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Fitch Affirms Wells Fargo's Ratings Following Large Regional Peer Review, Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has completed a peer review of the following 14 rated large regional banks : BB&T Corporation (BBT), Capital One Finance Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc (STI), US Bancorp (USB), UnionBanCal Corporation (UBC), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION). Refer to the release titled 'Fitch Affirms Large Regional Bank Ratings Following Industry Peer Review' for a discussion of rating actions taken on the other large regionals banks.

RATING ACTION AND RATIONALE

WFC's ratings were affirmed at 'AA-', primarily reflecting the company's strong earnings profile, solid liquidity position, and sound capital ratios. These strengths are offset by a growing concentration to the residential mortgage market and weaker than average asset quality ratios.

WFC has a meaningful exposure to the residential real estate market as a result of its #1 market share in origination and servicing, its large portfolio of first and second lien mortgages and mortgage-backed securities portfolio. The exposure has increased in the last year reflecting increased origination activity and retrenchment of key competitors. Fitch views this concentration as a potential source of rating sensitivity for WFC, though there are no direct rating implications at this time. Fitch expects this concentration to moderate over time as the current refinancing boom slows, competitors become more active and WFC grows other consumer loan books, as well as its commercial portfolio.

WFC's MSR asset also has meaningful capital implications under Basel III. As of Sept. 30, 2012, WFC was not over the threshold for MSRs under Basel III; however, when rates rise, the value of MSRs should presumably rise given the expectation of lower prepayment speeds. As MSRs increase in value, deductions to capital ratios may result and adversely impact capital ratios. Fitch already deducts 100% of MSRs in its calculations of Fitch Core Capital. WFC is considering potential strategies for dealing with the MSR cap under Basel III, including servicing sales and de-emphasizing third party lending channels. As a result of the different treatment of MSRs and the inclusion of other comprehensive income under Basel III, Fitch expects WFC to maintain an appropriate capital buffer to withstand the related volatility in capital ratios.

RATING DRIVERS AND SENSITIVITIES - VRs and IDRs:

With a long-term Issuer Default Rating (IDR) of 'AA-', WFC is among the highest rated banks in the U.S., and as such, Fitch sees limited upside potential in WFC's ratings. Conversely, WFC's ratings might be reviewed if the capital implications related to the MSR asset become outsized relative to peers under Basel III. Further, failure to lessen the mortgage concentration could pressure WFC's ratings over time. Lastly, large scale reforms in the mortgage industry or failure to maintain earnings at current levels would also likely prompt a review of WFC's ratings.

RATING DRIVERS AND SENSITIVITIES - Support Ratings and Support Floor Ratings:

WFC's Support Rating of '1' and Support Floor Rating of 'A' reflect its systemic importance to the U.S. This viewpoint was broadly discussed in Fitch's special report titled 'U.S. Banks - Sovereign Support: When Does it End' dated Dec. 15, 2011. Fitch could reassess its support ratings for U.S. G-SIFIs if global market conditions normalize and resolution regimes become more harmonized across international jurisdictions. That said, WFC's IDR of 'AA-' does not currently incorporate any government support, and reflects it standalone strength only.

RATING DRIVERS AND SENSITIVITIES - Subordinated Debt and Other Hybrid Securities:

Subordinated debt and hybrid capital instruments issued by the banks are notched down from the issuers' Viability Ratings (VRs) in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. The ratings of subordinated debt and hybrid securities are sensitive to any change in the banks' VRs or to changes in the banks' propensity to make coupon payments that are permitted but not compulsory under the instruments' documentation.

RATING DRIVERS AND SENSITIVITIES - Holding Company:

All of the entities reviewed in the Large Regional Bank Group have a bank holding company (BHCs) structure with the bank as the main subsidiary. All subsidiaries are considered core to parent holding company supporting equalized ratings between bank subsidiaries and bank holding companies. IDRs and VRs are equalized with those of its operating companies and banks reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Double leverage is right at or below 120% for all the parent companies reviewed in this peer group.

RATING DRIVERS AND SENSITIVITIES - Subsidiary and Affiliated Company Rating:

All of the entities reviewed in the Large Regional Bank Group factor in a high probability of support from parent institutions to its subsidiaries. This reflects the fact that performing parent banks have very rarely allowed subsidiaries to default. It also considers the high level of integration, brand, management, financial and reputational incentives to avoid subsidiary defaults.

Fitch has affirmed the following ratings:

Wells Fargo & Co.
-- Long-term IDR at 'AA-'; Outlook Stable
-- Senior debt at 'AA-';
-- Subordinated debt at 'A+';
-- Preferred stock at 'BBB';
-- Short-term IDR at 'F1+';
-- Commercial paper at 'F1+';
-- Short-term debt at 'F1+';
-- Market-linked securities at 'AA- EMR';
-- Viability at 'aa-';
-- Support at '1';
-- Support floor at 'A'.

Wells Fargo Bank, NA
-- Long-term IDR at 'AA-'; Outlook Stable
-- Long-term deposits at 'AA';
-- Market-linked securities at 'AA EMR';
-- Senior debt at 'AA-';
-- Subordinated debt at 'A+';
-- Short-term IDR at 'F1+';
-- Short-term deposits at 'F1+';
-- Short-term debt at 'F1+';
-- Viability at 'aa-'.
-- Support at '1';
-- Support Floor at 'A'.

Wells Fargo Bank Northwest, NA
-- Long-term IDR at 'AA-'; Outlook Stable
-- Long-term deposits at 'AA';
-- Senior debt at 'AA-';
-- Short-term IDR at 'F1+';
-- Short-term deposits at 'F1+';
-- Viability at 'aa-';
-- Support at '1';
-- Support Floor at 'A'.

Wachovia Bank, N.A.
-- Long-term deposits at 'AA';
-- Market-linked securities, certificates of deposits 'AA EMR';
-- Senior debt at 'AA-';
-- Short-term deposits at 'F1+';
-- Subordinated debt at 'A+'.

Wachovia Mortgage, FSB
Wachovia Bank, FSB (Texas)
-- Short-term deposits at 'F1+';
-- Long-term deposits at 'AA'.

Wells Fargo Canada Corp.
-- Long-term IDR at 'AA-'; Outlook Stable
-- 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
-- Commercial paper at 'F1+';
-- Senior debt at 'AA-';
-- Subordinated debt at 'A+';
-- Preferred stock at 'BBB'.

Wachovia Capital Finance Corporation (Canada)
-- Short-term IDR at 'F1+'.

Wells Fargo Bank International
-- Support at '1';
-- Long-term deposits at 'AA-';
-- Short-term deposits at 'F1+'.

SouthTrust Bank
-- Senior debt at 'AA-';
-- Subordinated debt at 'A+'.

First Union National - Florida
SouthTrust Corporation
WFC Holdings, Inc.
-- Subordinated debt at 'A+'.

Wells Fargo Capital II, X, XII
Wells Fargo Capital Trust VII, VIII
Wachovia Capital Trust II
Central Fidelity Capital Trust I
Corestates Capital II, III
First Union Capital II
-- Preferred at 'BBB+'.

Wachovia Capital Trust III
-- Preferred at 'BBB.'

The following ratings are affirmed and withdrawn since there is no debt outstanding at either of these entities, and WFC does not currently plan on issuing debt out of these entities in the future.

Wells Fargo Financial, Inc.
Congress Financial Capital Company
(guaranteed by Wells Fargo & Company)
-- Long-term IDR at 'AA-'.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the source(s) of information identified in Fitch's Master Criteria, these actions were additionally informed by information provided by the companies.

Applicable Criteria and Related Research:
-- 'Risk Radar' (Oct. 15, 2012);
-- 'U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)' (Sept. 17, 2012);
-- 'U.S. Banks: Mortgage Representations and Warranties (Banks Increase Reserves; Uncertainty Remains)' (Aug. 20, 2012);
-- 'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
-- 'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
-- 'Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)' (Aug. 7, 2012);
-- 'Basel III: Return and Deleveraging Pressures' (May 17, 2012);
-- 'Rating Bank Regulatory Capital and Similar Securities' (Dec. 15, 2011);
-- 'U.S. Banks - Sovereign Support: When Does it End' (Dec. 14, 2011).

Applicable Criteria and Related Research:

Risk Radar October 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=691996

U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688330

U.S. Banks: Mortgage Representations and Warranties (Banks Increase Reserves; Uncertainty Remains)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684038

Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685638

Basel III: Return and Deleveraging Pressures
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678273

Rating Bank Regulatory Capital and Similar Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656371

U.S. Banks - Sovereign Support: When Does it End -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=662250

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Fitch, Inc.
Primary Analyst
Julie Solar, +1-312-368-5472
Senior Director
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Committee Chairperson
Joo-Yung Lee, +1-212-908-0560
Managing Director
or
Media Relations
Brian Bertsch, +1 212-908-0549 (New York)
brian.bertsch@fitchratings.com

Source: Fitch Ratings