Fitch Downgrades Wachovia's IDR to 'A+'; Outlook Negative

NEW YORK--(Business Wire)--
Fitch Ratings has downgraded the Issuer Default Rating (IDR) for
Wachovia Corporation (Wachovia) and its subsidiaries to 'A+' from
'AA-'. Fitch has also removed Wachovia from Rating Watch Negative
where it was originally placed on June 27. The Rating Outlook is
Negative. A complete list of ratings can be found below.

The rating downgrade reflects the increasingly pronounced asset
quality deterioration evident in Wachovia's mortgage portfolio,
specifically the Golden West-originated Pick-A-Pay (option ARM)
product, and the resulting pressure created by this asset class on the
firm's financial flexibility. Fitch anticipates Wachovia's reported
financial performance in the next few quarters will fall short of
normal run-rate expectations for a franchise of Wachovia's diversity,
depth and rating. The Negative Outlook recognizes that although Fitch
believes that Wachovia has attempted to incorporate a conservative
view of potential future collateral deterioration, exogenous factors,
including home price indices, can deteriorate significantly in a short
period of time that may necessitate or accelerate additional
meaningful charges and reserve building by Wachovia. The magnitude of
such charges and potential impact on capital could result in a further
downgrade of Wachovia's ratings. Conversely, Wachovia's financial
performance may recover more quickly if expected losses do not fully
materialize. Fitch expects to re-evaluate Wachovia's Rating Outlook
over the next few quarters.

Wachovia set aside a $5.6 billion provision for credit losses
during second-quarter-2008 (2Q'08), much of which represents
additional reserve building in anticipation of future charge-offs from
the Pick-A-Pay portfolio. Also contributing to the downgrade are the
combined effects of a number of other factors that have hampered
Wachovia's recent results. Among these are continuing charges
associated with the dislocations in the credit and capital markets
(these cost Wachovia $936 million in 2Q08 and about $6.2 billion
cumulatively since last summer). There were also a number of other
items in 2Q08 including the reversal of $975 million in accelerated
tax benefits associated with lease structures (SILOs) which were
primarily originated in the 1990's, $590 million in provisions for
legal costs, and $283 million of chargeoffs associated with
residential construction loans. Further, the downgrade is consistent
with Fitch's view that the macroeconomic environment will remain quite
challenging over the intermediate term, with continued home price
declines, sustenance of elevated consumer prices on basic necessities
and higher unemployment. The performance of consumer receivables (e.g.
mortgages, home equity, credit card and auto loans) is expected to
reflect that stress.

Wachovia's 2Q'08 net loss of $8.7 billion ($8.9 billion after
preferred dividends) results reflects an operating loss of $2.7
billion and goodwill impairment of $6.1 billion. Although goodwill
impairment is recognized through the income statement, it is important
to note that Fitch routinely subtracts goodwill from capital in its
evaluation of capital. Therefore, the goodwill impairment has no
effect on Fitch's view of capital. In addition, since regulatory
capital ratios also exclude goodwill from capital, there is no effect
on regulatory capital from the goodwill impairment charge.

In April, Wachovia issued just over $8 billion in new capital and
significantly reduced the dividend. To further preserve capital
flexibility, today Wachovia's board announced that the quarterly
dividend is further reduced to $0.05 per share. This will save
Wachovia approximately $700 million per quarter; in light of the
current economic environment, Fitch views this action positively.
Although the 2Q'08 loss partially offset the benefit from the new
capital, Wachovia nonetheless ended the quarter with Tier I capital of
approximately $50 billion. This translates into a Tier I Capital to
risk adjusted assets ratio of 8% suggesting a meaningful level of
capital flexibility, particularly in light of the dividend action.

Wachovia funds almost two-thirds of its balance sheet with equity
or deposits, the bulk of which are stable, core deposits derived from
its formidable 3,400 branch network. Additional funding is provided
through FHLB advances, long and short term debt. Wachovia manages
liquidity at both the bank and the parent company and has meaningful
levels of additional flexibility at both major entities.

Wachovia's Pick-A-Pay balances totaled approximately $122 billion
as of June 30, 2008, representing 72% of the firm's total mortgage
loans and about 15% of consolidated total assets. Commercial real
estate loans related to residential housing (construction, land,
condos) totaled $11.8 billion. Trends in both these portfolios have
been sharply negative and both are anticipated to get worse before
they get better. Wachovia's remaining commercial real estate portfolio
totals $36.5 billion; this portion of the portfolio has remained solid
to date. Nonetheless, this portfolio bears close monitoring,
particularly in regions more negatively affected by deterioration in
the housing market and rising regional unemployment.

Following significant market disruption charges since last summer,
Wachovia's remaining exposures are considered manageable, although
continued weakness in the credit and capital markets could lead to
moderate additional charges should market pricing on certain assets
slide further. At quarter end, Wachovia held $4.4 billion in (gross)
exposure to ABS CDOs, $1.7 billion in subprime RMBS, $3.8 billion in
Leveraged Finance loans and $756 million in CMBS net MTM notional
exposure.

Fitch anticipates that results for the remainder of 2008 will be
challenged by elevated credit loss provisions and, to a lesser extent,
potential further market disruption charges. Fitch anticipates that
Wachovia, under the leadership of the new CEO, will reassess its
various businesses and may well accelerate plans to reduce both
expenses and certain balance sheet exposures. The current rating
incorporates a view that pressures from credit losses, market
disruptions and business line adjustments will be largely offset by
operating profits, resulting in maintenance of capital ratios at or
near June 30, 2008 levels.

Fitch has downgraded and removed the following ratings from Rating
Watch Negative:

Wachovia Corporation

--Long-term IDR to 'A+' from 'AA-';

--Senior long-term debt to 'A+' from 'AA-';

--Subordinated debt to 'A' from 'A+';

--Preferred stock to 'A' from 'A+'.

Wachovia Bank, NA:

--Long-term IDR to 'A+' from 'AA-';

--Long-term deposits to 'AA-' from 'AA';

--Senior long-term debt to 'A+' from 'AA-';

--Subordinated debt to 'A' from 'A+'.

Wachovia Bank of Delaware, NA:

--Long-term IDR to 'A+' from 'AA-'.

Wachovia Mortgage, FSB:

--Long-term IDR to 'A+' from 'AA-';

--Senior long-term debt to 'A+' from 'AA-';

--Long-term deposits to 'AA-' from 'AA'.

Wachovia Bank, FSB (Texas):

--Long-term IDR to 'A+' from 'AA-';

--Long-term deposits to 'AA-' from 'AA'.

Congress Financial Capital Company

(guaranteed by Wachovia Corporation)

--Long-term IDR to 'A+' from 'AA-';

--Senior long-term debt to 'A+' from 'AA-'.

Golden West Financial Corporation:

--Senior long-term debt to 'A+' from 'AA-'.

SouthTrust Bank:

--Senior long-term debt to 'A+' from 'AA-';

--Subordinated debt to 'A' from 'A+'.

First Union National - Florida

SouthTrust Corporation

Western Financial Bank

--Subordinated debt to 'A' from 'A+'.

Wachovia Capital Trust I, II, III, IV, V, IX:

Central Fidelity Capital Trust I

Corestates Capital I, II, III

First Union Capital I, II

First Union Institutional Capital I, II

--Preferred to 'A' from 'A+'.

Fitch has also affirmed the following ratings:

Wachovia Corporation

--Short-term IDR 'F1+';

--Short-term debt rating 'F1+';

--Individual 'B';

--Support '5'

--Support Floor 'NF'.

Wachovia Bank, NA:

--Short-term IDR 'F1+';

--Short-term deposits 'F1+';

--Individual 'B';

--Support '2'

--Support Floor 'BBB-'.

Wachovia Bank of Delaware, NA:

--Short-term IDR 'F1+';

--Individual 'B';

--Support '2'

--Support Floor 'BBB-'.

Wachovia Mortgage, FSB:

--Short-term IDR 'F1+';

--Short-term deposits 'F1+';

--Individual 'B';

--Support '2'

--Support Floor 'BBB-'.

Wachovia Bank, FSB (Texas):

--Short-term IDR 'F1+';

--Short-term deposits 'F1+';

--Individual 'B';

--Support '2'

--Support Floor 'BBB-'.

Wachovia Capital Finance Corporation (Canada)

(guaranteed by Wachovia Bank, NA)

--Short-term IDR 'F1+'.

The Outlook on all ratings is Negative.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Sharon Haas, +1-212-908-0362 (New York)
David Spring, +1-312-368-3194 (Chicago)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)

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