WASHINGTON — 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.
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.
After originally being scheduled for release today, the results of the government’s stress tests now are expected Thursday afternoon. The delay comes amid aggressive lobbying from banks that were told they would need to boost their capital positions.
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 percent unemployment and a 22 percent drop in home prices during the next two years.
If the test showed that dismal economy would push a bank below a minimum level of capital, regulators asked the bank to find a way to boost their finances.
One way to do that would be to convert preferred shares held by the government or other lenders into common stock. That would help the Treasury avoid returning to Congress for more bailout money, but it would dilute the value of common shares and put taxpayer dollars at greater risk.
Banks also could be given six months to raise money from private investors. If that doesn’t work, the government could give them additional money from the $700 billion financial system bailout.
The government will brief banks Tuesday on its final decisions about their appeals.
Regulators have said they will not allow any of the 19 firms to fail because it would be too dangerous for the rest of the financial system.
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 may 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.
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