New York, February 16, 2022 -- Moody's Investors Service ("Moody's") has affirmed
all of the ratings of Wells Fargo & Company ("Wells Fargo")
and those of its subsidiaries. The parent company is rated A1 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 subsidiary also has a Aa2 long-term
senior debt rating and a Aa3 subordinated debt rating, as well as
Counterparty Risk Assessments of Aa1(cr)/Prime-1(cr) and Counterparty
Risk Ratings of Aa1/Prime-1. As part of this rating action,
Moody's changed Wells Fargo's rating outlook to stable from negative.
A complete list of affected ratings can be found at the end of this release.
"As a result of prior governance and compliance problems, Wells
Fargo has been operating under severe regulatory restrictions that we
do not expect to fully subside in 2022. Yet, although the
potential for lasting customer fallout was once high, Wells Fargo's
consumer deposit base has grown substantially in recent years and its
deposit costs are as low as its peers, indications that it has moved
past its reputational damage", stated Moody's Senior Vice
President Allen Tischler. "Even though regulatory uncertainty remains,
we expect Wells Fargo's sturdy balance sheet metrics will keep its
creditworthiness strong while it continues to improve its core earnings
prospects by reducing expenses, which supports a stable outlook",
Mr. Tischler added.
RATINGS RATIONALE
The affirmation of Wells Fargo's BCA and ratings reflects its healthy
balance sheet metrics, low deposit costs, slowly improving
cost structure and progress in resolving some of its legacy regulatory
consent orders. These achievements shield its creditors from the
risks associated with its remaining legal and regulatory uncertainty,
in Moody's view.
In addition, the outlook change to stable from negative acknowledges
not only Wells Fargo's underlying franchise strengths, but
also presumes that the bank will continue to make progress in addressing
its most prominent legal and regulatory issues. Furthermore,
Moody's anticipates that Wells Fargo's core earnings in 2022
and 2023 will benefit from higher short-term interest rates,
which will boost net interest income, its biggest revenue line,
even as net income may weaken somewhat from 2021 levels, as the
magnitude of reserve releases declines.
Wells Fargo's ESG Credit Impact Score (CIS) remains moderately negative
at CIS-3. In Moody's view, as long as its current
regulatory issues are outstanding, Wells Fargo's social and
governance risks will remain heightened and have the potential to cause
future deterioration in its credit profile. This is reflected in
the very highly negative social risks issuer profile score (S IPS-5)
and highly negative governance risks issuer profile score (G IPS-4).
However, the risks highlighted by these low scores have not manifested
themselves in weaker balance sheet metrics, nor have they materially
weakened the bank's creditworthiness, in Moody's assessment.
Indeed, the substantial growth of Wells Fargo's low-cost
consumer deposit base over the past few years suggests that customers
have not withheld business from the bank, an indication that Wells
Fargo's particularly weak social risks issuer profile score has
the potential to improve over time.
With respect to Wells Fargo's regulatory consent orders, they
increasingly appear on track to be resolved, albeit at a slower
pace than Moody's had anticipated. Moody's notes that
three separate consent orders have either expired or been terminated by
Wells Fargo's federal banking regulators since January 2021,
a credit positive sign that the bank is continuing to make progress.
However, each one took between five and six and a half years to
resolve, which suggests that the remaining work will be a multiyear
process because some of the firm's outstanding enforcement actions were
issued more recently.
Concurrent with its regulatory work, Wells Fargo's management
team has also completed a review of its business mix, resulting
in the sale of multiple businesses and loan portfolios over the past few
years that it deemed non-core. The sales have narrowed Wells
Fargo's focus to direct retail and commercial banking businesses,
wealth management and corporate and investment banking. Nonetheless,
Wells Fargo's revenue mix is diverse and it has little concentration
risk.
Still, Wells Fargo has a sizable commitment to capital markets businesses,
which Moody's expects will grow in the future, particularly
after the bank's growth restrictions are lifted. In 2021,
investment banking and markets revenue within its Corporate and Investment
Banking segment accounted for 8% of Wells Fargo's total revenue.
Although the rating agency believes this contribution will eventually
increase, Wells Fargo's management has noted that it does
not intend to compete with the largest global investment banks across
their full product sets. For example, Wells Fargo does not
intend to build a large global trading business, which would make
it both more opaque and complex. Instead, it intends to focus
on selling more primary capital markets products, such as debt and
equity underwriting and M&A advisory services, to its large
base of primarily US-based commercial and corporate customers.
Moody's noted that the Federal Reserve's asset cap has had a silver
lining for creditors because it compelled management to actively manage
not only its business mix, but also its liability structure.
In particular, Wells Fargo deliberately de-emphasized larger,
more expensive and non-relationship deposit balances in its Corporate
and Investment Banking segment, which reported a drop in deposits
of 35% from year-end 2019 to year-end 2021.
Meanwhile, stickier and less expensive deposits in its Consumer
Banking and Lending segment climbed 37% over the same period.
As a result of that shift, average deposits in Consumer Banking
and Lending accounted for 59% of Wells Fargo's total average deposits
in Q4 2021, up from 49% in Q4 2019. This is the same
segment whose customers were most negatively affected by the bank's
prior sales practices deficiencies, so the strong growth suggests
that Wells Fargo's reputational damage has receded.
Regarding profitability, it remains challenged by high expenses.
Wells Fargo's reported cost/income ratio was 69% in 2021,
though this included non-core items in both the numerator and denominator.
On a core basis, Moody's expects little change from this level
in 2022, leaving Wells Fargo's cost/income ratio elevated
compared with its historic performance. However, management
has identified multiple initiatives that will result in several billion
dollars of additional savings over the next two to three years.
In the meantime, Moody's sees the potential for some additional
reserve releases to support net income in 2022 because Wells Fargo was
less aggressive than peers on this front in 2021, and its asset
quality remains strong. Moreover, Wells Fargo's revenue
is poised to benefit meaningfully from rising interest rates, reflecting
its concentration in low-cost consumer deposits, which will
reprice upward with a significant lag, in Moody's view.
Loan growth, which accelerated in the latter part of 2021 and is
likely to continue, should also support higher net interest income.
On the other hand, as long as Wells Fargo has outstanding litigation
and regulatory issues, the related expense could spike and weaken
its profitability.
Wells Fargo's capitalization, as measured by its common equity
Tier 1 (CET1) capital ratio (standardized approach), was an estimated
11.4% at year-end 2021. However, on
the more risk-sensitive advanced approach basis, the CET1
ratio was 12.6%. Moody's does not expect a
sizable reduction in Wells Fargo's capital metrics in 2022,
though some reduction is likely due to higher shareholder payouts.
Moody's notes that Wells Fargo's G-SIB surcharge declined
50 bps at the start of the year, providing the firm with greater
capacity to raise payouts, although payouts in the second half of
2022 will still depend upon the results of the Federal Reserve's
DFAST stress test.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
With multiple outstanding regulatory consent orders, a rating upgrade
is unlikely in the next 12-18 months. Over the long-term,
significantly stronger core profitability metrics, higher capitalization
and a complete resolution of all legacy regulatory and legal issues could
lead to a higher BCA. A higher BCA would likely lead to higher
ratings.
If minimal additional progress is achieved in resolving Wells Fargo's
legacy issues by mid-2023, that would indicate management
has lost traction and would cause Moody's to revisit the firm's ratings
and/or outlook. Wells Fargo's BCA could also be downgraded
due to a material loss of consumer deposits, an outsized spike in
nonperforming assets, a material expansion of Wells Fargo's
capital markets operations relative to its other banking businesses,
or if there are any indications of control or risk management failures.
A lower BCA would likely lead to a ratings downgrade.
Affirmations:
..Issuer: Wells Fargo & Company
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed A1, Stable From Negative
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed A1, Stable From Negative
.Commercial Paper (Local Currency), Affirmed P-1
....LT Issuer Rating, Affirmed A1,
Stable From Negative
....Senior Unsecured MTN (Local Currency),
Affirmed (P)A1
....Senior Unsecured MTN (Foreign Currency),
Affirmed (P)A1
....Subordinate MTN (Local Currency),
Affirmed (P)A3
....Subordinate MTN (Foreign Currency),
Affirmed (P)A3
....Other Short Term (Local Currency),
Affirmed (P)P-1
....Pref. Stock Non-cumulative
(Local Currency), Affirmed Baa2(hyb)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed A3
....Subordinate Regular Bond/Debenture (Foreign
Currency), Affirmed A3
....Junior Subordinate Regular Bond/Debenture
(Local Currency), Affirmed Baa1(hyb)
....Senior Unsecured Shelf (Local Currency),
Affirmed (P)A1
....Subordinate Shelf (Local Currency),
Affirmed (P)A3
....Pref. Shelf (Local Currency),
Affirmed (P)Baa1
....Pref. shelf Non-cumulative
(Local Currency), Affirmed (P)Baa2
..Issuer: Wells Fargo Bank, N.A.
.Adjusted Baseline Credit Assessment, Affirmed a2
.Baseline Credit Assessment, Affirmed a2
....Senior Unsecured Bank Note Program (Local
Currency), Affirmed (P)Aa2
....Subordinate Bank Note Program (Local Currency),
Affirmed (P)Aa3
....ST Bank Note Program (Local Currency),
Affirmed (P)P-1
....ST Deposit Note/CD Program (Local Currency),
Affirmed P-1
.LT Counterparty Risk Assessment, Affirmed Aa1(cr)
.ST Counterparty Risk Assessment, Affirmed P-1(cr)
....LT Counterparty Risk Rating (Local Currency),
Affirmed Aa1
....LT Counterparty Risk Rating (Foreign Currency),
Affirmed Aa1
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....LT Issuer Rating, Affirmed Aa2,
Stable From Negative
....Senior Unsecured MTN (Local Currency),
Affirmed (P)Aa2
....Subordinate MTN (Local Currency),
Affirmed (P)Aa3
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed Aa2, Stable From Negative
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Aa2, Stable From Negative
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed Aa3
....LT Bank Deposits (Local Currency),
Affirmed Aa1, Stable From Negative
....ST Bank Deposits (Local Currency),
Affirmed P-1
..Issuer: Wachovia Corporation (Assumed By Wells Fargo
& Company)
....Pref. Stock Non-cumulative
(Local Currency), 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 (Local Currency),
Affirmed A1(hyb)
..Issuer: CoreStates Capital III
....Backed Pref. Stock (Local Currency),
Affirmed A1(hyb)
..Issuer: First Union National Bank of Florida (Assumed
By Wachovia Bank, N.A.)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed Aa3
..Issuer: SouthTrust Bank (Assumed By Wells Fargo
Bank, N.A.)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed Aa3
..Issuer: SouthTrust Bank of Georgia, N.A.
(Old) (Assumed By SouthTrust Bank)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed Aa3
..Issuer: Wachovia Bank, N.A.
(Assumed By Wells Fargo Bank, N.A.)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed Aa3
....Subordinate Regular Bond/Debenture (Foreign
Currency), Affirmed Aa3
..Issuer: Wachovia Corporation (Old) (Assumed By Wachovia
Corporation)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed A3
..Issuer: Wachovia Bank, N.A.
(Old) (Assumed By Wells Fargo Bank, N.A.)
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed Aa2, Stable From Negative
..Issuer: Wells Fargo Finance LLC
....Backed Senior Unsecured MTN (Local Currency),
Affirmed (P)A1
....Backed Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed A1, Stable From Negative
....Backed Senior Unsecured Shelf (Local Currency),
Affirmed (P)A1
..Issuer: Wells Fargo Canada Corporation
.Backed Commercial Paper (Local Currency), Affirmed
P-1
....Backed Senior Unsecured MTN (Local Currency),
Affirmed (P)A1
....Backed Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed A1, Stable From Negative
..Issuer: Wells Fargo Securities Europe S.A.
....LT Issuer Rating (Local Currency),
Affirmed A2, Stable From Negative
....ST Issuer Rating (Local Currency),
Affirmed P-1
..Issuer: Wells Fargo Securities International Limited
....LT Issuer Rating (Local Currency),
Affirmed A2, Stable From Negative
....Other Short Term (Local Currency),
Affirmed P-1
Outlook Actions:
..Issuer: Wells Fargo & Company
....Outlook, Changed To Stable From
Negative
..Issuer: Wells Fargo Bank, N.A.
....Outlook, Changed To Stable From
Negative
..Issuer: Wells Fargo Finance LLC
....Outlook, Changed To Stable From
Negative
..Issuer: Wells Fargo Canada Corporation
....Outlook, Changed To Stable From
Negative
..Issuer: Wells Fargo Securities Europe S.A.
....Outlook, Changed To Stable From
Negative
..Issuer: Wells Fargo Securities International Limited
....Outlook, Changed To Stable From
Negative
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
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
Andrea Usai
Associate Managing Director
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
