Fitch Upgrades Wells Fargo Bank, N.A. Long-Term IDR to 'AA+'

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has upgraded Wells Fargo Bank N.A.'s (WFBNA) Long-Term Issuer Default Rating (IDR), senior debt, and Long-Term deposit ratings to 'AA/AA/AA+', respectively. The Outlook for the Long-Term IDR is Stable. Fitch has also downgraded the support ratings of Wells Fargo & Company (WFC) and WFBNA in line with our view of sovereign support. Viability, subordinated debt, and preferred ratings are unaffected in today's rating action. A full list of rating actions follows at the end of this rating action commentary.

The upgrade of certain ratings for WFC's operating subsidiaries, including Wells Fargo Bank N.A. and Wells Fargo Bank Northwest, NA, reflects the expected implementation of total loss absorbing capital (TLAC) requirements for U.S. Global Systemically Important Banks (G-SIBs) and the presence of a substantial debt buffer in the holding company.

Fitch also believes that, in line with the Support Rating (SR) of '5', extraordinary external support while possible can no longer be relied upon for WFC or certain subsidiaries. Fitch has, therefore, downgraded the SRs to '5' from '1' and revised the Support Rating Floors (SRFs) to 'No Floor' from 'A'. WFC's IDRs and senior debt ratings did not benefit from support because its VR is above the SRF. Fitch has maintained institutional support ratings for core WFC subsidiaries.

The rating actions are in conjunction with Fitch's review of sovereign support for banks globally, as the agency announced in March 2014. In line with its expectations announced in March last year and communicated regularly since then, Fitch believes legislative, regulatory and policy initiatives have substantially reduced the likelihood of sovereign support for U.S., Swiss and European Union commercial banks. At the same time, Fitch has taken into account progress with the U.S. single point of entry (SPE) resolution regime and TLAC implementation for U.S. G-SIBs.

KEY RATING DRIVERS - IDRs and Senior Debt:

The VRs remain equalized between WFC and its material operating subsidiaries. The common VR of WFC and its operating companies reflects the correlated performance, or failure rate between the WFC and these subsidiaries. Fitch takes a group view on the credit profile from a failure perspective, while the IDR reflects each entity's non-performance (default) risk on senior debt. Fitch believes that the likelihood of failure is roughly equivalent, while the default risk given at the operating company would be lower given TLAC. All U.S. bank subsidiaries carry a common VR, regardless of size, as U.S. banks are cross-guaranteed under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

The Long-Term IDRs for the material U.S. operating entities are one notch above WFC's to reflect Fitch's belief that the U.S. SPE resolution regime, the likely implementation of TLAC requirements for U.S. G-SIBs, and the presence of substantial holding company debt reduces the default risk of domestic operating subsidiaries' senior liabilities relative to holding company senior debt. In our view these buffers would provide substantial protection to senior unsecured obligations in the domestic operating entities in the event of group resolution, as they could be used to absorb losses and recapitalize operating companies. Therefore, substantial holding company debt reduces the likelihood of default on operating company senior obligations. As at end-2014, WFC had hybrid and senior debt as a percent of risk-weighted assets of approximately 8%, enough to meet the Pillar 1 capital requirement.

RATING SENSITIVITIES -IDRs and Senior Debt:

IDRs and senior debt are now sensitive to any changes in the VR. In the event that WFC does not maintain sufficient holding company debt, Wells Fargo Bank N.A. and other key operating subsidiaries' IDRs, senior debt and deposit ratings could be negatively impacted.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

The SR and SRF reflect Fitch's view that senior creditors can no longer rely on receiving full extraordinary support from the sovereign in the event that WFC becomes non-viable. Also, implementation of the Dodd Frank Orderly Liquidation Authority legislation is now sufficiently progressed to provide a framework for resolving banks that are likely to require holding company senior creditors participating in losses, if necessary, instead of or ahead of the company receiving sovereign support.

Any upward revision to the SR and SRF would be contingent on a positive change in the U.S.'s propensity to support its banks. While not impossible, Fitch believes this is highly unlikely.

KEY RATING DRIVERS AND SENSITIVITIES - DEPOSIT RATINGS

The upgrade of Wells Fargo Bank, N.A., Wells Fargo Bank Northwest, NA, and Wachovia Bank, N.A.'s deposit ratings is based on the upgrade of their IDRs. Deposit ratings are one notch higher than senior debt reflecting the deposits' superior recovery prospects in case of default given depositor preference in the U.S.

WFC's international subsidiary, Wells Fargo Bank International's deposit ratings are at the same level as senior debt ratings because their preferential status is less clear and disclosure concerning dually payable deposits makes it difficult to determine if they are eligible for U.S. depositor preference.

SUBSIDIARY KEY RATING DRIVERS AND SENSITIVITIES

Wells Fargo Canada Corp., Wells Fargo Bank International, and Wells Fargo Securities International Limited are wholly owned subsidiaries of WFC or Wells Fargo Bank, N.A. Their IDRs and debt ratings are aligned with WFC reflecting Fitch's view that these entities are core and integral to WFC's business strategy and operations. Their IDRs and ratings would be sensitive to the same factors that might drive a change in WFC's IDR.

Fitch has revised the Rating Outlook for Wells Fargo Securities International Limited to Positive. Wells Fargo Bank International does not have a Long-Term IDR assigned, and as such its Outlook cannot be assigned a Positive Outlook.

The revision of Wells Fargo Securities International Limited's Outlook is in light of the internal pre-positioning required under the Financial Stability Board's (FSB) TLAC proposal. The Positive Outlook reflects the agency's belief that the internal TLAC of material international operating companies will likely be large enough to meet Pillar 1 capital requirements and will then be sufficient to recapitalize them. A one-notch upgrade is likely once Fitch has sufficient clarity on additional disclosure on the pre-positioning of internal TLAC and its sufficiency in size to cover a default of senior operating company liabilities. Sufficient clarity may, however, take longer to come through than the typical Outlook horizon of one to two years.

Domestic subsidiaries and international subsidiaries that have not been upgraded or assigned a Positive Outlook are, in Fitch's opinion, international subsidiaries that would not benefit from internal TLAC. This includes Wells Fargo Canada Corp.

Fitch is withdrawing the rating for Wachovia Capital Finance Corporation (Canada) as it is no longer considered by Fitch to be relevant to the agency's coverage because the entity is no longer issuing debt.

Fitch has upgraded the following ratings:

Wells Fargo Bank, NA

--Long-Term IDR to 'AA' from 'AA-'; Outlook Stable;

--Long-Term deposits to 'AA+' from 'AA';

--Market-linked securities to 'AA+(emr)' from 'AA(emr)';

--Senior debt to 'AA' from 'AA-'.

Wells Fargo Bank Northwest, NA

--Long-Term IDR to 'AA' from 'AA-'; Outlook Stable;

--Long-Term deposits to AA+' from 'AA';

--Senior debt to 'AA' from 'AA-.

Wachovia Bank, N.A.

--Long-Term deposits to 'AA+' from 'AA';

--Senior debt to 'AA' from 'AA-'.

SouthTrust Bank

--Senior debt to 'AA' from 'AA-'.

Fitch has affirmed the following ratings:

Wells Fargo Bank International

--Support at '1'.

Wells Fargo Securities International Limited

--Long-Term IDR at 'AA-'; Outlook to Positive from Stable.

Fitch has withdrawn the following rating:

Wachovia Capital Finance Corporation (Canada)

--Short-Term IDR at 'F1+'.

Fitch has downgraded the following ratings:

Wells Fargo & Co.

Wells Fargo Bank, NA

Wells Fargo Bank Northwest, NA

--Support to '5' from '1'.

Fitch has revised the following ratings:

Wells Fargo & Co.

Wells Fargo Bank, NA

Wells Fargo Bank Northwest, NA

--Support floor to 'NF' from 'A'.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Global Bank Rating Criteria' (March 20, 2015).

Applicable Criteria and Related Research:

Global Bank Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984986

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Fitch Ratings
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Source: Fitch Ratings

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