Wells Fargo Won't Back Down From Capital Plan

Wells Fargo (WFC) is sticking to its plans to plug a capital hole identified by government stress tests with future earnings, despite indications that regulators are not inclined to allow it.

After the Federal Reserve released stress test results, which were used to determine how much capital the nation's 19 largest banks needed to withstand an extended downturn, both Wells Fargo and Bank of America (BAC) said they planned to generate a large component of the money internally through earnings generation and other means.

However, a person familiar with the matter said that banks have been given guidelines to limit the portion of capital which can come from earnings. The move stemmed from concerns that some companies were leaning too heavily on overly optimistic projections that might not come to fruition. A report in the Wall Street Journal earlier this week said the Fed planned to limit the earnings component to 5% of the capital requirement.

Federal Reserve spokeswoman Barbara Hagenbaugh said the agency couldn't comment on discussions between banks and regulators because they are confidential.

Bank of America seems to have backed away from the earnings component, and other firms that mentioned earnings as a component, like PNC Financial Services (PNC) have already raised all necessary funds in other manners. Yet Wells Fargo is standing by its initial strategy -- setting up a potential conflict with regulators.

"After having raised $8.6 billion in one of the most successful equity offerings ever, we expect to meet the remainder of the capital requirement through internally generated sources," says spokeswoman Janis Smith Appleton, who directed TheStreet.com to the bank's initial strategy for additional information.