Wells Fargo to Repay TARP ‘Shortly’ as Loan Losses Stabilize

By Erik Schatzker and Dakin Campbell

Sept. 2 (Bloomberg) -- Wells Fargo & Co. plans to repay the U.S. bank bailout program “shortly” without raising equity, a tactic that would protect the value of stakes held by investors including Warren Buffett’s Berkshire Hathaway Inc.

“We will pay it back, but we’re going to pay it back in a shareholder-friendly way,” John Stumpf, president and chief executive officer of the San Francisco-based lender, said yesterday in an interview on Bloomberg Television. “We are now earning capital so quickly, organically, we don’t want to dilute our existing shareholders.”

Ten of Wells Fargo’s biggest rivals repaid the U.S. Troubled Asset Relief Program in June after passing “stress tests” to measure how they would fare in a deeper recession. The bank, ranked No. 1 among U.S. home lenders this year, has chafed under extra government oversight that came with the $25 billion public stake, and the stock has dropped 11 percent this year. The KBW Bank Index is little changed in that period.

“We will pay it back shortly,” Stumpf said in the interview. He declined to give a date, saying an agreement depends on talks with the Federal Reserve, adding that he’s confident about reaching an accord. “Of all the issues I’m dealing with, this one doesn’t keep me up at night,” he said.

Wells Fargo generated $14.2 billion in the second quarter to satisfy demands from regulators for new capital after the stress tests, surpassing the $13.7 billion goal. Assets no longer collecting interest in the quarter climbed 45 percent to $18.3 billion from the first quarter, the bank said July 22.

Loss Peak

“There are some indications that we’re seeing a top in some of our problem loan areas,” Stumpf said in the interview. In some businesses, the bank is seeing “very high levels of loss, but they look like they’re flattening out.”

Stumpf said costs tied to troubled loans may be reaching a peak, and loss rates on auto loans in particular are stabilizing.

“They probably need a few more quarters to build up their capital levels before I would feel comfortable seeing them pay back TARP,” Jennifer Thompson, an analyst at Portales Partners LLC in New York who has a “hold” rating on Wells Fargo, said in an interview yesterday. “But they certainly are generating a tremendous amount of capital internally each quarter.”

Wells Fargo declined $1.31, or 4.8 percent, to $26.21 yesterday in New York Stock Exchange composite trading. Berkshire Hathaway, the insurance and investment holding company based in Omaha, Nebraska, is the bank’s biggest shareholder with a stake of about 6.5 percent, according to Bloomberg data.

Points of View

Stumpf, 55, said President Barack Obama’s plan for a single regulator to monitor risk-taking by major banks is “a mistake” because a group of watchdogs would provide the benefit of differing points of view.

Obama’s plan would merge the Office of Thrift Supervision with the Office of the Comptroller of the Currency to establish a National Bank Supervisor. It would also create a new agency to oversee consumer financial products.

“The dual banking system has served this country exceedingly well for 150 years or more,” Stumpf said. “You have all different flavors and sizes of financial institutions. To have one place domiciled with all that, I think you’ve missed differing points of view.”

By favoring a council, Stumpf is siding with Federal Deposit Insurance Corp. Chairman Sheila Bair. She argued in Congress in July that a council of regulators would benefit from the expertise each brings to specific areas of the industry, while preventing big banks from having too much sway with one agency, such as the Fed.

To contact the reporters on this story: Erik Schatzker in New York at eschatzker@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net