Wells Fargo says it will repay $25 billion in bailout money; Keefe Bruyette analyst upgrades

Ahead of the Bell: Wells Fargo to repay TARP money

NEW YORK — At least two analysts upgraded Wells Fargo & Co. Tuesday, a day after the national bank said it would repay $25 billion in bailout money.

Wells Fargo said Monday after the market closed it would repay the money it received last year at the height of the credit crisis. Wells Fargo’s announcement came just hours after Citigroup Inc. said it would pay back $20 billion received as part of the Troubled Asset Relief Program, and that the government would sell its stake of nearly 34 percent in the bank.

Wells Fargo was the last of the eight initial recipients of TARP money to agree to repay the government.

Keefe, Bruyette & Woods Inc. analyst Frederick Cannon raised his rating on Wells Fargo to “Market Perform” from “Underperform” and increased his share price target to $28 from $24.

Separately, Deutsche Bank analyst Matt O’Connor upgraded the stock to “Buy.”

Shares of Wells Fargo rose 41 cents to $25.90 in premarket trading Tuesday.

In a research note, Cannon said the capital raise and repayment of TARP ease the bank’s two biggest concerns: Its capital ratios and the valuation of its risky assets.

Wells Fargo is selling $10.4 billion in new stock to help pay off the government, which will improve its capital position, Cannon wrote. The Treasury Department’s approval of Wells Fargo’s plan also shows the government is not concerned with the valuation of the bank’s assets.

Deutsche Bank’s O’Connor said the capital raise removes questions that had been lingering about potential dilution to the stock. He also predicts Wells Fargo will have a strong fourth quarter, boosted by gains from hedging and the sales of securities.

Banks repaying TARP money must receive approval from the government. That process includes reviewing the strength of the bank.

FBR Capital Markets analyst Paul Miller was more cautious on Wells Fargo’s planned capital raise and TARP repayment. In a research note, he said that the move helps the bank avoid potential government intervention, but it does not reduce the risk of mounting loan losses.

Nearly all banks have faced rising loan losses in recent years as more customers have fallen behind on payments. Miller said Wells Fargo is likely to face elevated costs tied to souring loans through at least 2011, which will eat into profits.

Miller maintained his “Underperform” rating on the stock, but raised his price target to $21 from $20.