All glory is fleeting. Market falling, guess Wells Fargo relegated to junk status is why.

Moody's Cuts Wells Fargo Ratings Article

By KERRY E. GRACE
Moody's Investors Service cut various credit ratings on Wells Fargo & Co., including junking its preferred stock, saying the bank's capital ratios could be pressured in the short term.

Moody's had put its ratings on Wells Fargo under review for possible downgrade earlier this month, saying rising credit costs could hurt capital ratios. The company's year-end purchase of Wachovia, which sharply raised its debt load, came as Wachovia was trying to stanch losses and deal with a mountain of bad loans.

The downgrades included cutting Wells Fargo's preferred-stock rating to B2, or five steps into junk territory, from A2. That was in part because of the capital-ratio worries and "the probability that systemic support will be needed," said Moody's Sean Jones, a senior vice president. Such support could be harmful to owners of preferred stock, he added.

Wells Fargo received $25 billion in government support last year and raised another $13 billion in a share offering.

Cut one notch was the company's senior debt and deposit ratings, to A2 and Aa2, respectively, amid expectations of the support.

Moody's said the ratings' charges are part of its changing methodology in ratings banks, including the increasing importance of capital adequacy. Such capital measurements include tangible common equity, which has become pivotal as it is essentially a gauge of what common shareholders would receive if an institution were dissolved.

Moody's doesn't expect Wells Fargo to generate "sizable amounts of capital" until the second half or next year, at the earliest, because it will need to record impacts from write-downs, various losses and merger costs and loan losses from its premerger portfolio because of the deteriorating housing market.

Wells Fargo's stock is down 47% this year.