Wells Fargo Has Biggest Risk Appetite, CreditSight Says

Wells Fargo & Co. (WFC), the U.S. bank with the biggest market value, takes greater risk on its investments in stocks and bonds than competing lenders, according to a CreditSights Inc. report.

Wells Fargo’s $227 billion portfolio of securities marked for sale yielded 3.97 percent at the end of June, the most among 17 of the largest U.S. banks measured by CreditSights, according to a Sept. 3 report from the New York-based financial-research firm. The company’s investments appear to have more credit and interest-rate risk than rivals, CreditSights said.

“Wells Fargo’s all-in securities yield of nearly 4 percent seems indicative of a higher risk appetite,” CreditSights analysts including Peter Simon wrote in the report.

Faced with sluggish loan growth and more deposits, U.S. banks are searching for ways to generate revenue. While some lenders have stayed in short-term, low-risk securities such as Treasuries, others such as San Francisco-based Wells Fargo have added to holdings with higher interest rates and longer maturities, according to the report.

After adding to higher-yielding asset classes in recent quarters, Wells Fargo held 16 percent of its securities portfolio in municipal bonds at the end of June. That’s above the upper threshold of 10 percent viewed as an “appropriate level,” according to CreditSights, which called the figure “on the high side but still manageable.” The prevailing level at most banks is 6 percent to 8 percent, CreditSights said.

The bank, run by Chief Executive Officer John Stumpf, 58, also increased the duration of its investments, a reflection of how long the debt will be outstanding. The weighted average expected maturity of 5.2 years at midyear was the longest of any bank that discloses the measure and was up from 4.9 years at the end of 2011, CreditSights said. The figure reached 6.1 years in 2010.

“Wells Fargo was comfortable in taking some incremental credit risk in order to preserve its net interest income stream in the current environment,” the analysts wrote.

Mary Eshet, a spokeswoman for the bank, declined to comment on the report.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net.