Wells Fargo & Co. takes greater risk on its investments in stocks and bonds than competing lenders, according to a CreditSights Inc. report.
Wells Fargo's $227 billion portfolio of securities marked for sale yielded 3.97% at the end of June, the most among 17 of the largest U.S. banks measured by CreditSights, according to a Sept. 3 report from the New York-based financial-research firm. The company's investments appear to have more credit and interest-rate risk than rivals, CreditSights said.
"Wells Fargo's all-in securities yield of nearly 4% seems indicative of a higher risk appetite," CreditSights analysts including Peter Simon wrote in the report.
Faced with sluggish loan growth, more deposits and near- record-low interest rates, U.S. banks are searching for ways to generate revenue. While some lenders have stayed in short-term, low-risk securities such as Treasuries, others including San Francisco-based Wells Fargo have added to holdings with higher yields and longer maturities, according to the report.
Wells Fargo held 16% of its securities portfolio in municipal bonds at the end of June. That's above the upper threshold of 10% viewed as an "appropriate level," according to CreditSights, which called the figure "on the high side but still manageable." The prevailing level at most banks is 6% to 8 percent, CreditSights said.
"Wells Fargo was comfortable in taking some incremental credit risk in order to preserve its net interest income stream in the current environment," the analysts wrote.
The bank, run by Chief Executive Officer John Stumpf, 58, also increased the duration of its investments, a reflection of how long the debt will be outstanding, CreditSights said. The weighted average expected maturity of 5.2 years at midyear was the longest of any bank that discloses the measure and was up from 4.9 years at the end of 2011, according to the report. The figure reached 6.1 years in 2010.
Ancel Martinez, a Wells Fargo spokesman, said the bank has not altered its investment approach: "We have a high-quality securities portfolio and have not changed our careful investment discipline in response to the prolonged low-rate environment," he said in a phone interview.