On Thursday, Moody’s Corporation (NYSE:MCO) announced that it cut the credit ratings of 15 big banks. This didn’t come as too much of a surprise as the ratings agency announced the review of 17 banks back in February. On both lists, one bank was absent: Wells Fargo & Company (NYSE:WFC).
The bank was fortunate enough to dodge the credit rating cut on Thursday but why?
Take a look at this from February. It is Moody’s release that said it was reviewing institutions carrying global capital market operations. The company wrote via Forbes:
Underpinning this review is Moody’s view that these firms face challenges that are not fully captured in their current ratings. Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions. These difficulties, together with inherent vulnerabilities such as confidence-sensitivity, interconnectedness, and opacity of risk, have diminished the longer term profitability and growth prospects of these firms.
Keep in mind that the majority of Wells Fargo’s business is domestic and that’s where its revenue is derived from as noted by the bank’s U.S. CEO John Stumpf; the bank’s portfolio only has five percent in foreign loans. In addition, the company said its international business is basically driven by customers with overseas needs.
One bank analyst Nancy Bush noted, “Given the consistency of Wells Fargo’s earnings Moody’s would have a tough time throwing it in with JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC).” Just a few months back, many argued that JPMorgan Chase & Co. (NYSE:JPM) was a ‘stronger’ bank.
In a ValueWalk story announcing Thursday’s bank cuts, we analyze the reasons, citing the big banks. While reading through it, you can see why Wells Fargo wasn’t included.
And another thing we can’t ignore about Wells Fargo is again, the Berkshire Hathaway Inc. (NYSE:BRK.A) (BRK.B) Warren Buffet factor. He should be happy with Thursday’s news and the bank’s exclusion from it. He is Wells Fargo’s largest shareholder and in May, increased his holdings. Warren Buffett has stated on many occasions that he loves the stock, and has added it to Berkshire’s holdings on several occasions.
Wells Fargo’s stock is up 1.21 percent today to $32.74.