Fitch Affirms Wells Fargo’s Ratings Following Large Regional Peer Review, Outlook Stable.
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris.
has completed a peer review of the following
14 rated large regional banks : BB&T Corporation (
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Finance Corporation (COF), Comerica Incorporated (
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PNC Police National Computer
PNC People’s National Congress
PNC People’s National Congress
Financial Corporation (RF), SunTrust Banks Inc (
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), US Bancorp (
UnionBanCal Corporation (UBC), Wells Fargo & Company (
WFC Wide-Field Camera
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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
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
MSR Mountain Safety Research
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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
That can be presumed or taken for granted; reasonable as a supposition:
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
RATING DRIVERS AND SENSITIVITIES – VRs and IDRs:
With a long-term Issuer Default Rating (
) 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
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
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
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’
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
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 Bank, FSB (Texas) — Short-term
deposits at ‘F1+’; — Long-term deposits at
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
Wells Fargo Bank International — Support at ‘1’; —
Long-term deposits at ‘AA-‘; — Short-term deposits at
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
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
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
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,
Applicable Criteria and Related Research:
Risk Radar October 2012
U.S. Banks: Rationalizing the Branch Network (Witness the Incredible
Shrinking Branch Network)
U.S. Banks: Mortgage Representations and Warranties (Banks Increase
Reserves; Uncertainty Remains)
Global Financial Institutions Rating Criteria
Rating FI Subsidiaries and Holding Companies
Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal
(Pro-Cyclical Capital Policy to Create Greater Capital Volatility for
Basel III: Return and Deleveraging Pressures
Rating Bank Regulatory Capital and Similar Securities
U.S. Banks – Sovereign Support: When Does it End — Amended
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