(This is a correction for a release issued on July 22, 2010. It updates the ratings in the list at the end of the release.)
Fitch Ratings has affirmed Wells Fargo & Co., Inc's. (WFC) ratings, including its long- and short-term Issuer Default Ratings (IDRs) at 'AA-' and at 'F1+', respectively. The Rating Outlook for WFC remains Stable. A list of affected ratings follows the end of this release.
The affirmation of WFC's ratings at their current high levels also reflects the company's solid capital levels, enhanced distribution network, and good core deposit profile. WFC's capital ratios have improved materially since the acquisition of Wachovia Corp. at YE2008. Tier 1 common improved over 400bps from Dec 31, 2008 to June 30, 2010 due to considerable capital raising activities, strong retained earnings growth, and balance sheet shrinkage. As the fourth largest banking institution in the country, WFC also operates one of the premier banking franchises in the U.S. with a retail banking network spanning nationwide. Through 80 different business lines, WFC also claims strong market shares among many product offerings and asset classes, including mortgage lending and servicing, retail brokerage, used car lending, and small business lending, to name just a few.
While WFC is not immune from the macroeconomic pressures facing U.S. consumers and businesses, it has fared comparatively better than many banks. Throughout 2009 and 2010 to date, WFC's strong core profitability afforded it the ability to steadily increase its provision for loan losses while remaining solidly profitable. Relative to its large bank peer group, WFC benefited from its avoidance of certain businesses and strong historical underwriting practices.
WFC's integration of Wachovia appears to be progressing better than originally projected with estimated cumulative merger expenses reduced to approximately $5.7 billion from $7.9 billion, and the company is on track to achieve the $5 billion annual run-rate of cost savings by 2011. Wachovia's exposures across all risk categories were evaluated and marked to fair value by WFC through purchase accounting as of Dec. 31, 2008. To date, WFC's credit valuations appear to be holding up well.
WFC reported another solid quarter of operating results amidst a challenging economic environment, driven by a number of factors, not the least of which is the company's focus on revenue diversification and cross-selling. During the quarter, WFC reported $3.1 billion in net income, mainly due to lower provision expenses. WFC also enjoys an industry leading net interest margin due to its low cost funding base, which has to contend with all the excess liquidity currently sitting on the balance sheet earning nominal yields. WFC's profitability levels continue to compare favorably to its large bank domestic banking peers.
It is expected that the pending 'Dodd-Frank Wall Street Reform and Consumer Protection Act' will impact WFC's earnings through various fee reductions, higher regulatory-related costs, and restrictions on certain business activities. The ultimate impact may likely not be felt for at least a few years, and currently does not pose a material risk to WFC's ratings. However, in the interim, Fitch expects that WFC will react to the proposed measures through cost cutting, new fees, and the potential exit of certain business activities. Despite the potential impact on earnings, it is expected that WFC's earnings will remain strong and withstand the costs associated with complying with pending financial reforms.
The Stable Outlook reflects Fitch's belief that WFC has sufficient financial resources, in terms of capital, reserves, and pre-provision net revenue, to absorb higher than historical credit costs. WFC's strong organic capital generation should help the company comply with higher regulatory capital requirements in the future as well. WFC's long-term IDR could be positively affected through a return to historic profitability levels, combining with an improvement in credit quality metrics. Conversely, WFC's long-term IDR could be negatively affected if asset quality trends reverse their current stabilizing to improving trend and begin to exert significant pressure on the company's profitability and capital ratios.
Headquartered in San Francisco, Wells Fargo & Company (WFC) is the fourth largest bank in the U.S. by assets and deposits. WFC completed one of the largest banking acquisitions in U.S. history when it purchased Wachovia Corp. on Dec. 31, 2008, more than doubling in size.
Fitch has affirmed the following ratings:
Wells Fargo & Co.
--Long-term IDR at 'AA-';
--Senior debt at 'AA-';
--Subordinated debt at 'A+';
--Preferred stock at 'A';
--Short-term IDR at 'F1+';
--Short-term debt at 'F1+';
--Individual at 'B';
--Support at '5';
--Support Floor at 'NF';
--Long-term debt guaranteed by TLGP at 'AAA';
--Short-term debt guaranteed by TLGP at 'F1+'.
Wells Fargo Bank, NA
--Long-term IDR at 'AA-';
--Long-term deposits at 'AA';
--Subordinated debt at 'A+';
--Short-term IDR at 'F1+';
--Short-term deposits at 'F1+';
--Short-term debt at 'F1+';
--Individual at 'B';
--Support at '1';
--Support Floor at 'A+'.
Wells Fargo Bank Northwest, NA
--Long-term IDR at 'AA-';
--Long-term deposits at 'AA';
--Senior debt at 'AA-';
--Short-term IDR at 'F1+';
--Short-term deposits at 'F1+';
--Individual at 'B';
--Support at '1';
--Support Floor at 'A+'.
Wachovia Bank, NA
--Long-term deposits at 'AA';
--Senior debt at 'AA-';
--Short-term deposits at 'F1+';
--Subordinated debt at 'A+'.
Wachovia Mortgage, FSB
--Long-term IDR at 'AA-';
--Short-term IDR at 'F1+';
--Short-term deposits at 'F1+';
--Long-term deposits at 'AA';
--Senior debt at 'AA-';
--Individual at 'B';
--Support at '1';
--Support Floor at 'A+'.
Wachovia Bank, FSB (Texas)
--Long-term IDR at 'AA-';
--Short-term IDR at 'F1+';
--Short-term deposits at 'F1+';
--Long-term deposits at 'AA';
--Individual at 'B';
--Support at '1';
--Support Floor at 'A+'.
Wells Fargo Financial, Inc.
--Long-term IDR at 'AA-';
--Senior debt at 'AA-'.
Wells Fargo Capital II, X, XI, XII, XIII, XIV, XV
Wells Fargo Capital Trust IV, VII, VIII
InterWest Capital Trust I
--Preferred at 'A'.
Wells Fargo Financial Canada Corp.
--Long-term IDR at 'AA-';
--Short-term IDR at 'F1+';
--Senior debt at 'AA';
--Short-term debt at 'F1+'.
Greater Bay Bancorp, Inc.
--Senior debt at 'AA-'.
Greater Bay Bank, N.A.
--Long-term deposits at 'AA'.
Wachovia Corporation
--Short-term debt at 'F1+';
--Senior debt at 'AA-';
--Subordinated debt at 'A+';
--Preferred stock at 'A'.
Wachovia Capital Finance Corporation (Canada)
--Short-term IDR at 'F1+'.
Congress Financial Capital Company
(guaranteed by Wells Fargo & Company)
--Long-term IDR at 'AA-'.
Wells Fargo Bank International
--Support at '1';
--Long-term deposits at 'AA-';
--Short-term deposits at 'F1+'.
Golden West Financial Corporation
--Senior debt at 'AA-'.
SouthTrust Bank
--Senior debt at 'AA-';
--Subordinated debt at 'A+'.
First Union National - Florida
SouthTrust Corporation
WFC Holdings Inc.
--Subordinated debt at 'A+'.
Wachovia Capital Trust I, II, III, IV, V, IX, X
Central Fidelity Capital Trust I
Corestates Capital I, II, III
First Union Capital I, II
First Union Institutional Capital I, II
--Preferred at 'A'.
This rating action reflects the application of Fitch's current criteria which is available on Fitch's web site at 'www.fitchratings.com' and specifically includes:
--'Master Global Financial Institutions Criteria' (Dec. 29, 2009);
--'Bank Holding Companies' (Dec. 30, 2009).
Additional information is available at 'www.fitchratings.com'.
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