Wells Fargo in the Crosshairs Again

Wells Fargo will be in the spotlight on Wednesday, as investors consider whether the firm can earn its way out of the federal bailout and credit woes.
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(Updated with new stock prices)

SAN FRANCISCO (

TheStreet

) --

Wells Fargo

(WFC) - Get Report

will be in the spotlight on Wednesday, as investors consider whether the firm's stated strategy of earning capital instead of raising it will provide enough funds to cover escalating credit costs.

Of particular interest is when Wells will repay funds from the Troubled Asset Relief Program, and whether it will have to raise capital to do so.

"We will pay it back shortly, CEO John Stumpf said in a

Bloomberg

television interview on Wednesday, but declined to provide a specific date. "Of all the issues I'm dealing with, this one doesn't keep me up at night," he added.

But it is a major concern of investors, as is the San Francisco-based bank's exposure to the troubled real-estate market in California.

A financial stock selloff took shape on Tuesday, after weeks of speculation about whether the market was overbought. Shares of big banks like Wells,

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Citigroup

(C) - Get Report

and

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

have enjoyed a sharp rally since lows touched in March, not to mention the recent run-up in zombie stocks like

American International Group

(AIG) - Get Report

,

Fannie Mae

and

Freddie Mac

.

But as the market reversed course on Tuesday, Wells seemed to be in the crosshairs as one of the three big banks with bailout funds still in its coffers. Reports emerged that

Bank of America

is moving forward with plans to repay part of its Troubled Asset Relief Program dollars, putting pressure on Wells to disclose more information about its own strategy.

The firm reiterated its oft-repeated lines about

paying back TARP funds

in a shareholder-friendly way without raising more capital in the market.

Timing remained unclear, though an R.W. Baird analyst indicated earlier in the week that Wells may have to wait until November to disclose more specifics. At that point, the

Federal Reserve's

stress-test period will have run its course, although Wells said months ago that it already had raised the $13.9 billion in capital required by the Fed.

Rumors were circulating in the market about the health of various banks, causing worries about Wells because of its large exposure to California's troubled real-estate market. While the San Francisco-based bank has posted strong profits in the first two quarters of the year implying that yes, it may be able to earn its way out of the crisis, some analysts and investors have clamored for a capital raise to hasten the TARP payback and cover bad loans.

Wells shares shed $1.31, or 4.8%, on Wednesday to close at $26.21. Shares were up 18 cents to $26.39 in trading Wednesday.

-- Written by Lauren Tara LaCapra in New York

.