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
