Moody's Cuts Wells Fargo Debt Ratings (WFC)

It really is a wonder how and why the debt ratings agencies still have any merit or use at all, but for now they still have some pull.  Moody’s has announced that it has lowered the debt ratings of Wells Fargo & Company (NYSE: WFC) senior debt to Aa3 from Aa1.  It has also cut the ratings on its lead bank, Wells Fargo Bank, N.A. long-term bank deposits to Aa1 from Aaa.

Moody’s financial strength rating on the bank was lowered three notchesto B from A, a change in the baseline credit assessment to Aa3 fromAaa. The Prime-1 ratings on the short-term obligations of all WellsFargo’s entities were affirmed.   But the rating outlook is negative.  At least Warren Buffett still likes Wells Fargo.

This review is after the closing of the Wachovia merger and after areview was announced in October.  The rating cut andnegative outlook reflect the view that the bank has been weakened andthat its leverage will not significantly improve before 2010.  In fact,Moody’s doesn’t expect Wells Fargo to generate sizable amounts ofcapital until the second half of 2010.

We could go on and on, but you have followed the situation and areprobably as little surprised as we are on this cut.  The only realsurprise is that it has taken this long to occur.

Jon C. Ogg
January 6, 2009