Regulators have told Wells Fargo & Co. to shore up its finances after government “stress tests” showed the bank would have trouble surviving a deeper recession, the Associated Press reported. Wells Fargo is one of several banks that regulators will force to hold larger buffers to protect them against possible future losses, according to two people familiar with the matter who spoke on condition of anonymity because of the sensitivity of the process. Representatives from San Francisco-based Wells Fargo did not immediately respond to requests for comment this morning. The stress tests of the 19 largest financial firms are a centerpiece of the Obama administration’s plan to stabilize the banks. The tests estimate losses the banks would face in a “what-if” scenario that includes 10.3% unemployment and a 22% drop in home prices during the next two years.
Wells Fargo holds billions of dollars in mortgage, construction and credit card loans. The stress test treated those loans as especially vulnerable since borrowers would face trouble repaying their debts in a much worse economy. Analysts expect regional banks that were stress-tested also could be asked to raise capital, since their holdings are similarly tilted toward loans. Cleveland-based KeyCorp and Cincinnati-based Fifth Third Financial Corp. are among the banks in this situation Bank of America Corp. and Citigroup Inc. also will be asked to raise money, sources have told the Associated Press.
