Wells Fargo 2013 Annual Report Download - page 101

medium-term notes also using availability outstanding under its
prior base shelf prospectus. All medium-term notes issued by
WFCC are unconditionally guaranteed by the Parent.
FEDERAL HOME LOAN BANK MEMBERSHIP The Federal
Home Loan Banks (the FHLBs) are a group of cooperatives that
lending institutions use to finance housing and economic
development in local communities. We are a member of the
FHLBs based in Dallas, Des Moines and San Francisco. Each
member of the FHLBs is required to maintain a minimum
investment in capital stock of the applicable FHLB. The board of
directors of each FHLB can increase the minimum investment
requirements in the event it has concluded that additional
capital is required to allow it to meet its own regulatory capital
requirements. Any increase in the minimum investment
requirements outside of specified ranges requires the approval of
the Federal Housing Finance Board. Because the extent of any
obligation to increase our investment in any of the FHLBs
depends entirely upon the occurrence of a future event, potential
future payments to the FHLBs are not determinable.
Capital Management
We have an active program for managing stockholders’ equity
and regulatory capital, and maintain a comprehensive process
for assessing the Company’s overall capital adequacy. Our
objective is to maintain capital at an amount commensurate
with our risk profile and risk tolerance objectives, and to meet
both regulatory and market expectations. Our potential sources
of stockholders’ equity primarily include retention of earnings
net of dividends, as well as issuances of common and preferred
stock. Retained earnings increased $14.7 billion from
December 31, 2012, predominantly from Wells Fargo net income
of $21.9 billion, less common and preferred stock dividends of
$7.2 billion. During 2013, we issued approximately 115 million
shares of common stock, substantially all of which related to
employee benefit plans. In March 2013, we issued 25 million
Depositary Shares, each representing a 1/1,000th interest in a
share of the Company’s newly issued 5.25% Non-Cumulative
Perpetual Class A Preferred Stock, Series P, for an aggregate
public offering price of $625 million. In July 2013, we issued
69 million Depositary Shares, each representing a 1/1,000th
interest in a share of the Company’s newly issued 5.85% Fixed-
to-Floating Rate Non-Cumulative Perpetual Class A Preferred
Stock, Series Q, for an aggregate public offering price of
$1.7 billion. In December 2013, we issued 34 million Depositary
Shares, each representing a 1/1000th interest in a share of the
Company’s newly issued 6.625% Fixed-to-Floating Rate Non-
Cumulative Perpetual Class A Preferred Stock, Series R, for an
aggregate public offering price of $840 million. During 2013, we
repurchased approximately 124 million shares of common stock
in open market transactions and from employee benefit plans, at
a net cost of $5.1 billion. In addition, the Company entered into
a $500 million forward purchase contract in December 2013
with an unrelated third party that is expected to settle in first
quarter 2014 for approximately 11 million shares. For additional
information about our forward repurchase agreements see Note
1 (Summary of Significant Accounting Policies) to Financial
Statements in this Report.
Regulatory Capital Guidelines
The Company and each of our insured depository institutions
are subject to various regulatory capital adequacy requirements
administered by the FRB and the OCC. Risk-based capital (RBC)
guidelines establish a risk-adjusted ratio relating capital to
different categories of assets and off-balance sheet exposures. At
December 31, 2013, the Company and each of our insured
depository institutions were “well-capitalized” under applicable
regulatory capital adequacy guidelines. See Note 26 (Regulatory
and Agency Capital Requirements) to Financial Statements in
this Report for additional information.
Current regulatory RBC rules are based primarily on broad
credit risk considerations and market-related risks, but do not
take into account other types of risk facing a financial services
company. The RBC rules are based primarily upon the 1988
capital accord of the Basel Committee on Banking Supervision
(BCBS) establishing international guidelines for determining
regulatory capital known as “Basel I.” Our capital adequacy
assessment process contemplates a wide range of risks that the
Company is exposed to and also takes into consideration our
performance under a variety of stressed economic conditions, as
well as regulatory expectations and guidance, rating agency
viewpoints and the view of capital markets participants.
Effective January 1, 2013, the Company implemented
changes to the market risk capital rule, commonly referred to as
Basel 2.5, as required by federal banking regulators. Basel 2.5
requires banking organizations with significant trading activities
to adjust their capital requirements to better account for the
market risks of those activities. The market risk capital rule is
reflected in the Company’s calculation of RWA and, upon initial
adoption in first quarter 2013, reduced capital ratios under
Basel I by approximately 25 basis points, but did not impact our
ratio under Basel III, as its impact has historically been included
in our calculations. In December 2013, the FRB approved a final
rule, effective April 1, 2014, revising the market risk capital rule
to, among other things, conform the rule to the FRB’s new
capital framework finalized in July 2013 and discussed below.
For additional information see the “Risk Management –
Asset/Liability Management” section in this Report.
In 2007, federal banking regulators approved a final rule
adopting revised international guidelines for determining
regulatory capital known as “Basel II.” Basel II incorporates
three pillars that address (a) capital adequacy, (b) supervisory
review, which relates to the computation of capital and internal
assessment processes, and (c) market discipline, through
increased disclosure requirements. We entered the “parallel run
phase” of Basel II in July 2012. During the “parallel run phase,”
banking organizations must successfully complete an evaluation
period under supervision from regulatory agencies in order to
receive approval to calculate risk-based capital requirements
under the advanced approach guidelines. The parallel run phase
will continue until we receive regulatory approval to exit parallel
reporting and subsequently begin publicly reporting our
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