Wells Fargo Sold Assets to Meet Fed Rules -- WSJ
August 01 2020 - 3:02AM
Dow Jones News
Lender was forced to act as customers borrowed on credit lines
amid pandemic
By Julie Steinberg and Ben Eisen
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 1, 2020).
Wells Fargo & Co. unloaded hundreds of millions of dollars
of assets during this spring's market collapse to stay out of
trouble with the Federal Reserve.
The Fed put limits on Wells Fargo's size as punishment for its
2016 fake-account scandal. Loans the bank made to customers drawing
on credit lines in the pandemic's early days increased its size,
and the bank scrambled to sell assets to get back in line,
according to people familiar with the matter.
One example: The lender sold assets tied to financing that helps
blue-chip companies, including Walmart Inc., manage their cash flow
and pay their suppliers, the people said. Wells Fargo ramped up its
sales of these assets more than usual in the second half of March
and early April during the financial markets' wildest days this
year, amid the coronavirus pandemic, some of the people said.
It is a reminder that Wells Fargo, the fourth-largest U.S.
lender, is navigating the worst economic crisis since the Great
Depression with a major obstacle in its path. The growth
restrictions have rippled across the bank, playing into its recent
decisions to pare back in consumer and commercial lending, The Wall
Street Journal has reported.
When coronavirus was roiling the markets, companies collectively
drew down hundreds of billions of dollars on their credit lines,
driving up the loans on banks' books. This massive drawdown caused
most banks' balance sheets to swell, but it put Wells Fargo in a
particularly tough spot. The bank had to quickly unload assets to
stay beneath the $1.95 trillion asset cap, the people said.
Wells Fargo has narrowly stayed under the asset cap over the
last two quarters, according to regulatory filings. It got a small
reprieve in April, when the Fed lifted the restrictions so the bank
could make loans through two federal small-business lending
programs during the coronavirus crisis.
"We must prioritize balance sheet capacity, both assets and
deposits, and there's certainly an opportunity cost for us in an
environment like this," Chief Executive Charles Scharf said on July
14.
Wells Fargo opted to sell assets tied to financing arrangements
that companies use to pay their suppliers. In such deals, banks
directly pay a company's suppliers, sometimes earlier than usual
and at a discount to the invoiced amount. The bank makes money on
the spread between what it paid the suppliers and what the
companies later repay the bank.
Banks like supply-chain financing because it can provide steady
revenue from customers they already know and work with in other
capacities. Banks often sell assets tied to these deals to other
banks and investors, much like a syndicated loan.
Wells Fargo still holds a large portion of these
multibillion-dollar supply-chain financing facilities, including
with Walmart, according to some of the people. A spokesperson for
Walmart said it understands that "syndication and inviting other
banks to participate in these programs is common."
During the spring market mayhem, Wells Fargo sold roughly 10%
more receivables than it does on average, one of the people said.
The bank didn't sell the assets at a loss, another person said.
The supply-chain finance assets were good candidates to sell
because they are relatively liquid, with a turnover of about 30 to
90 days, said some of the people. Freeing them up also doesn't much
impact relationships with corporate customers, which are used to
having a number of financial institutions hold some of their
obligations.
Write to Julie Steinberg at julie.steinberg@wsj.com and Ben
Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
August 01, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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