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Wells Fargo's Ratings Affirmed by Moody's, Outlook Stable

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Moody's Investors Service, a rating arm of Moody's Corporation (MCO - Free Report) , affirmed all the ratings of Wells Fargo & Company (WFC - Free Report) and its subsidiaries. The Wall Street biggie’s long-term deposit rating has been affirmed at A2, senior debt rating at Aa2 and subordinated debt rating at Aa3. The bank’s counterparty risk assessments is Aa1(cr)/Prime-1(cr). The bank’s subsidiary has deposit ratings of Aa1/Prime-1 and a standalone baseline credit assessment (BCA) of a2.

The rating firm’s outlook for the bank remains “stable”.

Rationale Behind the Affirmation

The rating affirmation follows Wells Fargo's diverse business mix and dominance in domestic retail and commercial banking, which has been resulting in strong earnings. Moreover, solid liquidity and good internal capital generation are other driving factors.

Post disclosure of malpractices related to the opening of around two million bank and credit card accounts without customers’ consent last year, Wells Fargo has been facing issues with clients as they are reluctant to conduct business with the lender. The allegation led to many setbacks, including the bank’s shattered image, numerous lawsuits, triggered federal and state investigations, congressional hearings and the bank’s former CEO – John Stump – losing his job.

However, the bank undertook many steps to restore its reputation post exposure of the scam and therefore has performed well, eradicating the risk of erosion.

According to Moody’s expectation for the remaining of 2017, Wells Fargo's retail banking growth metrics will remain restrained, while expenses will flare up on elevated regulatory and legal costs. However, overall financial metrics are anticipated to be strong.

Moody’s believes that the well balanced revenue stream of Wells Fargo supports its recurring earnings, with 50% coming from non-interest income sources. Further, Wells Fargo plans to eliminate $4 billion of expenses by 2019 through expense reduction initiatives.

Overall, per Moody's, Wells Fargo's standalone BCA is well positioned one score higher than the US median bank BCA. Additionally, there can be a change in the stable outlook on creditworthiness over the next year.

Wells Fargo currently carries a Zacks Rank #3 (Hold). The company’s stock has underperformed 2.9% growth for the Zacks categorized Banks-Major Regional industry over the past six months.



Stocks to Consider

Comerica Incorporated (CMA - Free Report) has been witnessing upward estimate revisions for the last 60 days. Additionally, the stock jumped over 13% over the past six months. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

M&T Bank Corporation (MTB - Free Report) has been witnessing upward estimate revisions for the last 60 days. Over the last six months, the company’s share price has been up nearly 14%. It boasts a Zacks Rank #1.

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