"Risks Is More Severe Than We Previously Expected": S&P Downgrades Wells Fargo, Full Report

Just days after the Fed slammed Wells Fargo  on Janet Yellen's last day, by announcing an unprecedented enforcement action in which it prohibited the bank from "growing", effectively making it into a quasi-utility until it fixes its lacking internal control system and replaces much of its board, moments ago S&P added insult to injury by downgrading the largest US mortgage lender from A to A-, due to "Prolonged Regulatory And Governance Issues" with a Stable Outlook.

The full S&P report is below:

Wells Fargo & Co. Downgraded To 'A-/A-2' From 'A/A-1' On Prolonged Regulatory And Governance Issues; Outlook Is Stable

  • On Feb. 2, Wells Fargo & Co. ("Wells") became subject to a consent order from the Federal Reserve that caps the company's asset growth until it further enhances its governance and compliance and risk management to the standards required by the regulator.
  • This unprecedented asset cap on a large bank underscores the continued elevated regulatory risks for Wells, and the ongoing ramifications of its retail sales practices issues, as well as the complexities of improving compliance and operational risk controls throughout its very large organization.
  • We are lowering our ratings on Wells by one notch to 'A-/A-2', recognizing that the duration and severity of these regulatory, governance, and reputational issues are not commensurate with the previously peer-leading ratings on Wells.
  • Our stable outlook assumes that the company will meet the requirements of the regulatory consent order while maintaining solid market shares in its major businesses as well as a strong financial profile.


NEW YORK (S&P Global Ratings) Feb. 7, 2018--, S&P Global Ratings today lowered its long-term issuer credit rating on Wells Fargo & Co. to 'A-' from 'A' and its short-term issuer credit rating to 'A-2' from 'A-1'. At the same time, we lowered our long-term issuer credit rating on Wells Fargo Bank N.A. to 'A+' from 'AA-' and our short-term issuer credit rating to 'A-1' from 'A-1+'. The outlooks on both entities are stable.  

We also lowered the group credit profile to 'a' from 'a+'.

The downgrade follows news that Wells has entered into a cease-and-desist consent order with the Federal Reserve that restricts the company's asset growth to its total asset size at the end of 2017 until it sufficiently improves its governance and controls.

Following this punitive regulatory action, our downgrade reflects our view that regulatory risk for Wells is more severe than we previously expected and the process for improving its governance and operational risk policies may take longer than we previously expected.

At the same time, the company may be subject to prolonged reputational issues. The company also announced that it will replace four additional members of its Board of Directors, signaling that the Board continues to be in transition.

Our stable outlook reflects our expectations that Wells will continue to build on progress it has made in strengthening its management structure and controls and meet the provisions of the Fed consent order, including a third-party confirmation of the company's implementation of its improvement plans by Sept. 30, 2018. We also expect that its competitive positions in key businesses will not be significantly hurt by the regulatory growth restrictions and that it will maintain its good earnings generation and stable asset quality over the next two years. We expect that capital ratios will remain substantially above the company's longer-term target CET1 ratio of 10%, and that S&P Global's risk-adjusted capital ratio will remain at the higher end of our 7-10% range that we consider adequate.

We could lower the ratings if Wells does not meet the requirements under the Fed's regulatory consent order, if the asset cap is not lifted in a reasonable timeframe, or if Wells' market shares erode significantly--developments we do not currently expect. We might also take negative rating actions if the retail sales practices issue (and other operational control issues) becomes even more material to the company's overall credit profile. This could occur if we expect substantial additional fines that are large relative to earnings, or if sizable additional operational controls, compliance, or governance weaknesses surface. We could also lower the ratings if customer flows in key businesses show pronounced negative trends for a sustained period, if nonperforming assets or credit losses rise significantly, or if capital ratios decline materially as the result of more aggressive dividend or share-buyback policies.

We could raise the rating if Wells resolves the deficiencies that the Fed identified in its risk management, governance, and compliance practices. In addition, we would expect uncertainties about further regulatory and legal actions to be meaningfully reduced.  Additionally, Wells would need to regain its peer-leading business stability, and maintain above-peers' risk-adjusted earnings generation, combined with solid capital ratios and good asset quality.

Comments

americanreality whatswhat1@yahoo.com Wed, 02/07/2018 - 12:19 Permalink

Wells dyed its own hair red.  Do any of these board members/management/ceo types ever fucking EARN their big pay checks?  Who are the board members?  What do they do?  What is their daily schedule?  What is their actual compensation for hours worked?  What kind if oversight are they subjected to?  What are the consequences to their failures?  Promotion and a raise? Start exposing these criminals.  Put them in the national spotlight. 

Burn down the mission. 

In reply to by whatswhat1@yahoo.com

paulp ZENDOG Wed, 02/07/2018 - 12:31 Permalink

The US banking system is a dead banking system walking.  So is the world banking system.

If you need 10 years of QE etal to keep this pig stumbling along, you ain't got a healthy banking system.

They are just trying to clean up the mess they created by jacking up inflation so that the mess doesn't look too big in comparison to the amount of funny money that was emitted from greensprong, berdonkey, and yellen's anuses.

They want to create inflation badly.  Why do you think this $15/hr minimum wage thing is being pushed.  They only way to get inflation going is to get people spending.

Take off your blinders.

In reply to by ZENDOG

Jolt Wed, 02/07/2018 - 12:34 Permalink

Wouldn't it be nice if we could rob a bank, and the punishment was a lowering of our grade, from A to A-?

That would sure teach us a lesson, you betcha.

amanfromMars Wed, 02/07/2018 - 12:56 Permalink

What would happen to Wells Fargo's and Markets' reputations if they missed and/or ignored the chance to Seed Float the following Boot and Vessel ....... 

amanfromMars Feb 7, 2018 11:16 [1802071616] ..... Floating AIMindD Mining Fields with https://www.zerohedge.com/comment/11135441#comment-11135441

Have Monied Markets priced in for Black Swan Events ....... Joint AIdDVenturing for Secret Sensitive Missions ?

What would be the Catastrophic Cost when such Events are Ignored, is a Realistic Opening Price. 

Indeed, what would we realise of any Money Making Machine which knows not of, nor feeds supports for Opportunities in Newly Discovered Minted Fields of Alien Endeavour and Heavenly Works? 

They aint Bigger Beta Picture Players ..... and thus be just as Minnows in a Vast See of Predatory Sharks? Yes, such is as it would be.

MusicIsYou Wed, 02/07/2018 - 13:02 Permalink

Then basically Wells Fargo gets downgraded for creating a million fake accounts but the Social media giants don't get their stocks downgraded for carrying millions of fake and duplicate accounts. 

Stud Duck Wed, 02/07/2018 - 13:12 Permalink

The managed my 401K while employed with Safeco in 2008, tried my best to get thing moved before the great crash,  it was like talking to a brick wall. They would not move a thing for me into PM's. Laughed when I told them about the impending crash coming. The short of the story is they fucked me out of $50K and I am never gonna forget or forgive! Fuck them, fuck the horse they rode in on and fuck the dog that followed that horse!

 

 

Kidbuck Stud Duck Wed, 02/07/2018 - 14:00 Permalink

I lost a similar amount with Wells Fargo about that time. Just got lucky at the right moment, cashed out an IRA and took the 25% tax hit. Could have been 60% if I'd waited a week or two longer. Right up until the day I withdrew everything, their "financial advisor" (I think he was associated with Merril Lynch) was urging me to invest a lot more with them. I remember he had a big table in his office, loaded down with all the products the "safe and sound" companies that he wanted to put me into produced. Things like laundry detergent, canned soup, and what not.

In reply to by Stud Duck

One of We Wed, 02/07/2018 - 13:17 Permalink

I don't know anything about Wells Fargo brass though I assume they swap spit with Blankfiend and Dimon but the leadership in their branch offices sucks bigly.  My $.02 

Catullus Wed, 02/07/2018 - 13:34 Permalink

This is all bullshit. 

 

How is teh fed suppose sell of their portfolio if one of the largest money center banks can’t expand their portfolio?

woody188 Wed, 02/07/2018 - 13:45 Permalink

Hard to maintain an "A" rating when you're laundering drug cartel money through millions of fake accounts. Could be it was downgraded before the big legalize movements hit this summer. Some 90% of drug cartel money is from marijuana sales. Legalization is the worst thing for cartels and thus, Wells Fargo.