Bangkok--18 Jul--Asian Banker
Moody's Investors Service saw no rating implications regarding Wells Fargo's second quarter 2008 results. Wells Fargo & Company -- the holding company -- is rated Aa1 for senior debt. The lead bank is rated A for financial strength and Aaa for deposits. The rating outlook is stable.
Moody's said the major positive element about Wells Fargo's 2Q08 results was the strong underlying performance that allowed the company to build its loan-loss reserves and increase its capital ratios. For Moody's, credit concerns still center on the performance of Wells Fargo's home equity portfolio. Another negative noted by the rating agency was Wells Fargo's decision to increase its dividend by approximately $100 million to $1.1 billion a quarter resulting in a high 59% payout ratio.
Wells Fargo reported net income of $1.8 billion in 2Q08, down from $2 billion in the previous quarter. The decline was due to a $1 billion sequential quarterly increase in loan-loss provisions to $3 billion resulting in a $1.5 billion increase in Wells Fargo's loan-loss reserve. The increase in loan-loss provisions was mostly offset by higher pre-tax earnings and reduced taxes. The rise in core earnings came from higher net-interest margins, asset growth and higher business fees most noticeably in mortgage banking. "Wells Fargo avoided many of the problems of the credit crunch, and the second quarter illustrated that it is capitalizing on its improved comparative market standing," said Moody's Senior Vice President, Sean Jones.
Moody's said that the major threat to Wells Fargo's credit standing relates to the bank's $84 billion home-equity portfolio that is divided into a liquidating portfolio of $11 billion and a core portfolio of $73 billion. Delinquency trends worsened in both portfolios, but asset quality trends remain within Moody's expectations that are incorporated in its current ratings on Wells Fargo.
Wells Fargo improved its capital ratios for the third consecutive quarter. "At Wells Fargo's rating levels, it is important that it holds strong capital ratios in addition to holding a sizable capital surplus over the regulatory "well capitalized" level," added Mr. Jones
Wells Fargo & Company is headquartered in San Francisco. Its reported assets as of June 30th, 2008 were $609 billion.
--www.theasianbanker.com (July 18 2008)--