Why Wells Ignores Regulatory Advice On Corporate Lending

Wells Fargo will not be heeding advice provided by U.S. regulators suggesting that lenders do not finance corporations with an already hefty debt load.

Reports by Financial Times said on Tuesday (May 24) that Wells Fargo vowed to continue to lend to businesses that have significant outstanding debt against the guidance of U.S. financial regulators.

Three bodies — the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation — issued joint guidance in 2013 that recommended FIs not provide loans to businesses that would push their corporate debt levels above six times their earnings.

“Regulators don’t make our loan decision for us,” said Wells Head of Corporate and Commercial Banking and Treasury Management Perry Pelos. “If we got to the point where we needed to run an individual loan decision by a regulator, then we might as well let the regulators run the business.”

Reports said Wells has pursued greater market share in its non-retail banking operations since its acquisition of Wachovia in 2008. Today, the FI is the nation’s largest lender, having provided $947 billion worth of financing, reports added — a volume greater than those of Bank of America and JPMorgan Chase.

While the OCC said it does not consider the criteria of avoiding financing businesses if their debt exceeds six times their earnings as a “bright line,” the regulator did explain that lenders may receive heightened scrutiny should they ignore the guidance.

But Pelos told reporters that Wells Fargo takes the recommendation with a grain of salt, especially depending on the borrower. The executive pointed to a corporation within the beer distribution industry as one likely to have more consistent cash flow than some firms in other verticals.

“We have certain processes. We have certain things we typically do. We’re in constant contact with our regulators,” Pelos stated. “I think that there are lots of hard and fast rules that we think are going to save us from the abyss, and if you look at history, I don’t think any of those have worked very well.”