NEW YORK — Wells Fargo & Co. Chief Executive John Stumpf said a proposal by state attorneys general to settle a slew of botched home foreclosures by banks could hurt Fannie Mae's and Freddie Mac's results and, therefore, increase the U.S. fiscal deficit.

He reiterated that the San Francisco bank is "eager to increase the dividend" and hopes to eventually hand at least 30% of profits to shareholders. He said Wells Fargo is unlikely to buy another U.S. bank.

Asked about the draft proposal that circulated in recent days, Stumpf said at the Citi Financial Services Conference in New York Thursday morning that "there is surely some issue that is broader" than simply the question of principal forgiveness for troubled homeowners.

The proposal seeks to force banks to reduce some loan balances. Stumpf said Wells Fargo is already using principal forgiveness in certain cases of delinquent borrowers--but the bank won't use the measure broadly because it could result in an incentive for borrowers who are current but whose mortgage principal exceeds the value of their home to stop making their mortgage payment, Stumpf said.

"We have forgiven almost $4 billion in principal so far on our portfolio of loans," Stumpf said. The settlement, meanwhile, could affect only certain banks, which "would create an inequity in the market place," Stumpf said.

Further, principal forgiveness could have an indirect impact on the deficit because a sizable amount of mortgages are held by Fannie and Freddie, on which principal forgiveness would have "a huge impact," Stumpf said. As Fannie and Freddie are owned by the government since the financial meltdown, the deficit would increase, Stumpf said.

The CEO also said that Wells Fargo, the nation's second-biggest bank by deposits after Bank of America Corp. is unlikely to do another bank deal, because it is close to holding 10% of the nation's deposits, at which point regulators bar acquisitions.

However, Stumpf said Wells Fargo might expand its brokerage business through acquisition, adding, "insurance distribution is something I like."

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