Wells Fargo Exceeds Fed Minimum Capital Level Under Stress Scenario
June 23 2016 - 5:00PM
Dow Jones News
By Emily Glazer
Wells Fargo & Co. has the capital to keep lending in a
severe economic downturn, the Federal Reserve calculated Thursday
in the first stage of its annual stress tests.
At the low point of a hypothetical recession, Wells Fargo's
common equity Tier 1 ratio, which is a measure of high-quality
capital as a share of risk-weighted assets, was 7.2%, exceeding the
4.5% level the Fed views as a minimum, the central bank
estimated.
Wells Fargo's Tier 1 leverage ratio, which measures high-quality
capital as a share of all assets, was 6.6%, exceeding a 4%
minimum.
The stress tests simulate a world-wide recession. The results
were under the Fed's "severely adverse" scenario of financial
stress, which this year included a 10% U.S. unemployment rate,
significant losses in corporate and commercial real estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
The results will factor into the Fed's decision next week about
whether to approve the bank's plan for rewarding shareholders with
dividends or potential share buybacks. Banks whose capital ratios
dropped close to minimum levels may choose to scale back their
dividend or buyback plans before the Fed announces its final
decision Wednesday. That day, the banks can choose to announce
whether they are raising their dividends or buying back more
shares, important for enhancing shareholder returns.
Both of Wells Fargo's ratios were up from last year, when the
Fed calculated the bank would have a common equity Tier 1 capital
ratio of 6.9% and a Tier 1 leverage capital ratio of 6.4%.
Wells Fargo also passed last year, but certain capital and
leverage results were down more than 2 percentage points from its
2013 results.
Over the past three years, Wells Fargo has returned more capital
to shareholders in the form of dividends and share buybacks than
peers J.P. Morgan Chase & Co., Citigroup Inc. and Bank of
America Corp.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
June 23, 2016 16:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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