Fitch af­firms Wells Fargo

The Pak Banker - - Front Page -


Global rat­ing agency Fitch has com­pleted re­view of the fol­low­ing 14 rated large re­gional banks: BB&T Cor­po­ra­tion (BBT), Cap­i­tal One Fi­nance Cor­po­ra­tion (COF), Comer­ica In­cor­po­rated (CMA), Fifth Third Ban­corp (FITB), Hunt­ing­ton Banc­shares Inc (HBAN), Keycorp (KEY), M&T Bank Cor­po­ra­tion (MTB), PNC Fi­nan­cial Ser­vices Group (PNC), Re­gions Fi­nan­cial Cor­po­ra­tion (RF), SunTrust Banks Inc (STI), US Ban­corp (USB), UnionBanCal Cor­po­ra­tion ( UBC), Wells Fargo & Com­pany (WFC), and Zions Ban­cor­po­ra­tion (ZION). Re­fer to the re­lease ti­tled 'Fitch Af­firms Large Re­gional Bank Rat­ings Fol­low­ing In­dus­try Peer Re­view' for a dis­cus­sion of rat­ing ac­tions taken on the other large re­gion­als banks.

Global rat­ing agency Fitch said WFC's rat­ings were af­firmed at 'AA-', pri­mar­ily re­flect­ing the com­pany's strong earn­ings pro­file, solid liq­uid­ity po­si­tion, and sound cap­i­tal ra­tios. These strengths are off­set by a grow­ing con­cen­tra­tion to the res­i­den­tial mort­gage mar­ket and weaker than av­er­age as­set qual­ity ra­tios. WFC has a mean­ing­ful ex­po­sure to the res­i­den­tial real es­tate mar­ket as a re­sult of its #1 mar­ket share in orig­i­na­tion and ser­vic­ing, its large port­fo­lio of first and sec­ond lien mort­gages and mort­gage­backed se­cu­ri­ties port­fo­lio. The ex­po­sure has in­creased in the last year re­flect­ing in­creased orig­i­na­tion ac­tiv­ity and re­trench­ment of key com­peti­tors.

Global rat­ing agency Fitch views this con­cen­tra­tion as a po­ten­tial source of rat­ing sen­si­tiv­ity for WFC, though there are no di­rect rat­ing im­pli­ca­tions at this time.

Fitch ex­pects this con­cen­tra­tion to mod­er­ate over time as the cur­rent re­fi­nanc­ing boom slows, com­peti­tors be­come more ac­tive and WFC grows other con­sumer loan books, as well as its com­mer­cial port­fo­lio. WFC's MSR as­set also has mean­ing­ful cap­i­tal im­pli­ca­tions un­der Basel III. As of Sept. 30, 2012, WFC was not over the thresh­old for MSRs un­der Basel III; how­ever, when rates rise, the value of MSRs should pre­sum­ably rise given the ex­pec­ta­tion of lower pre­pay­ment speeds. As MSRs in­crease in value, de­duc­tions to cap­i­tal ra­tios may re­sult and ad­versely im­pact cap­i­tal ra­tios.

Global rat­ing agency Fitch al­ready deducts 100% of MSRs in its cal­cu­la­tions of Fitch Core Cap­i­tal. WFC is con­sid­er­ing po­ten­tial strate­gies for deal­ing with the MSR cap un­der Basel III, in­clud­ing ser­vic­ing sales and de-em­pha­siz­ing third party lend­ing chan­nels. As a re­sult of the dif­fer­ent treat­ment of MSRs and the in­clu­sion of other com­pre­hen­sive in­come un­der Basel III, Fitch ex­pects WFC to main­tain an ap­pro­pri­ate cap­i­tal buf­fer to with­stand the re­lated volatil­ity in cap­i­tal ra­tios.

Fur­ther, fail­ure to lessen the mort­gage con­cen­tra­tion could pres­sure WFC's rat­ings over time.

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