Fitch: Wells Fargo Cements National Franchise with Wachovia Buy; IDR Affirmed at 'AA'

As part of this transaction, WFC merged Wachovia Corporation with and into Wells Fargo & Company and assumed all Wachovia debt. Various Wachovia preferred shares were exchanged for newly issued preferred shares of WFC with the same terms. Wachovia's bank subsidiaries will retain their current names and operate as wholly owned subsidiaries of WFC until system integration is completed, at which point Fitch expects the banks to be merged into WFC's lead bank, Wells Fargo Bank, NA. As a result, ratings for Wachovia, it subsidiaries and its outstanding debt have been aligned to reflect WFC's acquisition and debt assumption. A complete ratings list follows the end of the release.

While WFC is certainly not immune from the macroeconomic pressures facing U.S. consumers and businesses, it has fared comparatively better than many banks. It approached problems in one particular segment of its home equity portfolio swiftly and directly beginning in 2007. Throughout 2008, WFC's strong core profitability afforded it the ability to steadily increase its provision for loan losses while remaining solidly profitable. Relative to its large bank peer group, WFC benefited from its avoidance of certain businesses and underwriting practices. By way of example, WFC did not originate option (Pick-A-Pay) ARMs or negatively amortizing mortgage loans. WFC never attempted to compete with the investment banks in trading or structured finance; as a result, WFC did not suffer the losses that have plagued the industry. That said, WFC has experienced asset quality deterioration, with further declines likely over the near term. Nevertheless, WFC is well-positioned to absorb the associated credit costs.

Wachovia has faced significant asset quality challenges, particularly in its option ARM mortgage portfolio, acquired from Golden West. In addition, Wachovia has absorbed material charges associated with exposures to ABS CDOs, structured leases, CMBS and leveraged loans. As part of its acquisition evaluation, WFC has assumed considerable future lifetime losses on Wachovia's mortgage portfolio which Fitch believes are reasonable in light of the current housing market and expected economic environment. The carrying value of those loans was adjusted at closing accordingly.

While every merger carries integration risks, WFC, under its current management team, has an excellent track record with acquisitions. WFC tends to take a deliberate approach to ensure smoother transitions and lower customer disruption when operations are consolidated. As a result, bank charters are not likely to be combined much before the end of 2009, at the earliest. WFC is expected to recognize significant merger expenses both at closing and during 2009, as the integration proceeds. Somewhat offsetting these expenses, however, are expected cost savings of approximately $5 billion annually that are anticipated from consolidation of the two companies. While the companies overlap branches in only six states, many administrative and back office functions are expected to be combined which should result in considerable savings on a consolidated basis.

WFC issued 425 million WFC shares (0.1991 WFC share for each Wachovia share)in the transaction (approximately $14.5 billion). In addition, WFC raised approximately $12.6 billion in new common equity in fourth-quarter 2008 in anticipation of this transaction. Also, WFC issued $25 billion in preferred stock and common stock warrants to the US Treasury under the Capital Purchase Program. Despite these actions, WFC's capital ratios are expected to deteriorate as a result of this transaction.

Fitch anticipates that WFC's capital ratios will rebound gradually as Wachovia's issues are addressed and that part of WFC's franchise returns to profitability. Fitch's Stable Outlook incorporates near term deterioration followed by modest improvement in most capital measures over the near term. In addition, the Stable Outlook factors in moderate asset quality deterioration and sustained near term elevated credit costs, which should remain manageable within the context of WFC's core profitability. Should capital fail to show gradual improvement or should asset quality deterioration hamper core operating profitability, Fitch may reevaluate WFC's ratings and/or Stable Outlook.

Fitch has also upgraded the Support Rating for WFC's bank subsidiaries to '1' from '2', reflecting the company's substantially increased deposit base and overall greater systemic importance within the US banking system.

Fitch has taken the following rating actions on WFC and subsidiaries (the Outlook is Stable):

Wells Fargo & Co.

--Long-term IDR affirmed at 'AA';

--Senior debt affirmed at 'AA';

--Subordinated debt affirmed at 'AA-';

--Preferred affirmed at 'AA-';

--Short-term IDR affirmed at 'F1+';

--Short-term debt affirmed at 'F1+'.

--Individual affirmed at 'A/B'.

--Support affirmed at '5';

--Support Floor affirmed at 'NF'.

Wells Fargo Bank, NA

--Long-term IDR affirmed at 'AA';

--Long-term deposits affirmed at 'AA+';

--Subordinated debt affirmed at 'AA-';

--Short-term IDR affirmed at 'F1+';

--Short-term deposits affirmed at 'F1+';

--Short-term debt affirmed at 'F1+'.

--Individual affirmed at 'A/B';

--Support upgraded to '1' from '2';

--Support Floor upgraded to 'A-' from 'BBB-'.

Wells Fargo Bank Northwest, NA

--Long-term IDR affirmed at 'AA';

--Long-term deposits affirmed at 'AA+';

--Senior debt affirmed at 'AA'.

--Short-term IDR affirmed at 'F1+';

--Short-term deposits affirmed at 'F1+';

--Individual affirmed at 'A/B';

--Support upgraded to '1' from '2';

--Support Floor upgraded to 'A-'from 'BBB-'.

Wells Fargo Financial, Inc.

--Long-term IDR affirmed at 'AA';

--Senior debt affirmed at 'AA'.

Wells Fargo Capital II

Wells Fargo Capital Trust IV, VII, VIII, X, XI, XIV

InterWest Capital Trust I

--Preferred affirmed at 'AA-'.

Wells Fargo Financial Canada Corp.

--Long-term IDR affirmed at 'AA';

--Short-term IDR affirmed at 'F1+';

--Senior debt affirmed at 'AA';

--Short-term debt affirmed at 'F1+'.

WFC Holdings Corp.

--Subordinated debt affirmed at 'AA-'.

Greater Bay Bank, NA (merged into Wells Fargo Bank, NA)

--Long-term IDR withdrawn (formerly 'AA');

--Short-term IDR withdrawn (formerly 'F1+');

--Individual Rating withdrawn (formerly 'A/B');

--Support withdrawn (formerly '2');

--Support Floor withdrawn (formerly 'BBB-');

--Long-term deposits affirmed at 'AA+';

--Short-term deposits affirmed at 'F1+'.

Greater Bay Bancorp, Inc.

--Senior debt affirmed at 'AA'.

Fitch has also removed from Rating Watch Positive and taken the following rating actions on Wachovia and subsidiaries:

Wachovia Corporation

--Long-term IDR upgraded to 'AA' from 'A+' and withdrawn;

--Short-term IDR upgraded to 'F1+' from 'F2' and withdrawn;

--Individual upgraded to 'A/B' from 'C' and withdrawn;

--Support withdrawn (formerly '5');

--Support Floor withdrawn (formerly 'NF').

--Short-term debt upgraded to 'F1+' from 'F2';

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

--Subordinated debt upgraded to 'AA-' from 'A';

--Preferred stock upgraded to 'AA-' from 'A-';

Wachovia Bank, NA

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

--Short-term IDR affirmed at 'F1+';

--Short-term deposits affirmed at 'F1+';

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

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

--Subordinated debt upgraded to 'AA-' from 'A';

--Individual upgraded to 'A/B' from 'B';

--Support upgraded to '1' from '2';

--Support Floor upgraded to 'A-'from 'BBB-'.

Wachovia Bank of Delaware, NA

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

--Short-term IDR affirmed at 'F1+';

--Individual upgraded to 'A/B' from 'B';

--Support upgraded to '1' from '2';

--Support Floor upgraded to 'A-' from 'BBB-'.

Wachovia Mortgage, FSB

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

--Short-term IDR affirmed at 'F1+';

--Short-term deposits affirmed at 'F1+';

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

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

--Individual upgraded to 'A/B' from 'B';

--Support upgraded to '1' from '2';

--Support Floor upgraded to 'A-' from 'BBB-'.

Wachovia Bank, FSB (Texas)

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

--Short-term IDR affirmed at 'F1+';

--Short-term deposits affirmed at 'F1+';

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

--Individual upgraded to 'A/B' from 'B';

--Support upgraded to '1' from '2';

--Support Floor upgraded to 'A-'from 'BBB-'.

Wachovia Capital Finance Corporation (Canada)

(guaranteed by Wachovia Bank, NA)

--Short-term IDR affirmed at 'F1+'.

Congress Financial Capital Company

(formerly guaranteed by Wachovia Corporation, now guaranteed by Wells Fargo & Company)

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

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

Golden West Financial Corporation

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

SouthTrust Bank

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

--Subordinated debt upgraded to 'AA-' from 'A'.

First Union National - Florida

SouthTrust Corporation

Western Financial Bank

--Subordinated debt upgraded to 'AA-' from 'A'.

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

Central Fidelity Capital Trust I

Corestates Capital I, II, III

First Union Capital I, II

First Union Institutional Capital I, II

--Preferred upgraded to 'AA-' from 'A'.

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. The issuer did not participate in the rating process other than through the medium of its public disclosure.

SOURCE: Fitch Ratings

Fitch Ratings, New York Sharon Haas, CFA, +1-212-908-0362 John Mackerey, +1-212-908-0366 David Spring, +1-312-368-3194 (Chicago) Media Relations: Sandro Scenga, +1-212-908-0278 sandro.scenga@fitchratings.com