Double Tap For Octogenarian Of Omaha: Wells Downgraded From A1 To A2

Tyler Durden's picture

Buffett tells Obama how to tax the country and all he gets is this lousy shirt that says "I got double penetrated by Moody's on Central Planning day"

Moody's Investors Service downgraded the long-term ratings of Wells Fargo & Company(holding company senior debt to
A2 from A1) and of its major subsidiaries including Wells Fargo Bank N.A.
(rating on the bank for deposits to Aa3 from Aa2). The actions conclude a review for downgrade announced on June 2, 2011. The outlook on the long-term senior ratings remains negative.
 
The downgrades result from a decrease in the probability that the US government would support the bank, if needed. Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions. However, it is also more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute. Moody's is therefore lowering the amount of support it incorporates into Wells Fargo's ratings to levels reflected prior to the crisis.
 
The ratings affected are as follows:
 
Wells Fargo & Company: Moody's downgraded the supported long-term senior debt rating to A2 from A1. The Prime-1 short-term rating was affirmed as was the unsupported hybrid ratings issued by or guaranteed by Wells Fargo & Company. (Junior subordinated debt rated at Baa1 (hyb)). The holding company senior debt ratings now incorporate one notch of uplift due to systemic support, down from two notches previously. The outlook on the supported ratings is negative and the outlook on the unsupported hybrid ratings is stable.
 
Wells Fargo Bank N.A.: Moody's downgraded the long-term bank deposit and senior bank debt ratings to Aa3 from Aa2 and the short-term Prime 1 ratings was affirmed. The bank financial strength rating (BFSR) of C+ was also affirmed, and the banks' corresponding baseline credit assessment
(BCA) or unsupported rating, remains unchanged at A2. The bank deposit and senior debt ratings now incorporate two notches of uplift due to systemic support, down from three notches previously. Moody's also affirmed the hybrid rating guaranteed by Wells Fargo Bank N.A. at A3 (hyb). The outlook on the supported ratings is negative and the rating on the unsupported ratings is stable.
 
Please see the link for a full list of rating actions.
 
Moody's will publish separate press releases on other institutions covered by the reviewed announced on June 2, 2011.
 
RATINGS RATIONALE
 
Moody's continues to see the probability of support for highly interconnected, systemically important institutions as very high, although that probability is lower than it was during the financial crisis. During the crisis, the risk of contagion to the US and global financial system from a major bank failure was viewed as too great to allow such a failure to occur -- a view borne out in the aftermath of the Lehman failure. This led the government to extend an unusual level of support to weakened financial institutions and Moody's to incorporate the expectations of such support in its ratings. Now, having moved beyond the depths of the crisis, Moody's believes there is an increased possibility that the government might allow a large financial institution to fail, taking the view that contagion could be limited.
 
Moody's decision to assign a negative rating outlook reflects the possibility it may further reduce its systemic support assumptions in the future as a consequence of the process set in motion by the enactment of the Dodd-Frank Act.. Under the rules recently finalized by the FDIC, the orderly liquidation authority included in Dodd-Frank demonstrates a clear intent to impose losses on bondholders in the event that a systemically important bank such as Wells Fargo was nearing failure. If fully implemented, the provisions of Dodd-Frank could further lower systemic risk by reducing interconnectedness among large institutions and could further strengthen regulators' abilities to resolve such firms.
 
However, the final form of several critical components of Dodd-Frank intended to reduce such interconnectedness, such as resolution plans or changes to the over-the-counter derivatives market, are still pending.
There is also no global process yet in place whereby regulators could resolve a global financial company such as Wells Fargo in an orderly fashion. As a result, Moody's believes that it would be very difficult for the US government to utilize the orderly liquidation authority to resolve a systemically important bank without a disruption of the marketplace and the broader economy.
 
The principal methodologies used in rating 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.
Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
 
Wells Fargo is headquartered in San Francisco. Its reported assets were
$1,260 billion at June 30, 2011.