Morningstar DBRS Confirms Wells Fargo & Company's Long-Term Issuer Rating at AA (low), Stable Trend

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Wells Fargo & Company (Wells Fargo or the Company), including the Company's Long-Term Issuer Rating of AA (low). At the same time, Morningstar DBRS confirmed the credit ratings of its primary banking subsidiary, Wells Fargo Bank, N.A. (the Bank), including its Long-Term Issuer Rating at AA. The trend for all credit ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA, while its Support Assessment remains SA1. The Company's Support Assessment is SA3, and its Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings confirmation and Stable trend reflect the scale, quality, and diversity of Wells Fargo's franchise. Wells Fargo maintains a strong balance sheet, with ample liquidity and capital, which provides support for the credit ratings, including a robust deposit base, sound asset quality, and solid capital.

The credit ratings also consider the progress Wells Fargo has made resolving legacy regulatory issues and improving its risk management framework, while absorbing elevated compliance costs, including increased staffing in compliance functions as well as periodic litigation and operating losses. The Company is still required to manage under an asset cap that was imposed as part of the February 2018 regulatory Consent Order. This order stemmed from the sales practices scandal and other missteps that first surfaced in September 2016. However, progress has been made, and regulators have closed 12 orders since 2019, including six since the beginning of this year.

CREDIT RATING DRIVERS
Given Wells Fargo's high credit ratings and remaining regulatory issues, including operating under an asset cap, a credit ratings upgrade is unlikely. The credit ratings would be downgraded if there were a sustained or outsized deterioration in asset quality or profitability metrics. Additionally, any missteps or failures that lead to heightened non-financial risk and/or operational risk issues would also result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Strength Combined Building Block Assessment: Very Strong
Wells Fargo is the fourth largest U.S. banking company by assets with $1.95 trillion in assets as of March 31, 2025. Wells Fargo's franchise strength stems from its highly diversified and scaled franchise, with strong market positions across various regions, businesses, and customer segments. Wells Fargo has worked to simplify its business model and has exited or reduced its exposure to a number of business lines over the last few years. The Company has taken steps to build out its commercial and investment banking businesses, as well as the credit card business, including the roll out of new credit card products.

Earnings Power Combined Building Block Assessment: Strong/Good
Wells Fargo reported net income of $19.7 billion in 2024, an increase of 3% from the $19.1 billion earned in 2023. While revenues were flat, the higher year-over-year earnings largely reflected lower noninterest expenses reflecting expense initiatives as well as a decline in the provision for credit losses. The Company continues to reduce headcount, which has declined 20% from YE2019. Returns for 2024 and Q1 2025 equated to a sound return on assets of 1.03% (for both periods) and return on equity of 11.4% and 11.5%, respectively. However, the Company's efficiency ratio (66% for 2024 and 69% for Q1 2025) continues to lag many peers.

Risk Profile Combined Building Block Assessment: Strong
Asset quality indicators remain sound with nonperforming assets, nonaccrual loans and net charge-offs, while normalizing, remaining at manageable levels. Coverage of the loan portfolio at 1.60% of total loans remains sound, especially given current loss levels. Morningstar DBRS continues to view asset quality and credit risk management as key strengths for Wells Fargo and an area where the Company has historically outperformed peers. The Company continues to make progress resolving regulatory issues and has exited a number of regulatory Consent Orders. However, additional work is still needed to resolve the remaining regulatory agreements, including the lifting of the asset cap.

Funding and Liquidity Combined Building Block Assessment: Very Strong
Balance sheet trends remained favorable. Funding is considered robust. Indeed, the Company has a proven ability to fund its balance sheet with deposits, with a recent loans-to-deposit ratio of 67%. Additionally, Wells Fargo has ready access to wholesale funding in a variety of markets. Given its balance sheet and business mix, Wells Fargo is less reliant on market-based funding sources than some of its peers. The Company reported a Liquidity Coverage Ratio of 125% for Q1 2025, comfortably above the 100% regulatory minimum.

Capitalization Combined Building Block Assessment: Strong
While active in capital management activities, Morningstar DBRS views Wells Fargo as having strong capital generation capabilities. Capital levels remain sound, with the Company reporting a CET1 ratio (standardized approach) of 11.09% as of March 31, 2025. Following the 2024 CCAR stress tests, Wells Fargo's regulatory stress capital buffer increased 90 basis points to 3.8%, with a CET1 capital requirement of 9.8%. During Q1 2025, Wells Fargo repurchased $3.5 billion of common stock on top of 2024's repurchases of $20.0 billion. The Company's board of directors recently approved a new $40 billion share repurchase program to take effect at the conclusion of the current program.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/454302.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
There were no Environmental factors that had a relevant or significant effect on the credit analysis.

Social (S) Factors
The following Social factor had a relevant effect on the credit analysis: Morningstar DBRS views the Social Impact of Product Governance ESG subfactor as relevant to the credit rating, but it does not affect the current assigned credit ratings or trends. Wells Fargo's previous sales practices and other issues around product governance have led to regulatory issues, remediation costs, and litigation exposure. Reflecting this, we have incorporated this in the Franchise Strength and Risk Profile grid grades.

Governance (G) Factors
The following Governance factors had a relevant effect on the credit analysis: Morningstar DBRS views the Governance Impact of Corporate/Transaction Governance ESG subfactor as relevant to the credit rating, but it does not affect the current assigned credit ratings or trends. Wells Fargo's previous failures in corporate governance have exposed the Company to heightened litigation and conduct costs. This has been incorporated in the Franchise Strength and Risk Profile grid grades.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 4, 2024) https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The following methodology has also been applied:

Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include Morningstar Inc. and Company Documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website https://dbrs.morningstar.com/understanding-ratings

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

The last credit rating action on this issuer took place on May 17, 2024, when all ratings were confirmed.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are monitored.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: John Mackerey, Senior Vice President, Sector Lead,
Rating Committee Chair: Michael Driscoll, Credit Rating Officer
Initial Rating Date: October 30, 1992

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

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