Moody's Cuts Wells Fargo's (WFC) Senior Debt Rating to Aa3

Moody's Investors Services lowered its credit rating on Wells Fargo's (NYSE: WFC) senior debt from Aa1 to Aa3, with a negative outlook. Moody's also lowered its financial strength rating on Wells Fargo three notches from A to B.

Moody's said the rating changes follow the closing of Wells Fargo's acquisition of Wachovia, in turn completing the rating review process undertaken by Moody's. The firm believes that the Wells Fargo acquisition of Wachovia has significantly weakened the bank's capital position. Further, Moody's does not see Wells Fargo improving its leverage before 2010 as "the company will need to sustain high loan-loss provisions that will negatively affect earnings." Finally, Moody's also cites Wells Fargo's "sizable" dividend payments (which cost it about $1.4 billion quarterly) as substantially limiting "internal capital formation, constraining its ability to reduce its high leverage."

Just before the market close, shares of Wells Fargo are down 2% to $27.48. As the Moody's downgrade news hit wires, the stock gave up gains that it had held onto for the majority of today's trading session.

Wells Fargo & Company, through its subsidiaries, operates as a financial services company in the United States.

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