June 2, 2013 8:00 pm
Wells chief warns Fed over debt proposal
By Tom Braithwaite in San Francisco
Wells Fargo’s chief executive has warned the Federal Reserve against forcing banks to hold more long-term debt, a measure that central bank officials believe will help end the phenomenon of institutions judged “too big to fail”.
John Stumpf said the Fed was giving mixed messages on debt and his bank should not be punished for the fact that it is largely funded by deposits. “Sometimes they say ‘We want more debt,’ sometimes they say, ‘Geez, too much debt’s not great either’,” he told the Financial Times.
Regulators are planning to impose a minimum level of long-term debt in an effort to improve the system for dealing with large financial groups on the brink of failure. Under a new “orderly liquidation authority”, unsecured debtholders would be forced to swap their debt for equity in a recapitalised group.
Providing a more credible solution for winding down large financial groups would help end the belief that the largest banks such as Wells Fargo, Bank of America and Citigroup would always be bailed out by the government, the so-called “too big to fail” issue, which has become a recent target for criticism in the US.
Mr Stumpf’s comments come as he plays a more active role as a spokesman for the banking industry, particularly after Jamie Dimon, chief executive of JPMorgan Chase, has reined in his criticism of regulators amid multiple probes into his bank.
“We tend to speak out one-on-one with regulators and legislators but I’m trying to make sure there’s another side to this public debate,” he said, adding: “We’ve got $100bn with the Fed right now. We lend them money. They don’t lend us money.”
San Francisco-based Wells Fargo, the biggest bank in the US or Europe by market capitalisation at $217bn, is vulnerable to the requirement to hold more debt because its unusually large deposit base brings down its funding costs. Raising debt in the market is more expensive.
Richard Ramsden, analyst at Goldman Sachs, warned last week that “as a largely deposit-funded bank, Wells Fargo is the most exposed” to the Fed’s proposal and estimated the bank could face a 15 per cent drop in earnings.
“Because we have this substantial self-funding with consumer deposits we don’t have a lot of debt,” said Mr Stumpf. “I hope the Fed and the regulators will not use a blunt instrument to say one size fits all. We have much more in common with our funding to a US Bank, to a PNC [large regional banks] than we do to a Citi or a JPMorgan Chase.”
However, Wells’ unique funding and asset mix should help it navigate another proposal from Fed officials, if it comes to fruition – raising the leverage ratio. Senior Fed officials have proposed requiring banks to hold more equity against total assets, which could hit institutions such as Morgan Stanley and JPMorgan Chase. “It’s a bit of a mox nix [neutral] for us,” Mr Stumpf said.
Mr Stumpf, 59, gave a clear indication of his likely tenure as chief executive, noting that the company had a retirement age of 65. “If the board wants me to – and I serve at their pleasure – I’ll serve to the end,” he said.
John Stumpf said the Fed was giving mixed messages on debt and his bank should not be punished for the fact that it is largely funded by deposits. “Sometimes they say ‘We want more debt,’ sometimes they say, ‘Geez, too much debt’s not great either’,” he told the Financial Times.
Regulators are planning to impose a minimum level of long-term debt in an effort to improve the system for dealing with large financial groups on the brink of failure. Under a new “orderly liquidation authority”, unsecured debtholders would be forced to swap their debt for equity in a recapitalised group.
Providing a more credible solution for winding down large financial groups would help end the belief that the largest banks such as Wells Fargo, Bank of America and Citigroup would always be bailed out by the government, the so-called “too big to fail” issue, which has become a recent target for criticism in the US.
Mr Stumpf’s comments come as he plays a more active role as a spokesman for the banking industry, particularly after Jamie Dimon, chief executive of JPMorgan Chase, has reined in his criticism of regulators amid multiple probes into his bank.
“We tend to speak out one-on-one with regulators and legislators but I’m trying to make sure there’s another side to this public debate,” he said, adding: “We’ve got $100bn with the Fed right now. We lend them money. They don’t lend us money.”
San Francisco-based Wells Fargo, the biggest bank in the US or Europe by market capitalisation at $217bn, is vulnerable to the requirement to hold more debt because its unusually large deposit base brings down its funding costs. Raising debt in the market is more expensive.
Richard Ramsden, analyst at Goldman Sachs, warned last week that “as a largely deposit-funded bank, Wells Fargo is the most exposed” to the Fed’s proposal and estimated the bank could face a 15 per cent drop in earnings.
“Because we have this substantial self-funding with consumer deposits we don’t have a lot of debt,” said Mr Stumpf. “I hope the Fed and the regulators will not use a blunt instrument to say one size fits all. We have much more in common with our funding to a US Bank, to a PNC [large regional banks] than we do to a Citi or a JPMorgan Chase.”
However, Wells’ unique funding and asset mix should help it navigate another proposal from Fed officials, if it comes to fruition – raising the leverage ratio. Senior Fed officials have proposed requiring banks to hold more equity against total assets, which could hit institutions such as Morgan Stanley and JPMorgan Chase. “It’s a bit of a mox nix [neutral] for us,” Mr Stumpf said.
Mr Stumpf, 59, gave a clear indication of his likely tenure as chief executive, noting that the company had a retirement age of 65. “If the board wants me to – and I serve at their pleasure – I’ll serve to the end,” he said.
Copyright The Financial Times Limited 2013.
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