October 29, 2008

John David Wright, Esq.

Assistant General Counsel

Wells Fargo Bank, N.A.

Law Department

MAC A0194-274

45 Fremont Street, 27th Floor

San Francisco, California 94105

Dear Mr. Wright:

This is in response to the request by Wells Fargo & Company 

(“Wells Fargo”) on behalf of its subsidiary bank, Wells Fargo Bank, National Association

(“Bank”), Sioux Falls, South Dakota, for an exemption from section 23A of the 

Federal Reserve Act and the Board’s Regulation W1

As noted, the Foothill Affiliates are currently affiliates of Bank. Bank’s 

purchase of Assets from the Foothill Affiliates would be a “covered transaction” under 

Regulation W

to permit Bank to purchase 

approximately [ ] of assets and loan commitments (together “Assets”) from four 

nonbank affiliates in connection with the proposed reorganization of these affiliates into 

Bank: The Foothill Group, Inc. and Wells Fargo Foothill, Inc., both of Santa Monica, 

California; Wells Fargo Trade Capital, Inc., New York, New York; and Wells Fargo 

Retail Finance II, LLC, Boston, Massachusetts (collectively, “the Foothill Affiliates”).

Section 23A and Regulation W limit the amount of “covered transactions” 

between a bank and any single affiliate to 10 percent of the bank’s capital stock and 

surplus and limit the amount of covered transactions between a bank and all its affiliates 

to 20 percent of the bank’s capital stock and surplus. “Covered transactions” include a 

bank’s purchase of assets from an affiliate and a bank’s extension of credit to an affiliate. 

The statute and regulation also require a bank to secure its extensions of credit to, and 

certain other covered transactions with, affiliates with prescribed amounts of collateral. 

In addition, section 23A and Regulation W prohibit a bank from purchasing low-quality 

assets from an affiliate.

2

 1

 12 U.S.C. § 371c; 12 CFR part 223.

2

 See 12 U.S.C. § 371c(b)(7)(C); 12 CFR 223.3(h)(3).

and subject to the quantitative and qualitative limits of section 23A and 

Regulation W. The value of the covered transaction under Regulation W would be 
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approximately [ ].

3

Section 23A and Regulation W specifically authorize the Board to exempt, 

in its discretion, transactions or relationships from the requirements of the statute and rule 

if the Board finds such exemptions to be in the public interest and consistent with the 

purposes of section 23A.

 Because the capital stock and surplus of Bank at the time of 

the contribution would be approximately $44.5 billion, Bank’s quantitative limit per 

affiliate is approximately $4.4 billion, and the proposed covered transaction would 

exceed Bank’s quantitative limits under section 23A and Regulation W. Accordingly, 

Bank has requested an exemption from section 23A and Regulation W to permit it to 

accomplish the reorganization. 

4

1. Following the purchase of Assets from the Foothill Affiliates, Wells Fargo 

will make either (i) a cash payment to Bank equal to the book value at the 

end of each calendar quarter, plus write-downs during that quarter by Bank,

of any transferred assets or any outstanding assets created pursuant to the 

transferred commitments that became low-quality assets during that quarter 

or (ii) quarterly purchases from Bank (or its operating subsidiaries) of any 

transferred assets or any outstanding assets created pursuant to the 

transferred commitments that became low-quality assets during that quarter 

at a price equal to the book value at the end of that quarter plus previous 

write-downs by Bank of any such assets. Wells Fargo will make the cash 

payment or will purchase the assets within 30 days after the end of each 

calendar quarter.

 

The Board has approved exemptions under section 23A for one-time asset 

transfers that are part of a corporate reorganization and that are structured to ensure the 

quality of the transferred assets. As in previous cases reviewed by the Board, the 

proposed transaction in this case is a byproduct of a one-time corporate reorganization. 

The sale of Assets to Bank is part of a larger reorganization of Wells Fargo’s asset-based 

and related commercial lending business into Bank. According to Wells Fargo, this 

exemption is in the public interest because the reorganization is expected to enhance the 

efficiency of the lending programs of Wells Fargo and to allow borrowers served by the 

Foothill Affiliates to continue to obtain appropriately priced credit.

In addition, Wells Fargo has made the following commitments as part of its

exemption request: 

 3

 See 12 CFR 223.31(b).

4

 12 U.S.C. § 371c(f)(2); 12 CFR 223.43(a).
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2. Bank will hold an amount of risk-based capital equal to the book value of 

any transferred assets or any outstanding assets created pursuant to the 

transferred commitments that become low-quality assets so long as Bank 

(or any operating subsidiary) retains ownership or control of such assets. 

For example, under this dollar-for-dollar capital requirement, the risk-based 

capital charge for each transferred asset that becomes a low-quality asset

would be 100 percent (equivalent to a 1250 percent risk weight), rather than 

the 8 percent requirement (equivalent to a 100 percent risk weight) that 

would apply to a similar defaulted loan asset that is not a part of the 

transferred asset pool.

The foregoing commitments will expire as to each Asset on the maturity 

date of the credit agreement relating to the Asset as of the transfer date, as set forth on the 

asset schedule that was previously submitted to the Board. These commitments are 

similar to commitments relied on by the Board in previous internal corporate 

reorganizations. These commitments have been modified, however, to clarify that the 

funds transferred by Wells Fargo to Bank to support any of the Assets that become lowquality assets will provide a cushion of additional capital in excess of Bank’s required 

regulatory capital. The commitments ensure that these funds will remain available to 

Bank and will not be returned to Wells Fargo through a dividend or a return of capital.5

 

In addition, a majority of Bank’s directors has reviewed and approved the transaction. 

Both Wells Fargo and Bank are well capitalized and well managed and 

would remain so after the transaction. As a condition of this exemption, Bank must 

remain well capitalized based on the risk-based capital guidelines of the Office of the 

Comptroller of the Currency (“OCC”) and the modifications to those guidelines 

described in the commitment above. In addition, at the request of the Federal Deposit 

Insurance Corporation (“FDIC”), Wells Fargo and Bank also have committed that all 

loan commitments transferred to Bank (or operating subsidiaries of Bank) in connection 

with the transactions covered by the requested exemption will be supported by an internal 

credit assessment by Bank (or an operating subsidiary of Bank) performed within 90 days 

prior to the transfer date. The OCC and the FDIC have reviewed the transaction and 

informed the Board that they have no objection to the proposal, subject to the conditions 

discussed above. 

In light of these considerations and all the facts presented, the 

reorganization transaction appears to be consistent with safe and sound banking practices 

and on terms that would ensure the quality of the assets transferred. Accordingly, the 

transaction appears to be consistent with the purposes of section 23A, and the Director of 

the Division of Banking Supervision and Regulation, pursuant to authority delegated by 

 5

 Board letter dated December 21, 2007, to Andres Navarette, Esq. (Capital One 

Financial Corporation).
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the Board, and with the concurrence of the General Counsel, hereby grants the requested 

exemption.

This determination is specifically conditioned on compliance by 

Wells Fargo and Bank with all the commitments and representations made in connection 

with the exemption request. These commitments and representations are deemed to be 

conditions imposed in writing in connection with granting the exemption and, as such, 

may be enforced in proceedings under applicable law. This determination is based on the 

specific facts and circumstances of the proposed transaction and may be revoked if a

material change in those facts and circumstances occurs or if Wells Fargo or Bank fails to 

observe its commitments or representations. Granting this exemption does not represent 

a determination concerning the permissibility of any other transactions engaged in by 

Wells Fargo or Bank that are subject to section 23A or Regulation W.

Sincerely yours,

(signed)

Robert deV. Frierson

Deputy Secretary of the Board

cc: Federal Reserve Bank of San Francisco

Federal Deposit Insurance Corporation

Office of Comptroller of the Currency