lending in recent years didn’t occur without a cost.

Wells Fargo’s (NYSE: WFC) mortgage business lost 4 percent market share annually between 2005 and 2007, Kovacevich said, adding that the bank missed out on $160 billion in fees in 2006 alone due to its decision to not offer risky mortgage products like the so-called option ARMs. The controversial mortgages are now creating huge headaches for rivals such as Wachovia (NYSE: WB) and Washington Mutual. (NYSE: WM)

Kovacevich said regulators should have seen it as a red flag when “someone who has been in the business for 30 years wouldn’t do it,” Kovacevich said, saying that their missing that warning sign is further evidence that “our regulatory system is not working.”

Kovacevich, never one to mince words, was blunt in saying the Federal Reserve took the right step in taking over troubled insurer American International Group (NYSE: AIG) by extending an $85 bridge loan while allowing Lehman Brothers Holdings to go bankrupt Sept. 15.

“I know they didn’t want to give AIG all the money they did, given what they did with Lehman,” he said. “But it really had the potential to bring down not only the U.S. insurance markets ... but quite frankly a lot of the rest of the world.”

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