New York, September 21, 2011 -- Moody's Investors Service downgraded the long-term ratings
of Wells Fargo & Company(holding company senior debt to A2 from A1)
and of its major subsidiaries including Wells Fargo Bank N.A.
(rating on the bank for deposits to Aa3 from Aa2). The actions
conclude a review for downgrade announced on June 2, 2011.
The outlook on the long-term senior ratings remains negative.
The downgrades result from a decrease in the probability that the US government
would support the bank, if needed. Moody's believes that
the government is likely to continue to provide some level of support
to systemically important financial institutions. However,
it is also more likely now than during the financial crisis to allow a
large bank to fail should it become financially troubled, as the
risks of contagion become less acute. Moody's is therefore lowering
the amount of support it incorporates into Wells Fargo's ratings
to levels reflected prior to the crisis.
The ratings affected are as follows:
Wells Fargo & Company: Moody's downgraded the supported
long-term senior debt rating to A2 from A1. The Prime-1
short-term rating was affirmed as was the unsupported hybrid ratings
issued by or guaranteed by Wells Fargo & Company. (Junior subordinated
debt rated at Baa1 (hyb)). The holding company senior debt ratings
now incorporate one notch of uplift due to systemic support, down
from two notches previously. The outlook on the supported ratings
is negative and the outlook on the unsupported hybrid ratings is stable.
Wells Fargo Bank N.A.: Moody's downgraded the
long-term bank deposit and senior bank debt ratings to Aa3 from
Aa2 and the short-term Prime 1 ratings was affirmed. The
bank financial strength rating (BFSR) of C+ was also affirmed,
and the banks' corresponding baseline credit assessment (BCA) or
unsupported rating, remains unchanged at A2. The bank deposit
and senior debt ratings now incorporate two notches of uplift due to systemic
support, down from three notches previously. Moody's
also affirmed the hybrid rating guaranteed by Wells Fargo Bank N.A.
at A3 (hyb). The outlook on the supported ratings is negative and
the rating on the unsupported ratings is stable.
Please see the link for a full list of rating actions.
Moody's will publish separate press releases on other institutions
covered by the reviewed announced on June 2, 2011.
RATINGS RATIONALE
Moody's continues to see the probability of support for highly interconnected,
systemically important institutions as very high, although that
probability is lower than it was during the financial crisis. During
the crisis, the risk of contagion to the US and global financial
system from a major bank failure was viewed as too great to allow such
a failure to occur -- a view borne out in the aftermath of the Lehman
failure. This led the government to extend an unusual level of
support to weakened financial institutions and Moody's to incorporate
the expectations of such support in its ratings. Now, having
moved beyond the depths of the crisis, Moody's believes there
is an increased possibility that the government might allow a large financial
institution to fail, taking the view that contagion could be limited.
Moody's decision to assign a negative rating outlook reflects the
possibility it may further reduce its systemic support assumptions in
the future as a consequence of the process set in motion by the enactment
of the Dodd-Frank Act.. Under the rules recently
finalized by the FDIC, the orderly liquidation authority included
in Dodd-Frank demonstrates a clear intent to impose losses on bondholders
in the event that a systemically important bank such as Wells Fargo was
nearing failure. If fully implemented, the provisions of
Dodd-Frank could further lower systemic risk by reducing interconnectedness
among large institutions and could further strengthen regulators'
abilities to resolve such firms.
However, the final form of several critical components of Dodd-Frank
intended to reduce such interconnectedness, such as resolution plans
or changes to the over-the-counter derivatives market,
are still pending. There is also no global process yet in place
whereby regulators could resolve a global financial company such as Wells
Fargo in an orderly fashion. As a result, Moody's believes
that it would be very difficult for the US government to utilize the orderly
liquidation authority to resolve a systemically important bank without
a disruption of the marketplace and the broader economy.
The principal methodologies used in rating were "Bank Financial
Strength Ratings: Global Methodology" published in February
2007, "Incorporation of Joint-Default Analysis into
Moody's Bank Ratings: A Refined Methodology" published in
March 2007, and "Moody's Guidelines for Rating Bank Hybrid
Securities and Subordinated Debt" published in November 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Wells Fargo is headquartered in San Francisco. Its reported assets
were $1,260 billion at June 30, 2011.
A detailed list of the affected ratings is available on Moody's website,
which may be accessed by clicking here
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Sean Jones
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Wells Fargo & Company rating (sr to A2); P-1 affirmed
