Wells Fargo 2012 Annual Report Download - page 92

Capital Management (continued)
imposed by regulators at their discretion if it is determined
that a period of excessive credit growth is contributing to an
increase in systemic risk;
x revise “Basel I” rules for calculating risk-weighted assets to
enhance risk sensitivity;
x modify the existing Basel II advanced approaches rules for
calculating risk-weighted assets to implement Basel III; and
x comply with the Dodd-Frank Act provision prohibiting the
reliance on external credit ratings.
Although the proposals contemplated an effective date of
January 1, 2013, with phased in compliance requirements, the
rules have not yet been finalized by the U.S. banking regulators
due to the volume of comments received and concerns expressed
during the comment period. The notices of proposed rulemaking
did not address the BCBS capital surcharge proposals for G-SIBs
or the proposed Basel III liquidity standards. U.S. regulatory
authorities have indicated that these proposals will be addressed
at a later date. The U.S. banking regulators have approved a final
rule to implement changes to the market risk capital rule, which
requires banking organizations with significant trading activities
to adjust their capital requirements to better account for the
market risks of those activities.
Although uncertainty exists regarding final capital rules, we
evaluate the impact of Basel III on our capital ratios based on
our interpretation of the proposed capital requirements and we
estimate that our Tier 1 common equity ratio under the Basel III
capital proposals exceeded the fully phased-in minimum of 7.0%
by 119 basis points at December 31, 2012. The proposed Basel III
capital rules and interpretations and assumptions used in
estimating our Basel III calculations are subject to change
depending on final promulgation of Basel III capital rulemaking.
In October 2012, the FRB issued final rules regarding stress
testing requirements as required under the Dodd-Frank Act
provision imposing enhanced prudential standards on large
bank holding companies (BHCs) such as Wells Fargo. The OCC
issued and finalized similar rules during 2012 for stress testing
of large national banks. These stress testing rules, which became
effective for Wells Fargo on November 15, 2012, set forth the
timing and type of stress test activities large BHCs and banks
must undertake as well as rules governing testing controls,
oversight and disclosure requirements.
Table 49 and Table 50, which appear at the end of this
Capital Management section, provide information regarding our
Tier 1 common equity calculations under Basel I and as
estimated under Basel III, respectively.
Capital Planning
In late 2011, the FRB finalized rules to require large BHCs to
submit capital plans annually for review to determine if the FRB
had any objections before making any capital distributions. The
rule requires updates to capital plans in the event of material
changes in a BHC’s risk profile, including as a result of any
significant acquisitions.
On March 13, 2012, the FRB notified us that it did not object
to our 2012 capital plan included in the 2012 Comprehensive
Capital Analysis and Review (CCAR). Since the FRB notification,
the Company took several capital actions during 2012, including
increasing its quarterly common stock dividend rate to
$0.22 per share, completing the redemption of $2.7 billion of
trust preferred securities that will no longer count as Tier 1
capital under the Dodd-Frank Act and the proposed Basel III
capital standards, repurchasing shares of our common stock,
and purchasing an aggregate of $2.2 billion of our subordinated
debt with an effective yield of 2.02% in tender offers for such
securities. In January 2013, the Company increased its dividend
to $0.25 per share and submitted for redemption an additional
$2.8 billion of trust preferred securities. Each of these actions
was contemplated by the capital plan included in the 2012
CCAR.
Under the FRB’s capital plan rule, our 2013 CCAR included a
comprehensive capital plan supported by an assessment of
expected uses and sources of capital over a given planning
horizon under a range of expected and stress scenarios, similar
to the process the FRB used to conduct a CCAR in 2012. As part
of the 2013 CCAR, the FRB also generated a supervisory stress
test driven by a sharp decline in the economy and significant
decline in asset pricing using the information provided by the
Company to estimate performance. The FRB is expected to
review the supervisory stress results both as required under the
Dodd-Frank Act using a common set of capital actions for all
large BHCs and by taking into account the Company’s proposed
capital actions. We submitted our board approved 2013 capital
plan to the FRB on January 4, 2013. The FRB has indicated that
it will publish its supervisory stress test results as required
under the Dodd-Frank Act on March 7, 2013, and the related
CCAR results taking into account the Company’s proposed
capital actions on March 14, 2013.
Securities Repurchases
From time to time the Board authorizes the Company to
repurchase shares of our common stock. Although we announce
when the Board authorizes share repurchases, we typically do
not give any public notice before we repurchase our shares.
Future stock repurchases may be private or open-market
repurchases, including block transactions, accelerated or
delayed block transactions, forward transactions, and similar
transactions. Additionally, we may enter into plans to purchase
stock that satisfy the conditions of Rule 10b5-1 of the Securities
Exchange Act of 1934. Various factors determine the amount
and timing of our share repurchases, including our capital
requirements, the number of shares we expect to issue for
employee benefit plans and acquisitions, market conditions
(including the trading price of our stock), and regulatory and
legal considerations, including the FRB’s response to our capital
plan and to changes in our risk profile.
In first quarter 2011, the Board authorized the repurchase of
200 million shares of our common stock, which was completed
in 2012. In October 2012, the Board authorized the repurchase
of an additional 200 million shares. At December 31, 2012, we
had remaining authority under this authorization to purchase
approximately 198 million shares, subject to regulatory and legal
conditions. For more information about share repurchases
during 2012, see Part II, Item 5 of our 2012 Form 10-K.
Historically, our policy has been to repurchase shares under
the “safe harbor” conditions of Rule 10b-18 of the Securities
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