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Rating Action:

Moody's upgrades some Wells Fargo's ratings

14 May 2009

BFSR increased to C- from D+ and preferred stock to Ba3 from B2. All other ratings affirmed (snr at A1)

New York, May 14, 2009 -- Moody's Investors Service upgraded Wells Fargo & Company's preferred stock rating to Ba3 from B2. Moody's also raised its bank financial strength rating (BFSR) on Wells Fargo & Company's bank subsidiaries to C- from D+ and its baseline credit assessment to Baa2 from Ba1. All other Moody's ratings on Wells Fargo & Company and its subsidiaries were affirmed. These include the Aa2 on its bank subsidiaries for deposits, and A1, A2 and A3 ratings for senior debt, senior subordinated debt, and junior subordinated debt, respectively, issued by Wells Fargo & Company. The Prime-1 rating for Wells Fargo & Company and its subsidiaries was also affirmed. The rating outlook on the BFSR and the preferred ratings are "developing". The rating outlook on all other ratings remains stable.

These actions had no impact on the FDIC-guaranteed debt issued by Wells Fargo, which remains at Aaa with a stable outlook.

The upgrades on Wells Fargo's BFSR and preferred ratings were due to the improved financial flexibility that Wells Fargo obtained by raising $8.6 billion in common equity. Wells Fargo's larger capital position reduces the possibility that Wells Fargo would need to cut its preferred dividends so as to support its capital structure. Moody's did not change Wells Fargo's deposits and senior debt and subordinated debt ratings because they had already benefited from sizable lift, due to Moody's very high systemic support assumptions on Wells Fargo and a view that its valuable franchise will remain intact.

The "developing" rating outlook on the BFSR and the preferred stock reflects the sensitivity of these ratings to Wells Fargo's capital trends. Further improvement in Wells Fargo's capital ratios would put upward pressure on the ratings. Conversely, negative pressures would exist if Wells Fargo's credit costs were larger than Moody's expectations or management took steps that resulted in increasing leverage such as repaying its $25 billion in TARP preferred stock without taking compensating actions.

Today's rating actions are consistent with Moody's announcement in February 2009 that it is recalibrating some of the weights and relative importance attached to certain rating factors within its current bank rating methodologies. Capital adequacy, in particular, is taking on increasing importance in determining BFSRs in the current environment. Meanwhile, debt and deposit ratings are expected to reflect higher support assumptions for systemically important institutions during this global financial crisis. (Please see Moody's special comment "Calibrating Bank Ratings in the Context of the Global Financial Crisis.")

BFSR UPGRADE DUE TO HIGHER CAPITAL RATIOS

The upgrade of Wells Fargo Bank N.A.'s BFSR to C- from D+ was driven by the improvement in Wells Fargo's capital ratios resulting from it raising $8.6 billion in common equity from investors. The capital improvement reduces the probability of Wells Fargo's need for future systemic capital support even if it has to take sizable credit costs in 2009 and 2010.

"Recent low capital ratios undermined Wells Fargo's credit profile, especially when it was facing the asset quality challenges brought upon by a recession and high unemployment," said Moody's Senior Vice President, Sean Jones. "Wells Fargo's decision to take advantage of its improved access to the capital markets by raising a sizable amount of common equity helps to address this weakness," added Mr. Jones.

The $8.6 billion common equity raised improves Wells Fargo's Moody's Equity ratio by approximately 100 basis points, increasing the ratio to approximately 5.7% on a pro forma basis over risk-weighted assets. Moody's equity is primarily regulatory tangible common equity in addition to giving limited equity benefit to hybrid equity securities. Meanwhile, the additional $8.6 billion increases Wells Fargo's Tier I ratio to over 9% from 8.3% at 1Q09.

The increased capital is an important credit issue because Moody's is still assuming that Wells Fargo will have large credit costs in 2009 and 2010. "Residential mortgages and commercial real estate exposure makes up 58% of Wells Fargo's loans and the quality of that portfolio will be further challenged by the current difficult economic conditions," explained Mr. Jones.

When evaluating Wells Fargo's ability to absorb losses, Moody's incorporates additional mitigating factors other than Wells Fargo's current capital position. These additional factors include: 1) the $37.1 billion mark it took against Wachovia's loans, which it acquired at year-end 2008, 2) a high proportion of Wells Fargo's loan-loss reserve, which stood at $22.3 billion at March 31st 2009, 3) charge-offs it took against its residential and commercial real estate loans since the beginning of 2008, 4) tax-effecting forecasted losses, and 5) assuming quite high core earnings, which are reduced by Wells Fargo's payments of preferred and common dividends that average about $737 million per quarter on a pro forma basis.

LARGER CAPITAL BASE REDUCES THE POSSIBILITY OF A CUT IN PREFERRED DIVIDENDS

The upgrade of the preferred stock rating to Ba3 from B2 was based on Moody's view that Wells Fargo's larger capital base decreases the possibility that it would need to cut its preferred dividend payments in an effort to support its capital base. Moody's past assumption was that, if Wells Fargo could not raise equity in the capital markets it could be a recipient of capital support from the U.S. government. Moody's expected that such support might be accompanied by the suspension of dividends, or even a distressed exchange. That step would have limited the size of the U.S. government's stake in the bank in the event that support was required.

"The increased capital means that, even if Wells Fargo's credit costs result in its reporting quarterly losses, its capital ratios should still remain respectable, reducing the possibility of its cutting its preferred dividends," said Moody's Mr. Jones. If Wells Fargo can generate capital in 2009, that would put further upward pressure on Wells Fargo's preferred stock rating and its BFSR, but not on its deposit, senior and subordinated debt ratings, which already benefit from sizable lift, due to Moody's very high systemic support assumptions on Wells Fargo.

PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES

The last rating action on Wells Fargo was on March 25, 2009 when Moody's Investors Service lowered the senior debt rating of Wells Fargo & Company to A1 from Aa3, the senior subordinated debt rating to A2 from A1, and the junior subordinated debt rating to A3 from A1. The preferred stock rating was downgraded to B2 from A2. Wells Fargo's short-term rating was affirmed at Prime-1.

.

The principal methodologies used in rating this issuer were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Wells Fargo & Company is headquartered in San Francisco. Its reported assets at March 31st,2009 were $1.3 trillion.

WFC

Issuer: First Fidelity Bancorporation

..Upgrades:

....Preferred Stock Preferred Stock, Upgraded to Ba3 from B2

Issuer: Wachovia Bank, N.A.

..Upgrades:

.... Bank Financial Strength Rating, Upgraded to C- from D+

Issuer: Wachovia Capital Trust III

..Upgrades:

....Preferred Stock Preferred Stock, Upgraded to Ba3 from B2

....Preferred Stock Shelf, Upgraded to (P)Ba3 from (P)B2

Issuer: Wachovia Corporation

..Upgrades:

....Multiple Seniority Shelf, Upgraded to (P)Ba3 from (P)B2

....Preferred Stock Preferred Stock, Upgraded to Ba3 from B2

....Preferred Stock Shelf, Upgraded to (P)Ba3 from (P)B2

Issuer: Wachovia Preferred Funding Corp.

..Upgrades:

....Preferred Stock Preferred Stock, Upgraded to Ba3 from B2

Issuer: Wells Fargo & Company

..Upgrades:

....Multiple Seniority Shelf, Upgraded to (P)Ba3 from (P)B2

....Preferred Stock Preferred Stock, Upgraded to Ba3 from B2

....Preferred Stock Shelf, Upgraded to (P)Ba3 from (P)B2

Issuer: Wells Fargo Bank Northwest, N.A.

..Upgrades:

.... Bank Financial Strength Rating, Upgraded to C- from D+

Issuer: Wells Fargo Bank, N.A.

..Upgrades:

.... Bank Financial Strength Rating, Upgraded to C- from D+

Issuer: Wells Fargo Capital XIII

..Upgrades:

....Preferred Stock Preferred Stock, Upgraded to Ba3 from B2

....Preferred Stock Shelf, Upgraded to (P)Ba3 from (P)B2

Issuer: Wells Fargo Capital XV

..Upgrades:

....Preferred Stock Preferred Stock, Upgraded to Ba3 from B2

Issuer: World Savings Bank, FSB

..Upgrades:

.... Bank Financial Strength Rating, Upgraded to C- from D+

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
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades some Wells Fargo's ratings
No Related Data.
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