Wells Fargo & Co., the fourth-largest U.S. bank by assets, could have a “competitive advantage” as bigger lenders are required to hold more funds, Chief Financial Officer Tim Sloan said.
Regulators are planning to impose capital rules that will use a sliding scale based on a bank’s size and links to other lenders in an effort to build buffers against losses. Sloan was asked today at a conference in Boston whether Wells Fargo might gain as lenders with larger balance sheets, such as Bank of America Corp. and JPMorgan Chase & Co., adjust to the standards.
“I think we will have an advantage to any firm that’s going to have more capital than we do,” Sloan said.
Wells Fargo has grown in U.S. mortgage lending and struck deals for acquisitions including Merlin Securities LLC and BNP Paribas SA’s North American energy-lending business after posting a record annual profit last year. The San Francisco-based bank, with $1.3 trillion in assets, will continue to be “selective” in making purchases, Sloan said.
“There’s no question that the environment in Europe and the capital constraints that those financial institutions have has created an opportunity for us to purchase mostly U.S., dollar-denominated assets,” Sloan said.
Bank of America Chief Executive Officer Brian T. Moynihan and JPMorgan CEO Jamie Dimon have said that excessive capital surcharges on the largest banks could limit lending. JPMorgan is among banks that may face top capital surcharges of 2.5 percentage points, while Bank of America may be required to hold 2 percentage points, according to a provisional list prepared by global regulators and obtained by Bloomberg News last year. Wells Fargo may face a surcharge of 1 percentage point, according to the list.
Dimon, who runs the biggest U.S. lender, with $2.32 trillion in assets, said last month that capital requirements will make it “prohibitively more expensive” for banks to lend to consumers with subprime credit scores.
The scope of a bank’s operations, as well as its underwriting standards, could affect the amount of capital regulators require it hold, said Marty Mosby, a Memphis, Tennessee-based analyst for Guggenheim Securities LLC.
“You really only have your own history to use as a basis,” Mosby said in a phone interview. “To the degree that Bank of America would’ve had greater losses in a loan category and more volatility in losses that Wells had, then they would have to own more capital than Wells.”
Banks with lower capital requirements need to produce less revenue on a loan to hit profit targets, which could give them a pricing advantage, Mosby said.
Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America, said the lender has “made significant progress to strengthen our balance sheet and improve our capital ratios.”
Wells Fargo rose 2 percent to $34.09 at 4 p.m. in New York and has gained 24 percent this year.