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Rating Action:

Moody's affirms Wells Fargo's ratings (holding company senior at A2); outlook remains stable

24 May 2017

New York, May 24, 2017 -- Moody's Investors Service has affirmed all of the ratings of Wells Fargo & Company and those of its subsidiaries. The parent company is rated A2 for senior debt and its bank subsidiary, Wells Fargo Bank, N.A., has deposit ratings of Aa1/Prime-1 and a standalone baseline credit assessment (BCA) of a2. The bank also has a Aa2 senior debt rating and a Aa3 subordinated debt rating, and its counterparty risk assessments are Aa1(cr)/Prime-1(cr). Wells Fargo's rating outlook remains stable.

The following ratings have been affirmed:

Issuer: Wells Fargo & Company

... Long Term Issuer Rating, A2, Stable

... Commercial Paper, P-1

... Other Short Term, (P)P-1

... Senior Unsecured Regular Bond/Debenture Rating, A2, Stable

... Senior Unsecured MTN, (P)A2

... Senior Unsec. Shelf, (P)A2

... Subordinate Rating, A3

... Subordinate MTN, (P)A3

... Subordinate Shelf, (P)A3

... Pref. Shelf, (P)Baa1

... Pref. shelf Non-cumulative, (P)Baa2

... Pref. Stock Non-cumulative, Baa2 (hyb)

... Outlook, Stable

Issuer: Wells Fargo Bank, N.A.

... Long Term Bank Deposits, Aa1, Stable

... Short Term Bank Deposits, P-1

... Deposit Note/CD Program, P-1

... Long Term Issuer Rating, Aa2, Stable

... Short Term Bank Note Program, (P)P-1

... Senior Unsecured Regular Bond/Debenture Rating, Aa2, Stable

... Senior Unsecured Bank Note Program, (P)Aa2

... Subordinate Bank Note Program, (P)Aa3

... Subordinate Rating, Aa3

... Long Term Counterparty Risk Assessment, Aa1(cr)

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

... Adjusted Baseline Credit Assessment, a2

... Baseline Credit Assessment, a2

... Outlook, Stable

Issuer: Wells Fargo Bank Northwest, N.A.

... Long Term Bank Deposits, Aa1, Stable

... Short Term Bank Deposits, P-1

... Long Term Issuer Rating, Aa2, Stable

... Long Term Counterparty Risk Assessment, Aa1(cr)

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

... Adjusted Baseline Credit Assessment, a2

... Baseline Credit Assessment, a2

... Outlook, Stable

Issuer: Wells Fargo Capital II

... BACKED Pref. Stock, Baa1(hyb)

Issuer: Wachovia Corporation

... BACKED Senior Unsecured Regular Bond/Debenture Rating, A2, Stable

... BACKED Subordinate Rating, A3

... BACKED Pref. Stock Non-cumulative, Baa2 (hyb)

Issuer: CoreStates Capital II

... BACKED Pref. Stock, A1(hyb)

Issuer: CoreStates Capital III

... BACKED Pref. Stock, A1(hyb)

Issuer: First Union Capital II

... BACKED Pref. Stock, Baa1(hyb)

Issuer: First Union National Bank of Florida

... BACKED Subordinate Rating, Aa3

Issuer: SouthTrust Bank

... BACKED Subordinate Rating, Aa3

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

... BACKED Subordinate Rating, Aa3

Issuer: Wachovia Bank, N.A.

... BACKED Subordinate Rating, Aa3

Issuer: Wachovia Corporation (Old)

... BACKED Subordinate Rating, A3

Issuer: Central Fidelity Capital Trust I

... BACKED Pref. Stock, Baa1(hyb)

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

... BACKED Senior Unsecured Regular Bond/Debenture Rating, Aa2, Stable

Issuer: Wachovia Capital Trust II

... BACKED Pref. Stock, Baa1(hyb)

Issuer: Wachovia Capital Trust III

... BACKED Pref. Stock, Baa2(hyb)

Issuer: Wells Fargo Capital X

... BACKED Pref. Stock, Baa1(hyb)

Issuer: Wells Fargo Canada Corporation

... BACKED Senior Unsecured Regular Bond/Debenture Rating, A2, Stable

... BACKED Senior Unsecured MTN, (P) A2

... BACKED Commercial Paper, P-1

... Outlook, Stable

RATINGS RATIONALE

The rating affirmation is supported by Wells Fargo's diverse business mix, which performs well throughout the cycle. In particular, Wells Fargo has strong market positions in domestic retail and commercial banking, a franchise that results in solid earnings, healthy liquidity and good internal capital generation.

The strength of Wells Fargo's franchise was tested by the public and political outcry that followed the September 2016 regulatory sanctions resulting from the bank's sales practices failures. Despite being slow in its initial response, Wells Fargo took several corrective measures, and its recent performance indicates that the risk of franchise erosion has dissipated.

Nonetheless, Moody's expects Wells Fargo's retail banking growth metrics to remain subdued and its expenses to remain elevated, at least for the balance of 2017, because of additional regulatory and legal costs. Nevertheless, Moody's expects Wells Fargo's overall financial metrics to remain healthy.

Regarding Wells Fargo's balance sheet, credit quality, liquidity and capital are all sound. Wells Fargo's net charge-off rate is low despite a recent uptick in certain consumer credit categories, specifically credit cards and auto loans. This good asset risk profile is reinforced by lower concentration risk than in the past, as residential real estate exposures have declined as a percentage of total loans. Regarding liquidity, it is supported not only by Wells Fargo's strong nationwide deposit base, but also by its sizable cash holdings and portfolio of high quality securities.

Although Moody's considers Wells Fargo's capital profile to be healthy, it is less of a rating strength than the bank's asset risk and liquidity profiles. Nonetheless, Moody's believes that Wells Fargo's capital has an above-average resilience to stress and also notes that the bank's capital position has grown in recent periods, which is a favorable development.

With respect to profitability, Wells Fargo's recurring earnings are supported by its well-balanced revenue stream, with nearly half generated from noninterest income, which is above average for US banks. Longer-term, Wells Fargo has outlined a number of expense management initiatives that it aims to achieve by the end of 2019.

While most of the initial expense reductions will be reinvested in its business, approximately $2 billion of cost savings identified by management will boost future net earnings. Moody's will evaluate the effectiveness of these initiatives on the bank's credit profile in future periods. In the next year, however, Moody's stressed that it does not expect Wells Fargo's return on average assets (ROAA) to rebound materially, even as its net interest margin is set to improve from a rising rate environment.

Overall, Moody's considers Wells Fargo's standalone BCA to be appropriately positioned one notch higher than the US median bank BCA. In addition, Wells Fargo's stable outlook anticipates little change in its creditworthiness over the next year.

What Could Change the Rating - Up

Regarding Wells Fargo's BCA, significantly stronger risk-weighted profitability metrics are a prerequisite for upward movement, as is a more robust capital position. However, Moody's sees no opportunity for positive rating pressure to emerge until the fallout from Wells Fargo's retail banking sales misconduct is fully behind it, which is not likely in the next 12 -18 months.

What Could Change the Rating - Down

With respect to Wells Fargo's BCA, the most likely cause of downward movement would be an outsized spike in nonperforming assets. In addition, Moody's cannot rule out the potential that negative rating pressure will result from future developments stemming from Wells Fargo's retail banking sales misconduct. In particular, if recent governance improvements are not maintained, that would be viewed negatively.

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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

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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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