New York, September 02, 2020 -- Moody's Investors Service, ("Moody's") has
affirmed the ratings of Wells Fargo & Company (Wells Fargo) and its
rated subsidiaries, including the group's main bank operating entity,
Wells Fargo Bank, N.A. Wells Fargo is rated A2 for
long-term senior unsecured debt.
Moody's has also affirmed the a2 standalone baseline credit assessment
(BCA) of Wells Fargo Bank, N.A., as well as
the bank's Aa1 long-term deposit rating and Aa2 long-term
senior unsecured debt rating. The Aa1(cr)/Prime-1(cr) Counterparty
Risk Assessments and the Aa1/Prime-1 Counterparty Risk Ratings
of Wells Fargo Bank, N.A. were also affirmed.
However, the rating outlooks on Wells Fargo and its subsidiaries
were changed to negative from stable. "The outlook change reflects
Wells Fargo's slower than anticipated pace in resolving its legacy
governance, oversight, compliance and operational risk management
deficiencies", said Allen Tischler, Senior Vice President.
"Although Wells Fargo's years-long remediation efforts
are progressing, the slow pace weighs on its expense base,
further undermining its earnings potential against the backdrop of challenging
operating conditions resulting from the coronavirus pandemic outbreak",
Mr. Tischler added.
Moody's regards the coronavirus outbreak as a social risk under its environmental,
social and governance (ESG) framework, given the substantial implications
for public health and safety. Also, Moody's regards
Wells Fargo's long-running resolution of its governance,
oversight, compliance and risk management deficiencies as a governance
risk under its ESG framework.
RATINGS RATIONALE
The affirmation of the ratings for Wells Fargo and Wells Fargo Bank,
N.A., as well as the bank's a2 BCA, which
remains higher than the current a3 median for rated US banks, considers
its underlying credit strengths. These include Wells Fargo's
conservative risk appetite, a highly diversified and granular loan
book, and robust liquidity. Indeed, even though the
fallout from Wells Fargo's earlier compliance and operational failures
damaged its reputation and significantly weakened its profitability,
in both absolute terms and relative to peers, its balance sheet
fundamentals have remained intact.
Nonetheless, Moody's expects Wells Fargo's capitalization
will remain under pressure as the US economy continues to be affected
by the coronavirus pandemic and credit quality deteriorates. Specifically,
weakening credit quality will increase the calculation of risk-weighted
assets under the advanced approach, which underlies Moody's
favored capital metric, tangible common equity to risk-weighted
assets (TCE/RWA). In fact, the rating agency expects Wells
Fargo's capitalization will weaken in the second half of 2020 as
its asset quality worsens, even if profitability improves.
In recognition of this challenge, Moody's views favorably
Wells Fargo's capital preservation initiatives, including
its announced common dividend reduction of roughly 80% and the
curtailment of share buybacks. Moreover, Wells Fargo faces
the current challenging operating environment from a position of relative
capital strength. At 30 June 2020, its TCE/RWA was 10.8%
and its regulatory common equity Tier 1 ratio was 11.0%,
or roughly 2.0% above its required regulatory minimum of
9.0%, a capital cushion similar to the median cushion
of its regional and larger US bank peers.
Since the appointment of a new CEO last fall, Wells Fargo has continued
to add experienced senior managers and board members, a positive
development despite the challenges often associated with management transitions,
while also making substantial investments in its corporate risk management
and compliance infrastructure. The firm's ability to attract
qualified talent despite both the damage to its reputation and the lingering
uncertainty over the ultimate resolution of its regulatory issues is credit
positive.
In Moody's view, Wells Fargo's revamped management and board
will not materially alter the bank's strategic direction.
Moreover, in light of Wells Fargo's significant investments,
and management's clear top priority of resolving its regulatory
demands, Moody's believes the bank will eventually emerge
from its current challenges with stronger operational risk and compliance
management, and improved governance.
However, as the coronavirus pandemic has clearly diverted management's
attention, Moody's now believes Wells Fargo will not emerge
from any of the Federal Reserve's consent order restrictions,
including the asset cap, until at least 2021. Indeed,
the path to a complete resolution of Wells Fargo's myriad challenges,
including its regulatory matters, bloated expense structure and
prospective decline in capital is still unclear, making it more
susceptible than peers to additional unforeseen negative developments,
which could weaken its credit profile. The negative outlook reflects
that possibility, which has become more likely in the current environment.
In regard to Wells Fargo's profitability challenges, in addition
to the difficult operating conditions faced by all US and global banks,
specifically lower anticipated net interest income and elevated loan loss
provisions, Wells Fargo's expense profile is particularly
weak. In part, this is a consequence of the significant work
necessary to remedy its legacy compliance and governance failures.
For the first half of 2020, Wells Fargo reported a 78% cost/income
ratio, one of the highest amongst US banks. Before its sales
practices issues, the firm routinely targeted and achieved a cost/income
ratio in the mid- to high-50s.
Wells Fargo's new management team has undertaken a comprehensive
expense review that Moody's expects will soon result in a detailed
plan to significantly reduce costs in the years ahead. If Wells
Fargo can demonstrate that it is on a path to eventually return to its
historic level of operating efficiency, that can limit the emergence
of additional negative rating pressure. On the other hand,
downward rating pressure on Wells Fargo will increase if Moody's
does not expect its operating efficiency and profitability metrics to
materially rebound in 2021 and beyond.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's action reflects the impact of the breadth and
severity of the shock, and the deterioration in credit quality and
capital it is going to trigger. Today's action also reflects
the governance challenges that Wells Fargo continues to face and that
have partly driven the change in outlook to negative from stable.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook indicates that a BCA and rating upgrade is highly
unlikely over the next 12-18 months. The outlook could return
to stable if Wells Fargo demonstrates that it can preserve its capital,
materially reduce its expense base and progress towards a resolution of
its regulatory consent orders, while showing financial results in
line with similarly rated banks on a sustainable basis.
The BCA and ratings could be downgraded if capitalization weakens more
than 100 basis points from recent levels and if Moody's believes that
it will not be restored within the next year or two. Additionally,
if Wells Fargo is unable to demonstrate within the next several quarters
that it is on a path to eventually return to its historic level of operating
efficiency and profitability, that could lead to a downgrade.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
List of affected ratings:
Affirmations:
.Issuer: Wells Fargo & Company
....LT Issuer Rating, Affirmed A2,
Negative from Stable
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed A2, Negative from Stable
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed A2, Negative from Stable
....Senior Unsecured Shelf, Affirmed
(P)A2
....Senior Unsecured Medium-Term Note
Program (Local Currency), Affirmed (P)A2
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)A2
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed A3
....Subordinate Regular Bond/Debenture (Foreign
Currency), Affirmed A3
....Subordinate Shelf, Affirmed (P)A3
....Subordinate Medium-Term Note Program
(Local Currency), Affirmed (P)A3
....Subordinate Medium-Term Note Program
(Foreign Currency), Affirmed (P)A3
....Junior Subordinate Regular Bond/Debenture,
Affirmed Baa1 (hyb)
....Pref. Shelf, Affirmed (P)Baa1
....Pref. Stock Non-cumulative,
Affirmed Baa2 (hyb)
....Pref. Shelf Non-Cumulative,
Affirmed (P)Baa2
....Commercial Paper, Affirmed P-1
....Other Short Term, Affirmed (P)P-1
..Issuer: Wells Fargo Bank, N.A.
.... Adjusted Baseline Credit Assessment,
Affirmed a2
.... Baseline Credit Assessment, Affirmed
a2
....LT Counterparty Risk Assessment,
Affirmed Aa1(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....LT Counterparty Risk Rating (Local Currency),
Affirmed Aa1
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....LT Counterparty Risk Rating (Foreign Currency),
Affirmed Aa1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....LT Issuer Rating, Affirmed Aa2,
Negative from Stable
....LT Bank Deposits, Affirmed Aa1,
Negative from Stable
....ST Bank Deposits, Affirmed P-1
....ST Deposit Note/CD Program, Affirmed
P-1
....Subordinate Bank Note Program, Affirmed
(P)Aa3
....Senior Unsecured Bank Note Program,
Affirmed (P)Aa2
....ST Bank Note Program, Affirmed (P)P-1
....Subordinate Medium-Term Note Program,
Affirmed (P)Aa3
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Aa2
....Subordinate Regular Bond/Debenture,
Affirmed Aa3
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed Aa2, Negative from Stable
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Aa2, Negative from Stable
..Issuer: Wells Fargo Securities International Limited
....LT Issuer Rating, Affirmed A2,
Negative from Stable
....Other Short Term, Affirmed P-1
..Issuer: Wachovia Corporation
....Pref. Stock Non-cumulative,
Affirmed Baa2 (hyb)
....Backed Pref. Stock Non-cumulative,
Affirmed Baa2 (hyb)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed A3
....Subordinate Regular Bond/Debenture (Foreign
Currency), Affirmed A3
..Issuer: CoreStates Capital II
....Backed Pref. Stock, Affirmed
A1 (hyb)
..Issuer: CoreStates Capital III
....Backed Pref. Stock, Affirmed
A1 (hyb)
..Issuer: First Union National Bank of Florida
....Backed Subordinate Regular Bond/Debenture,
Affirmed Aa3
..Issuer: SouthTrust Bank
....Subordinate Regular Bond/Debenture,
Affirmed Aa3
..Issuer: SouthTrust Bank of Georgia, N.A.
(Old)
....Backed Subordinate Regular Bond/Debenture,
Affirmed Aa3
..Issuer: Wachovia Bank, N.A.
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed Aa3
....Subordinate Regular Bond/Debenture (Foreign
Currency), Affirmed Aa3
..Issuer: Wachovia Corporation (Old)
....Backed Subordinate Regular Bond/Debenture,
Affirmed A3
..Issuer: Wachovia Bank, N.A.
(Old)
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Aa2, Negative from Stable
..Issuer: Central Fidelity Capital Trust I
....Backed Pref. Stock, Affirmed
Baa1 (hyb)
..Issuer: Wachovia Capital Trust II
....Backed Pref. Stock, Affirmed
Baa1 (hyb)
..Issuer: Wachovia Capital Trust III
....Backed Pref. Stock, Affirmed
Baa2 (hyb)
..Issuer: Wells Fargo Securities Europe S.A.
....LT Issuer Rating, Affirmed A2,
Negative from Stable
....ST Issuer Rating, Affirmed P-1
..Issuer: Wells Fargo Canada Corporation
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed A2, Negative from Stable
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)A2
....Backed Commercial Paper, Affirmed
P-1
..Issuer: Wells Fargo Finance LLC
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed A2, Negative from Stable
....Backed Senior Unsecured Shelf, Affirmed
(P)A2
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)A2
Outlook Actions:
..Issuer: Wells Fargo & Company
....Outlook, Changed to Negative from
Stable
..Issuer: Wells Fargo Bank, N.A.
....Outlook, Changed To Negative From
Stable
..Issuer: Wells Fargo Securities International Limited
....Outlook, Changed To Negative From
Stable
..Issuer: Wells Fargo Securities Europe S.A.
....Outlook, Changed To Negative From
Stable
..Issuer: Wells Fargo Canada Corporation
....Outlook, Changed To Negative From
Stable
..Issuer: Wells Fargo Finance LLC
....Outlook, Changed To Negative From
Stable
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Allen Tischler
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
