May 22, 2012 / 7:53 PM / 6 years ago

Wells Fargo increases return targets

(Reuters) - Wells Fargo & Co (WFC.N) on Tuesday increased its goals for returns on assets and shareholder payouts while executives pledged to carefully manage risk throughout the company’s sweeping operations.

A Wells Fargo bank is seen in Del Mar, California January 17, 2012. REUTERS/Mike Blake

The fourth-largest U.S. bank by assets is aiming for a return on assets of 1.3 to 1.6 percent, depending on the economic and regulatory environment, Chief Financial Officer Tim Sloan said at the beginning of an investor day for analysts in New York.

The San Francisco-based bank has emerged from the financial crisis as one of the strongest U.S. banks, but analysts are likely to pose questions about its securities portfolio and investment banking ambitions following JPMorgan Chase & Co’s (JPM.N) disclosure of at least $2 billion of trading losses in its Chief Investment Office.

The top range of Wells Fargo’s return on assets goal exceeds the 1.5 percent target the bank laid out in 2010 and compares with a 1.31 percent ratio in the first quarter of this year. Banks lately have been struggling to boost revenue at a time of weak loan demand and tight lending margins.

“We think we can grow from here even in this environment,” Sloan said.

Wells Fargo also said the bank’s return on equity goal of 12 to 15 percent could eventually translate into a shareholder payout of about 50 to 65 percent of net income, including common stock dividends and share repurchases.

The bank’s dividend payout was 30 percent of net income in the first quarter after the Federal Reserve this spring allowed the company to raise its quarterly dividend to 22 cents per share. The bank did not provide a current payout ratio including share repurchases but a slide presentation said the target represented an increase.

In his opening remarks, Sloan said the bank’s credit default swaps portfolio grew too large three years ago, and the bank has now reduced it to about a quarter of its original size. JPMorgan’s trading strategy involved credit default swaps, a kind of derivative that was at the center of the 2008 financial crisis.

Sloan emphasized the bank’s commitment to monitor risks throughout the company. “You can’t take out-sized risk in the financial services industry, and we do our best not to do it,” he said.

In a contrast with JPMorgan, Wells “does not have a CIO function that employs large-scale macroeconomic credit-derivative hedges,” Wells spokeswoman Mary Eshet said on Tuesday. Bank of America (BAC.N) CEO Brian Moynihan on Monday said his bank also does not make broad hedging bets at the corporate level.

Teams led by Sloan and wholesale banking head Dave Hoyt manage Wells Fargo’s $230 billion securities portfolio.


Since the beginning of 2011, Wells has completed or agreed to seven deals to buy loan portfolios, business units or other companies. The bank is “well-positioned” for acquisition opportunities but will be disciplined in reviewing potential deals, according to Sloan’s slides.

Wells expanded to the East Coast with its 2008 acquisition of Wachovia. In its latest deal, the bank agreed to buy a prime brokerage firm, allowing it to offer clearing and other services to hedge funds for the first time.

In another presentation, community banking head Carrie Tolstedt said Wells plans to open more branches in key markets, a contrast to Bank of America, which is shedding branches. Wells has more than 6,200 U.S. branches, the most of any U.S. bank.

The bank is also rolling out new technology to speed up service and cut costs, Tolstedt said. Touchscreen pads in teller lines will allow customers to receive receipts via email and to transfer funds, she said.

Wells Fargo shares were up 2.1 percent at $32.07 on Tuesday afternoon. The shares are up about 14 percent this year, better than the 10 percent increase in the KBW bank index .BKX.

Reporting By Rick Rothacker in Charlotte, North Carolina; Editing by Gerald E. McCormick, John Wallace and Matthew Lewis

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