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Rating Action:

Moody's Affirms BofA, Citi, Wells Fargo; negative outlook on supported ratings

27 Jul 2010

Unsupported ratings unaffected

New York, July 27, 2010 -- Moody's Investors Service today affirmed the long-term and short-term ratings of Bank of America (BAC), Citigroup (Citi), and Wells Fargo (WFC) while at the same time changing the outlook to negative from stable on their ratings that currently receive ratings uplift as a result of Moody's assumption of systemic support (including their senior debt and deposit ratings). The outlook change is prompted by the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) -- a law that, over time, is expected to result in lower levels of government support for U.S. banks.

None of these banks' unsupported ratings, such as their bank financial strength ratings (BFSR), were affected by this outlook change. The rating outlook on Bank of America's and Citigroup's unsupported BFSR is stable, while the rating outlook on Wells Fargo's BFSR is positive.

In a separate action, Moody's today also placed the supported ratings of 10 U.S. regional banks under review for possible downgrade (See press release dated July 27, 2010 "Moody's reviews U.S. regional banks' supported ratings.").

"Since early 2009, Bank of America, Citigroup, and Wells Fargo's ratings have benefited from an unusual amount of support," said Sean Jones, Moody's Team Leader for North American Bank Ratings. This support has resulted in debt and deposit ratings that range from three to five notches higher than that indicated by the banks' unsupported, intrinsic financial strength. "The intent of Dodd-Frank is clearly to eliminate government -- i.e. taxpayer -- support to creditors," said Mr. Jones. To achieve this, the law attempts to strengthen the ability of regulators to resolve complex financial institutions, while at the same time strengthening the supervision and regulation of such institutions to reduce the likelihood that they will need to be resolved in the future. (See Moody's report "Credit Implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act on U.S. Banks" for more on the rating agency's views on the Act).

Over the near-term, as a practical matter, Moody's thinks that regulators will continue to face significant obstacles when trying to resolve complex, interconnected, global firms without risking a systemically threatening contraction in credit. Therefore, we continue to believe the current ratings on these three banks are still appropriate.

However, over the next 12 to 24 months, as the new law is implemented, rules and regulations are written, and if economic conditions stabilize, we expect that our support assumptions for systemically important banks will likely revert to pre-crisis, or even lower, levels -- though we do not anticipate that we would completely eliminate support from these firms' senior debt and deposit ratings. If BAC's, Citi's, WFC's, or some other systemically important banks' unsupported bank financial strength ratings remain unchanged over this time period, then a reduction in our government support assumptions could lead to downgrades of their supported debt and deposit ratings.

Moody's said that it is possible that BAC's, Citi's, WFC's, or some other systemically important banks' unsupported bank financial strength ratings could increase during this period. To the extent this happens, it could temper any potential downgrade to their supported ratings. Even so, we believe a negative outlook on their supported ratings remains justified. This is because the speed of improvement in their intrinsic financial strength may not keep pace with the reduction of Moody's support assumptions, particularly given the unusual level of support Moody's currently embeds in their supported ratings.

Moody's also notes that the rating outlook is already negative for four of the five other U.S. banks that it currently views as systemically important, complex, and interconnected (JPMorgan Chase, Goldman Sachs, Morgan Stanley, and State Street). For the fifth bank (Bank of New York Mellon), Moody's has maintained its stable outlook on all of its supported and unsupported ratings due to its continuing systemic importance and the lack of an unusual amount of support in its ratings, unlike BAC, Citi, or Wells.

Bank of America N.A.'s deposit, senior debt and senior subordinated debt ratings are Aa3, Aa3, and A1, respectively. Bank of America Corporation's senior debt, and senior subordinated debt ratings are A2 and A3, respectively, and its short-term rating is Prime-1.

Citibank N.A.'s deposit and senior debt ratings are A1 and A1, respectively. Citigroup Inc's senior debt, and subordinated debt ratings are A3 and Baa1, respectively, and its short-term rating is Prime-1.

Wells Fargo Bank N.A.'s deposit, senior debt and subordinated debt ratings are Aa2, Aa2, and Aa3, respectively. Wells Fargo & Company's senior debt, and subordinated debt ratings are A1 and A2, respectively, and its short-term rating is Prime-1.

The rating outlook on these three banks' unsupported bank financial strength ratings (BFSR) remain unchanged. Bank of America's and Citigroup's stand-alone BFSR is C-, which maps to a Baa2 baseline credit assessment. The rating outlook on the BFSR for both banks is stable. Wells Fargo's unsupported BFSR is C, which maps to an A3 baseline credit assessment, and the rating outlook on it is positive.

Last Rating Actions:

Moody's last rating action on Bank of America was on November 18th, 2009, when it upgraded Bank of America's unsupported bank financial strength rating to C-/Baa2 from D/Ba2.

Moody's last rating action on Citigroup was on July 19th, 2010, when it changed the outlook on Citigroup Inc's C-/Baa2 unsupported bank financial strength rating to stable from negative.

Moody's last rating action on Wells Fargo was on November 18th, 2009, when it upgraded Wells Fargo's unsupported bank financial strength rating to C/A3 from C-/Baa2.

The principal methodologies used in rating this issuer were "Bank Financial Strength Ratings: Global Methodology" published in February 2007, "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" published in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt" published in November 2009. These are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

New York
Sean Jones
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Gregory W. Bauer
MD - Global Banking
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms BofA, Citi, Wells Fargo; negative outlook on supported ratings
No Related Data.
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