Wells Fargo 2009 Annual Report Download - page 187

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on marketable equity securities, subject to limitations by the
guidelines. Tier 2 capital is limited to the amount of Tier 1
capital (i.e., at least half of the total capital must be in the
form of Tier 1 capital). Tier 3 capital includes certain qualify-
ing unsecured subordinated debt.
We do not consolidate our wholly-owned trusts (the Trusts)
formed solely to issue trust preferred securities. The amount
of trust preferred securities and perpetual preferred purchase
securities issued by the Trusts that was includable in Tier 1
capital in accordance with FRB risk-based capital (RBC)
guidelines was $19.3 billion at December 31, 2009. The junior
subordinated debentures held by the Trusts were included in
the Company’s long-term debt. See Note 13 in this Report for
additional information on trust preferred securities.
Under the guidelines, capital is compared with the relative
risk related to the balance sheet. To derive the risk included in
the balance sheet, a risk weighting is applied to each balance
sheet asset and off-balance sheet item, primarily based on the
relative credit risk of the counterparty. For example, claims
guaranteed by the U.S. government or one of its agencies
are risk-weighted at 0% and certain real estate related loans
risk-weighted at 50%. Off-balance sheet items, such as loan
commitments and derivatives, are also applied a risk weight
after calculating balance sheet equivalent amounts. A credit
conversion factor is assigned to loan commitments based
on the likelihood of the off-balance sheet item becoming an
asset. For example, certain loan commitments are converted
at 50% and then risk-weighted at 100%. Derivatives are
converted to balance sheet equivalents based on notional
values, replacement costs and remaining contractual terms.
See Notes 6 and 15 in this Report for further discussion of
off-balance sheet items. For certain recourse obligations,
direct credit substitutes, residual interests in asset securitiza-
tion, and other securitized transactions that expose institutions
primarily to credit risk, the capital amounts and classification
under the guidelines are subject to qualitative judgments
by the regulators about components, risk weightings and
other factors.
To be well capitalized
under the FDICIA
For capital prompt corrective
Actual adequacy purposes action provisions
(in billions) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2009:
Total capital (to risk-weighted assets)
Wells Fargo & Company $134.4 13.26% >$81.1 >8.00%
Wells Fargo Bank, N.A. 58.4 11.87 > 39.4 > 8.00 >$49.2 >10.00%
Wachovia Bank, N.A. 60.5 13.65 > 35.4 > 8.00 > 44.3 > 10.00
Tier 1 capital (to risk-weighted assets)
Wells Fargo & Company 93.8 9.25 > 40.5 >4.00
Wells Fargo Bank, N.A. 43.8 8.90 > 19.7 >4.00 > 29.5 > 6.00
Wachovia Bank, N.A. 39.7 8.97 > 17.7 > 4.00 > 26.6 > 6.00
Tier 1 capital (to average assets)
(Leverage ratio)
Wells Fargo & Company 93.8 7.87 > 47.7 >4.00(1)
Wells Fargo Bank, N.A. 43.8 7.50 > 23.3 > 4.00(1) > 29.2 > 5.00
Wachovia Bank, N.A. 39.7 8.23 > 19.3 >4.00(1) > 24.1 > 5.00
(1) The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items. The minimum leverage ratio guideline
is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings,
effective management and monitoring of market risk and, in general, are considered top-rated, strong banking organizations.
Management believes that, as of December 31, 2009, the
Company and each of the covered subsidiary banks met all
capital adequacy requirements to which they are subject.
The most recent notification from the OCC categorized
each of the covered subsidiary banks as well capitalized, under
the FDICIA prompt corrective action provisions applicable
to banks. To be categorized as well capitalized, the institution
must maintain a total RBC ratio as set forth in the table above
and not be subject to a capital directive order. There are no
conditions or events since that notification that management
believes have changed the RBC category of any of the covered
subsidiary banks.
Certain subsidiaries of the Company are approved seller/
servicers, and are therefore required to maintain minimum
levels of shareholders’ equity, as specified by various agencies,
including the United States Department of Housing and Urban
Development, GNMA, FHLMC and FNMA. At December 31,
2009, each seller/servicer met these requirements.
Certain broker-dealer subsidiaries of the Company are
subject to SEC Rule 15c3-1 (the Net Capital Rule), which
requires that we maintain minimum levels of net capital,
as defined. At December 31, 2009, each of these subsidiaries
met these requirements.