Well Fargo gave up as much as $1 billion in return last year by trimming its bond holdings, betting that interest rates will rise.
Time will tell whether the strategy proves successful.
The stance by Wells, the country’s fourth largest bank, marks a sharp contrast to the three bigger ones.
While Wells cut its bond portfolio by $34 billion in the second half of last year, JPMorgan Chase, Bank of America and Citigroup increased their holdings by an average of $35.5 billion, Bloomberg reports.
And while Wells is worried about rising rates, the other banks are eager to make profits before the increase occurs.
“The bias is for higher rates,” Wells CEO John Stumpf, said on the company’s earnings conference call, Bloomberg reports.
“We’re willing to wait for that to happen. We think that’s the better trade.”
Chris Whalen, managing director of Institutional Risk Analytics, thinks Wells is doing the right thing.
“I applaud Wells,” he told Bloomberg.
“The other three are speculating, taking a position on risk, and Wells is not.”
Wells’ stance isn’t shared by many other banks.
“When that happens you always run the risk of a shock,” bank analyst Nancy Bush, told Bloomberg.
With the economy beginning to recover, many experts see higher rates on the horizon.
“Interest rates have only one way to go, and that’s up,” James Holtzman, shareholder at Legend Financial Advisors in Pittsburgh, told Moneynews.com.
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