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Rating Action - Servicer:

Moody's affirms Wells Fargo's ratings (A2 long-term senior unsecured); outlook remains negative as multi-year transformation slowly progresses

22 Apr 2021

New York, April 22, 2021 -- 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 similarly affirmed.

Moody's maintains the negative rating outlooks on Wells Fargo and its subsidiaries that have been in place since September 2020. "The rating affirmation recognizes that Wells Fargo continues to make incremental progress in addressing its risk, control and governance shortcomings while maintaining a strong balance sheet", said Allen Tischler, Senior Vice President.

"Although the firm's weak core earnings are reflected in our negative outlook, the combination of reserve release and gains on divesting non-core businesses will support 2021 profitability and serve as a bridge to what may be a lower expense base in future years, which would be a credit positive development, if achieved", Mr. Tischler added.

Moody's regards Wells Fargo's long-running resolution of its governance, oversight, compliance and risk management deficiencies as a governance risk under its environmental, social and governance (ESG) framework.

RATINGS RATIONALE

The affirmation of all the ratings on Wells Fargo and Wells Fargo Bank, N.A., as well as the affirmation of the bank's a2 BCA, reflect its core underlying strengths. Wells Fargo has a large and diversified US retail and commercial banking franchise, limited concentration risk and a conservative credit risk appetite. Moreover, Wells Fargo's balance sheet fundamentals, including capitalization and liquidity, have strengthened since the onset of the pandemic last year from a combination of reserve build, management's capital preservation initiatives and better-than-anticipated credit performance due to broad-based government stimulus. In addition, despite the economic rebound, Wells Fargo has been less aggressive than most of its large bank peers in releasing reserves, a credit positive.

Yet, the fallout from Wells Fargo's legacy compliance and operational risk failures endures, and the detrimental effect on its profitability persists. Indeed, Wells Fargo's earnings are quite weak in both absolute terms and relative to peers. Moody's calculates Wells Fargo's net income to tangible assets for 2020 at just 0.16%, driven by reserve build and the firm's weak cost-to-income ratio, which hovered in the low-80s for most of the year.

Nonetheless, Wells Fargo's operational efficiency profile improved modestly in Q1 2021 and its new management team has identified a variety of initiatives designed to materially reduce expenses going forward. Management also acknowledged that it will take a few years for its plan to be fully executed. Still, in 2021, Moody's expects that a combination of incremental reserve release and gains on divesting non-core businesses will continue to support Wells Fargo's profitability, as they did in Q1 2021. As such, while not recurring, these non-core earnings sources should serve as a bridge to a time when Wells Fargo's expenses are better managed.

A complete resolution of Wells Fargo's legacy issues, including the termination of regulatory consent orders and restrictions on growth, in particular the Federal Reserve's asset cap, will be the most meaningful catalyst for future profitability growth. Although Wells Fargo's management team routinely highlights its regulatory work as the firm's most important priority, it has not provided any details about the timing of a potential resolution. While its regulatory agreements remain outstanding, the possibility remains that new issues may be uncovered and/or additional penalties could be imposed on the firm, either of which could inflict additional reputational harm, and are a consideration in Wells Fargo's negative rating outlook.

Still, the balance sheet improvements noted above provide significant creditor support. Among them are growth in Wells Fargo's capitalization, specifically its common equity Tier 1 (CET1) ratio, which climbed to an estimated 11.8% at 31 March 2021 from 10.7% at 31 March 2020, and growth in low-cost deposits, noninterest-bearing deposits in particular. Favorably, Wells Fargo's deposit costs have dropped significantly and are comparable to, or lower than, those of most peers, an indication that the bank has not had to pay up to retain or attract deposits in the face of its reputational damage. For Q1 2021, Wells Fargo's cost of deposits was just three basis points. Although the Federal Reserve's asset cap has compelled the bank to push out higher-cost, less relationship-oriented deposits, its core deposit base has continued to grow, particularly retail deposits.

In addition to prioritizing the remediation of its past shortcomings and resolving its regulatory agreements, Wells Fargo's management team has been streamlining its business mix. As a result, multiple businesses have been divested and management's strategic focus is now centered on traditional retail, commercial and corporate banking, as well as wealth management, largely areas where it has scale.

In Moody's view, Wells Fargo's long-running compliance and reputational risk issues, including the restrictions on its growth, compelled management to rationalize its business mix, which should simplify the operation of the bank going forward. On the other hand, Wells Fargo's high cost structure and poor earnings have likely somewhat limited its ability to invest in the franchise, though management has emphasized the acceleration of important investments in digitalization, an imperative, in Moody's view.

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. Wells Fargo's outlook could return to stable if it maintains capitalization near current levels, begins to materially improve its operational efficiency and continues to make progress towards a full resolution of its regulatory consent orders.

The BCA and ratings could be downgraded if Wells Fargo is unable to demonstrate within the next few quarters that it is on a strong path to return to its historic level of operating efficiency and profitability, if the recent positive trend in its capitalization meaningfully reverses, or if there are few signs of progress in resolving its outstanding regulatory matters. Additionally, worse than expected deterioration in credit quality on the back of the COVID pandemic, or material risk management failures, could lead to downward pressure on Wells Fargo's ratings.

The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. 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

....Long-term Issuer Rating, Affirmed A2, negative

... Long-term Pref. Shelf, Affirmed (P)Baa1

... Long-term Pref. stock Non-cumulative Shelf, Affirmed (P)Baa2

....Long-term Subordinated Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A3

....Long-term Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A2

....Long-term Subordinated Shelf, Affirmed (P)A3

....Long-term Senior Unsecured Shelf, Affirmed (P)A2

....Other Short Term Medium-Term Note Program, Affirmed (P)P-1

....Long-term Pref. Stock Non-cumulative Preferred Stock, Affirmed Baa2(hyb)

....Long-term Subordinate Regular Bond/Debenture (Local and Foreign Currency), Affirmed A3

....Short-term Senior Unsecured Commercial Paper, Affirmed P-1

....Long-term Senior Unsecured Regular Bond/Debenture (Local and Foreign Currency), Affirmed A2, negative

....Long-term Junior Subordinate Regular Bond/Debenture, Affirmed Baa1(hyb)

..Issuer: Wells Fargo Bank, N.A.

.... Adjusted Baseline Credit Assessment, Affirmed a2

.... Baseline Credit Assessment, Affirmed a2

.... Long-term Counterparty Risk Assessment, Affirmed Aa1(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Short-term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1

.... Long-term Counterparty Risk Rating (Local and Foreign Currency), Affirmed Aa1

.... Long-term Issuer Rating, Affirmed Aa2, negative

.... Short-term Deposit Rating, Affirmed P-1

....Long-term Subordinate Bank Note Program, Affirmed (P)Aa3

....Long-term Senior Unsecured Bank Note Program, Affirmed (P)Aa2

....Short-term Bank Note Program, Affirmed (P)P-1

....Long-term Subordinate Medium-Term Note Program, Affirmed (P)Aa3

....Long-term Senior Unsecured Medium-Term Note Program, Affirmed (P)Aa2

....Long-term Subordinate Regular Bond/Debenture, Affirmed Aa3

....Short-term Deposit Note/CD Program, Affirmed P-1

....Long-term Senior Unsecured Regular Bond/Debenture (Local and Foreign Currency), Affirmed Aa2, negative

....Long-term Deposit Rating, Affirmed Aa1, negative

..Issuer: Central Fidelity Capital Trust I

....Long-term Backed Pref. Stock, Affirmed Baa1(hyb)

..Issuer: CoreStates Capital II

....Long-term Backed Pref. Stock, Affirmed A1(hyb)

..Issuer: CoreStates Capital III

....Long-term Backed Pref. Stock, Affirmed A1(hyb)

..Issuer: First Union National Bank of Florida

....Long-term Backed Subordinate Regular Bond/Debenture, Affirmed Aa3

..Issuer: SouthTrust Bank

....Long-term Subordinate Regular Bond/Debenture, Affirmed Aa3

..Issuer: SouthTrust Bank of Georgia, N.A. (Old)

....Long-term Backed Subordinate Regular Bond/Debenture, Affirmed Aa3

..Issuer: Wachovia Bank, N.A.

....Long-term Subordinate Regular Bond/Debenture (Local and Foreign Currency), Affirmed Aa3

..Issuer: Wachovia Bank, N.A. (Old)

....Long-term Backed Senior Unsecured Regular Bond/Debenture, Affirmed Aa2, negative

..Issuer: Wachovia Capital Trust II

....Long-term Backed Pref. Stock, Affirmed Baa1(hyb)

..Issuer: Wachovia Corporation

....Long-term Backed Pref. Stock Non-cumulative, Affirmed Baa2(hyb)

....Long-term Pref. Stock Non-cumulative, Affirmed Baa2(hyb)

....Long-term Subordinate Regular Bond/Debenture (Local and Foreign Currency), Affirmed A3

..Issuer: Wachovia Corporation (Old)

....Long-term Backed Subordinate Regular Bond/Debenture, Affirmed A3

..Issuer: Wells Fargo Canada Corporation

....Short-term Backed Senior Unsecured Commercial Paper, Affirmed P-1

....Long-term Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)A2

....Long-term Backed Senior Unsecured Regular Bond/Debenture, Affirmed A2, negative

..Issuer: Wells Fargo Finance LLC

....Long-term Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)A2

....Long-term Backed Senior Unsecured Regular Bond/Debenture, Affirmed A2, negative

....Long-term Backed Senior Unsecured Shelf, Affirmed (P)A2

..Issuer: Wells Fargo Securities Europe S.A.

.... Long-term Issuer Rating, Affirmed A2, negative

.... Short-term Issuer Rating, Affirmed P-1

..Issuer: Wells Fargo Securities International Limited

....Long-term Issuer Rating, Affirmed A2, negative

....Other Short Term, Affirmed P-1

Outlook Actions:

..Issuer: Wells Fargo & Company

....Outlook, Remains Negative

..Issuer: Wells Fargo Bank, N.A.

....Outlook, Remains Negative

..Issuer: Wells Fargo Canada Corporation

....Outlook, Remains Negative

..Issuer: Wells Fargo Finance LLC

....Outlook, Remains Negative

..Issuer: Wells Fargo Securities Europe S.A.

....Outlook, Remains Negative

..Issuer: Wells Fargo Securities International Limited

....Outlook, Remains Negative

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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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