DBRS Confirms Ratings of Wells Fargo & Co. at AA; Trend Remains Stable

DBRS has today confirmed the ratings of Wells Fargo & Company (Wells Fargo or the Company) and its subsidiaries as indicated in the table below. The rating action follows a detailed review of Wells Fargo’s operating performance and credit fundamentals. The trend for all ratings remains Stable.

The rating confirmation and Stable trend reflect DBRS’s assessment that Wells Fargo’s strong operating performance and solid credit fundamentals are sustainable in spite of an increasingly competitive environment. This assessment is based on the large-scale and powerful market positions of Wells Fargo’s commercial and consumer banking businesses, the strength of its deposit franchise and the broad range and stable earnings contribution of its low-risk fee-based financial and operating services. DBRS’s assessment also takes into account the Company’s experienced and conservative management team, which has created robust internal systems and processes to sustain a risk-averse business culture, built product strengths and capabilities to compete effectively and successfully avoided the lure of high- risk, high-profit businesses.

The principal challenge for Wells Fargo is to sustain balance-sheet and revenue growth as it competes in all markets and financial services without compromising its credit standards. Continued progress in strengthening and broadening the product range and enhancing delivery channels is important to sustaining revenue growth. As the Company becomes larger and more complex, thereby adding diseconomies of scale, achieving efficiency improvements and productivity gains in its operations becomes more important in sustaining positive operating leverage. Wells Fargo is susceptible to potential revenue and asset-quality volatility in the event of a severe and prolonged weakening in the single-family residential sector and the economy in general in that nearly half of its loan portfolio consists of residential mortgages, home equity loans and single-family construction loans. Further revenue diversification would help limit this potential risk.

Wells Fargo continues to demonstrate the strength of its diverse super-regional franchise through healthy operating leverage, strong and steadily growing earnings and robust profitability. The Company’s risk profile remains very strong as well. Asset quality continues to perform well and in line with that of its peers. The loan portfolio is highly granular, sufficiently diversified geographically and by industry, and lacks major risk concentrations. Ample liquidity is provided by a robust core deposit base, along with a relatively liquid balance sheet, ready capacity to obtain secured wholesale funding and high ratings that facilitate access to the capital markets. Capitalization remains superior to those of similarly rated financial institutions due to both strong organic capital formation from retained earnings and conservative management culture. Exposure to market risk is well managed within narrow limits and the Company has maintained a relatively stable and above peer-group average NIM over the past five years.

The holding company’s stand-alone liquidity remains healthy. Double leverage is modest, and unencumbered liquid assets are sufficient to cover operating expenses and debt service obligations for approximately one year without depending on dividends from the regulated bank subsidiary.

Wells Fargo’s earnings are driven by the powerful combination of a successful customer-focused business strategy, an extensive super-regional branch banking franchise and the nationwide reach of many of its businesses, which provide a wide array of banking, mortgage, insurance, investment and consumer loan products. Reflecting this broad product mix, earnings are also supported by substantial non-interest income that contributed about 43% to net revenues in 2006. This combination results in stable multi-product customer relationships that generate good loan and deposit growth, sustainable earnings growth and high returns. Historically low loan loss provisions, along with above-average margins from a consumer loan-intensive portfolio and inexpensive funding from a robust deposit franchise also contribute to Wells Fargo’s attractive profitability.

DBRS believes that sustained healthy earnings growth and robust profitability, together with continued strong asset quality and low risk profile could lead to positive rating action. In this respect, DBRS will closely monitor the performance of Wells Fargo’s substantial residential mortgage and HELOC portfolios for unusual asset-quality deterioration given the difficult market conditions currently prevailing in this sector. By contrast, sustained weakening in franchise strengths, material loss in deposit market share and eroding risk profile could lead to negative rating action.

Wells Fargo & Company, a diversified financial services holding company with headquarters in San Francisco, California reported $482 billion in assets at December 31, 2006.

Note:
All figures are in U.S. dollars unless otherwise noted.
The ratings for Wells Fargo Financial Canada Corporation and Wells Fargo Financial, Inc. are unconditionally guaranteed by Wells Fargo & Company.