As you can see in the chart above, while Wells Fargo’s tier 1 common capital ratio fell by 290 basis points under the Fed’s “severely adverse” economic scenario, it nevertheless settled at 200 basis points above the 5% regulatory minimum. Translated into dollars and cents, even after being subjected to the central bank’s arguably extreme economic assumptions, it still had $21.34 billion in excess capital above and beyond what’s required.
Indeed, I’d even go so far as to say that it’d be hard to imagine a scenario under which the Fed wouldn’t approve a request by Wells Fargo. Between the third quarter of 2011 and the third quarter of last year, its tier 1 common capital increased by $13.9 billion, or 15%, while its risk-weighted assets grew by only 8.5%. As a result, its excess tier 1 common capital — beyond 5% of risk-weighted assets, that is — shot up by nearly $10 billion. At this rate, in other words, Wells Fargo & Co (NYSE:WFC) could comfortably double its dividend payout and still continue to grow its equity base.
At the end of the day, of course, nothing is guaranteed. But, if you ask me, the likelihood that Wells Fargo will be able to raise its dividend this year is just about as close as you can get to certainty.
The article Why Wells Fargo Will Increase Its Dividend originally appeared on Fool.com and is written by John Maxfield.
John Maxfield owns shares of Bank of America. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, and Wells Fargo.
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