DBRS Conf Wachovia Corporation & Related Entities Ratings

Dominion Bond Rating Service (“DBRS”) has today confirmed the long-term and short-term ratings as indicated above of Wachovia Corporation (“Wachovia” or the “Company”) and related entities following today’s announcement of the Company’s acquisition of Westcorp and WFS Financial Inc. for US$3.91 billion. All trends are Stable.

Wachovia has agreed to acquire Irvine, California-based Westcorp (NYSE: WES) for US$3.42 billion in stock to expand its auto finance group. Westcorp owns 84% of WFS Financial Inc. (NASDAQ: WFSI) and Wachovia will also acquire the 16% of the shares owned by the public for US$490 billion in stock. The transaction creates the ninth-largest auto loan originator in the U.S. with US$19 billion in managed auto receivables. The transaction is expected to close in the first quarter of 2006.

DBRS views the proposed transaction as positive for Wachovia. While small relative to Wachovia’s overall business, Westcorp would add scale to Wachovia in auto lending and provide a toehold branch banking position in southern California with the ability to bring product and services to Westcorp’s customer base. With strength in western U.S. states, Westcorp’s auto lending business would add coverage to Wachovia in retail lending and auto dealers, a useful step for Wachovia in building its national retail brand. Wachovia’s position in auto lending would become more comparable to other large banks, although still well behind the major auto captive finance companies. With a mix of prime, near-prime, and sub-prime auto lending, Westcorp would bring higher net interest margin lending even with higher credit costs, bolstering Wachovia’s earnings from consumer lending. Besides modest expense saves, DBRS sees opportunities for Wachovia to leverage Westcorp’s product set across its customers, increase the services provided to Westcorp’s auto dealers and retail borrowers, and lower the funding costs of Westcorp’s activities.

DBRS expects Wachovia to benefit from acquiring a toehold entry into branch banking in southern California. More a retail than a commercial bank, Westcorp’s 19 branches and US$2 billion deposit base provides a very modest presence with less than 1% deposit share of this large market. Still, it does give Wachovia some on the ground experience in operating branches in an attractive market that is well outside Wachovia’s current super-regional footprint which can provide a base for expansion in the future.

DBRS’s perspective takes into account the added risk that is inherent in Westcorp’s lending mix. With a higher cost of credit, the Westcorp portfolio can be expected to have some impact on Wachovia’s normal rate of charge-offs and add modest credit risk to Wachovia’s generally low-risk overall credit profile. While Westcorp has been moving its mix away from sub-prime lending, DBRS is also mindful of the regulatory and legal risks that can arise with sub-prime lending. Given Wachovia’s policies, DBRS anticipates that Wachovia would endeavour to manage this business to minimize such risks.

The Company stated that it intends to issue US$1 billion of Tier 1 preferred securities in relation to the Westcorp acquisition. The proceeds from this issuance are expected to be used for share repurchases. DBRS does not expect any major impact on Tier 1 capital ratio, which is expected to be within the 7.50% to 7.75% range.

Notes:
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.
Note: The Medium and Long-Term Debt Instruments of Congress Financial Capital Company and the Commercial Paper of Congress Financial Corporation (Canada) are unconditionally guaranteed by Wachovia Corporation.