New York, June 02, 2011 -- Moody's Investors Service has placed the deposit, senior debt,
and senior subordinated debt ratings of Bank of America Corporation (A2
senior), Citigroup Inc. (A3 senior), Wells Fargo &
Company (A1 senior), and their subsidiaries on review for possible
downgrade. Each of these ratings currently incorporates an unusual
amount of "uplift" from Moody's systemic support assumptions
that were increased during the financial crisis. The review will
focus on whether these ratings should be adjusted to remove this unusual
uplift and include only pre-crisis levels of government support.
At the same time, Moody's said that it will assess improvements
in Bank of America's and Citigroup's standalone financial
strength, and that this may temper the extent of any ratings downgrades
that could result from its review of these firms' unusual level
of systemic support.
Moody's also placed the Prime-1 ratings of Bank of America's
and Citigroup's holding companies on review for possible downgrade.
The Prime-1 rating of Wells Fargo's holding company, Wells
Fargo & Company, was affirmed. Moody's also affirmed
the Prime-1 ratings of all three companies' banking operations,
including the Prime-1 ratings of Bank of America, N.A.,
Citibank, N.A., and Wells Fargo Bank N.A.
These actions had no impact on the FDIC-guaranteed debt issued
by these firms, which remain at Aaa with a stable outlook.
MOODY'S CONTINUES TO ASSESS THE IMPACT OF THE DODD-FRANK
ACT
Regulatory authorities continue to make progress in rulemaking,
however, the final shape of the landscape remains uncertain.
Today's rating actions reflect Moody's view that, in
light of developments on the Dodd-Frank Act that have occurred
to date, the unusual levels of uplift incorporated into the ratings
of Bank of America, Citigroup, Wells Fargo may no longer be
appropriate.
"The US government's intent under Dodd-Frank is very clear,"
says Senior Vice President Sean Jones. "Going forward,
it does not want to bail out even large, systemically important
banking groups." Mr. Jones notes however that Moody's continues
to believe that such a group could not be resolved without risking a disorderly
disruption of the marketplace and the broader economy. "Even
so, the support assumptions built into these three banks'
ratings are unusually high, which may no longer be appropriate in
the evolving post-crisis environment," added Jones.
Moody's also continues to evaluate whether it should reduce to below
even pre-crisis levels its support assumptions for the eight US
banks that currently benefit from ratings uplift. In this context,
the rating outlook on the deposit, senior debt, and senior
subordinated debt ratings of Bank of New York Mellon has been changed
to negative from stable. This brings its outlook into line with
that of the other US banking groups whose debt and deposit ratings benefit
from government support assumptions: JPMorgan Chase & Co,
The Goldman Sachs Group, Inc., Morgan Stanley,
and State Street Corporation.
Unlike the three institutions placed on review today, the support
assumptions incorporated into these five groups' ratings are not
unusual -- they remain similar to, not higher than, what
they were before the crisis. Although Moody's considers it unlikely
that it will withdraw all government support from the ratings of these
eight banking groups, the agency will continue to evaluate the amount
of uplift derived from support assumptions as regulators write and promulgate
rules and regulations that could increase their ability to resolve these
institutions without triggering contagion and broader systemic risk.
Given these potential developments, over time this could lead to
Moody's reducing its support assumptions for these eight firms to
below even pre-crisis levels.
SUPPORT FOR BOFA, CITI, AND WELLS FARGO EXCEEDS PRE-CRISIS
LEVELS
Moody's government support assumptions for Bank of America,
Citigroup, and Wells Fargo are higher than what similarly rated
institutions would have received prior to the crisis. For example,
Bank of America N.A.'s and Citibank N.A.'s
C- (C minus) unsupported BFSRs translate to a Baa2 rating on Moody's
long-term debt scale; prior to the crisis a similarly rated,
systemically important bank would typically have benefited from no more
than three notches of uplift, meaning its ratings would be no higher
than A2. Currently, Bank of America receives five and Citibank
four notches of uplift from government support assumptions, bringing
their senior ratings to Aa3 and A1, respectively. Wells Fargo's
unsupported BFSR of C+ (C plus) translates to an A2 rating on Moody's
long-term debt scale; prior to the crisis a similarly rated,
systemically important bank would typically have received no more than
two notches of uplift, to Aa3. Currently, Wells Fargo's
Aa2 senior rating benefits from three notches of uplift.
CONSIDERATION OF IMPROVEMENTS IN STANDALONE FINANCIAL STRENGTH OF BANK
OF AMERICA AND CITIGROUP LEAD TO HYBRID RATING REVIEW AND COULD TEMPER
DEBT AND DEPOSIT RATINGS DOWNGRADES.
Moody's has affirmed the C- (C minus) standalone bank financial
strength rating (BFSR) of each of Bank of America and Citigroup,
and affirmed the C+ (C plus) BFSR of Wells Fargo. However,
Moody's will consider whether there has been sufficient improvement
in Bank of America's and Citigroup's financial strengths to
warrant increasing their Baa2 Baseline Credit Assessments (BCAs) to Baa1.
Consequently, certain of their hybrid securities were placed under
review for possible upgrade. These ratings do not incorporate any
systemic support uplift, so the review of their ratings will be
focused on the assessment of these firms' standalone financial strength.
In addition, to the extent that the BCAs are increased, this
would temper the size of the potential downgrades to Bank of America's
and Citigroup's debt and deposit ratings.
During its assessment of Bank of America's and Citigroup's BCAs,
Moody's will evaluate each bank's progress in improving its risk profile.
Each of these banks have increased their equity through internal capital
generation, and most of their asset quality indicators have improved.
In addition, the costs related to repurchasing mortgages sold to
third parties due to breaches in representations and warranties have stabilized
at relatively modest levels for Citigroup, though Bank of America
continues to experience a high level of repurchase costs, but has
entered into settlements with the GSEs and Assured Guaranty that reduce
its potential exposure to higher losses under a stress scenario.
Despite this progress, these banks still have sizable residential
mortgage exposures; their credit costs could therefore spike if the
US economy were to contract again. Further, they continue
to face litigation costs related to faulty foreclosure practices.
"Other considerations will include the potential effectiveness of changes
in risk management at Bank of America and Citigroup, given their
poor performance during the credit crisis and their still sizable capital
market activities, which we view as both opaque and volatile,"
Jones says, "while ongoing capital plans will also be important
in our assessment."
The principal methodologies used in rating these issuers 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, which can be found at www. moodys.com in the
Rating Methodologies sub-directory under the Research & Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating these issuers can also be found in the Rating
Methodologies sub-directory on Moody's website.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
A detailed list of the affected ratings is available on Moody's website,
which may be accessed by clicking here http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF248072
New York
Sean Jones
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Young
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's reviews BofA, Citi, Wells Fargo supported ratings for downgrade
