Jan 11 - Standard & Poor's Ratings Services today said its ratings on Wells
Fargo & Co. (WFC) are unaffected by the company's strong fourth-quarter results,
which were in line with our expectations.
Relative to the fourth quarter of 2011, total revenues were up 7% to $21.9
billion, pretax, preprovision profit was up 12% to $9.1 billion, core loans
were up 7.3% to $705 billion, average deposits were up 7% to $976 billion, net
charge-offs were down to 1.05% from 1.36%, and reserve releases continued but
at a lower level ($250 million versus $600 million last year). Finally,
estimated Basel III Tier 1 common equity was up to 8.2% from 7.5% last year.
The quarter included a higher-than-expected 10 basis-point decrease in the net
interest margin (NIM), compared with the third quarter, partly because of a
larger-than-anticipated growth in deposits, partly as a result of seasonal
factors and the investment of these deposits into high-quality, short-term
investments. Additionally, the company took a $644 million charge to settle
ongoing and industrywide mortgage foreclosure abuses with the Office of the
Controller of the Currency and the Federal Reserve.
Our expectations, based on our calculation, for 2013 include an increase in
payouts to shareholders to more than 40% after the Comprehensive Capital
Analysis and Review results are announced, and we also expect continued modest
improvements in revenues, earnings, and credit measures and capital as the
U.S. economy continues its slow recovery.
The negative rating outlook on WFC reflects the outlook on the U.S. sovereign
rating, given the extraordinary government support we incorporate into our
issuer credit rating on WFC. If we were to lower the U.S. sovereign rating by
one notch to 'AA', we would also lower the issuer credit rating on WFC because
we would remove the one notch of support we currently factor into the rating.
Similarly, we could revise our outlook on WFC to stable if we were to revise
our outlook on the U.S. sovereign rating to stable. Otherwise, we view WFC's
fundamental credit trends as stable.