Wells Fargo: We can raise $13.7 bln easily

Wells Fargo & Co said it expects to have no difficulty covering what the government said is a $13.7 billion capital shortfall, and plans to stay away from big acquisitions while it integrates Wachovia Corp.

The fourth-largest U.S. bank sold $7.5 billion of stock on Friday and could boost the sale to $8.6 billion to meet demand. It said strong investor interest resulted in a 25 percent boost in the size of the original offering, from $6 billion.

In an interview, Chief Financial Officer Howard Atkins said the bank expects to generate through its day-to-day operations the additional capital deemed necessary under a government "stress test."

Wells Fargo took $25 billion of aid from the government's Troubled Asset Relief Program. Chairman Dick Kovacevich fought against taking the money and has labeled the stress tests "asinine," but the San Francisco-based bank is now resigned to the government's dictating some of what it can do.

"The government will decide when TARP gets repaid," Atkins said. "Our objective is to continue to build capital by earning it. That will hopefully allow us to begin to repay TARP at an early point."

He also said the bank could easily issue debt not guaranteed by the government, a condition of repaying TARP. "We could do it at any time," he said.

The government determined that Wells Fargo needed more capital because this year and next the bank could face $86.1 billion of loan losses, including $47.1 billion from mortgages and home equity and $17.4 billion from commercial lending.

Among the 19 large lenders that underwent the stress tests, 10 were found to need more capital, and only Bank of America Corp, at $33.9 billion, was found to need more than Wells Fargo.

Wells Fargo's shortfall might have been smaller had it not more than doubled in size when it bought Wachovia for $12.5 billion at the end of 2008.

WACHOVIA

The bank took big writedowns on troubled Wachovia loans when it made the purchase, and has only slightly changed its outlook for the combined company. It now expects merger-related costs to be below its original $7.9 billion forecast.

By providing more clarity about banks' health, the stress test results are expected to lift one hurdle to potential bank mergers, but Wells Fargo plans to sit this out for a while.

"There may be some insurance agencies and specialty banking businesses to buy, there's always this or that to give us a skill to fill out our product line," Atkins said. "It's safe to assume any big acquisition of any kind would be too big, as we would run the risk of disrupting the Wachovia acquisition."

Wells Fargo has begun layoffs tied to the merger, including 548 in Charlotte, North Carolina, where Wachovia was based.

Atkins downplayed any prospect of major asset sales to raise capital. He also said Wells Fargo plans to keep large parts of Wachovia's investment bank, while shedding parts that do not help win commercial and corporate customers.

Many of these "need financial advice and M&A (merger and acquisition) services, as well as things like interest-rate protection products and foreign exchange, and bond and equity issuance," Atkins said. The bank plans to curb activity in structured transactions and proprietary trading, where it "takes risk without really serving our customer," he added.

By Jonathan Stempel

NEW YORK, May 8 (Reuters) -