Wells Fargo Exceeds Fed Minimum Capital Level Under Stress Scenario

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)

Bank of America (NYSE:BAC)
Historical Stock Chart
From Mar 2024 to Apr 2024