Wells Fargo Chief Critical Of Fed’s Debt Proposal

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Wells Fargo Chief Critical Of Fed’s Debt Proposal
By The original uploader was Henry W. Schmitt at English Wikipedia (Transferred from en.wikipedia to Commons.) [Public domain], via Wikimedia Commons

Wells Fargo & Co (NYSE:WFC)’s chief executive warned the Federal Reserve against changing requirements to force banks to hold more long-term debt.

Wells Fargo Chief Critical Of Fed's Debt Proposal

According to a Financial Times report, John Stump, the chief executive of Wells Fargo & Co (NYSE:WFC) indicated that the Federal Reserve was wrong in presuming such high debt would prevent a large institution from failing.

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Walls Fargo’s Chief criticizes Fed:

John Stump also criticized the Federal Reserve for sending conflicting signals on the level of debt that the Federal Reserve wants the banks to hold.

San Francisco-based Wells Fargo & Co (NYSE:WFC) has a market capitalization of $217 billion. With such a large market cap, it is the biggest bank in the U.S. or Europe.

The large bank is primarily a deposit-funded bank that brings down its funding costs. On the other hand, raising debt from the market would increase the bank’s cost of funding.

Mr. Stump thus hoped that the Federal Reserve and other regulators won’t push a ‘blunt instrument’ for their ‘one-size-fits-all’ approach.

The chief executive also clarified that with the bank’s substantial self-funding through consumer deposits, the bank doesn’t have a lot of debt. He compared Wells Fargo & Co (NYSE:WFC) with other banks in the U.S. such as U.S. Bank and the large regional bank such as PNC Bank.

Mr. Stump made it clear that it would be wrong to compare Wells Fargo & Co (NYSE:WFC) with large banks such as Citigroup Inc (NYSE:C) or JPMorgan Chase & Co. (NYSE:JPM), as Wells Fargo & Co (NYSE:WFC) has much more consumer deposits.

Last week, Goldman Sachs analyst Richard Ramsden warned that with its large deposit funding, Wells Fargo & Co (NYSE:WFC) is the most exposed to the Federal Reserve’s proposal of holding more long term debt. He estimates such a proposition could drag Wells Fargo’s earnings by 15 percent.

Wells Fargo & Co (NYSE:WFC)’s unique funding and asset mix should help it navigate the Federal Reserve’s another proposal viz.: raising the leverage ratio. Such a proposition from the Federal Reserve would entail holding more equity against total assets, which would hit larger institutions such as J.P. Morgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS).

John Stump, the chief executive of Wells Fargo & Co (NYSE:WFC) is recently seen as a spokesman for the banking industry, after Jamie Dimon of JPMorgan Chase & Co. (NYSE:JPM) is embroiled in multiple probes from the regulators on his bank’s activities.

Financial Times also reported that Mr. John Stump, now 59, would like to serve the bank till he completes 65, if the Bank’s board desires so.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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