Bloomberg News

Wells Fargo Cuts Rate in $1.5 Billion Debt Sale After Downgrade

December 06, 2011

Dec. 5 (Bloomberg) -- Wells Fargo & Co. sold $1.5 billion of five-year notes at a lower borrowing cost from March 2010 even after Standard & Poor’s cut the biggest U.S. home lender’s credit ranking to A+ from AA-.

The bank issued 2.625 percent senior unsecured notes to yield 175 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. San Francisco-based Wells Fargo last issued five-year notes in March 2010 with a $1.25 billion sale of 3.625 percent notes at a 123 basis-point spread, the data show.

S&P downgraded Wells Fargo, Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. last week after the ratings firm revised criteria for dozens of the world’s biggest lenders. Wells Fargo retreated to a single A credit ranking from S&P for the first time since 2003, Bloomberg data show. Investor optimism that Europe’s leaders can contain the region’s debt crisis outweighed the cuts, pushing relative yields on bank bonds down from the highest in more than two years.

The spread was 20 basis points wider than outstanding Wells Fargo notes and “significantly tighter” than JPMorgan Chase & Co.’s outstanding five-year notes, Morningstar Inc. analyst James Leonard wrote in a note today. “Given the new issue concession provided, and the overall spread level of this A+ name, we think these notes make sense for portfolio managers who are filled-up on the JP Morgan credit,” he wrote.

Bank Spreads

Spreads on bank debt narrowed to 386 basis points, or 3.86 percentage points, on Dec. 2 from 403 basis points on Nov. 29, which was the widest level since July 2009, according to Bank of America Merrill Lynch index data.

Credit-default swaps on Wells Fargo, which investors use to hedge against losses on the company’s debt or to speculate on creditworthiness, declined 9 basis points to 140.1 basis points as of 11:37 a.m. in New York, according to data provider CMA. The contracts, which typically fall as investor confidence improves, are down from a 30-month high of 185 basis points on Nov. 25.

Of the six biggest banks, Wells Fargo’s swaps are higher only than those tied to JPMorgan at 139.5 basis points, the data show. The average of contracts on Wells Fargo, Bank of America, JPMorgan, Citigroup, Goldman Sachs and Morgan Stanley has fallen 97.7 basis points since Nov. 25 to 262.4, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Citigroup, the third-biggest U.S. lender, sold $500 million of 3.625 percent notes due in December 2014 on Dec. 2 to yield 323.9 basis points above similar-maturity Treasuries, Bloomberg data show.

--Editors: Pierre Paulden, John Parry

To contact the reporter on this story: Sapna Maheshwari in New York at; Mary Childs in New York at

To contact the editor responsible for this story: Alan Goldstein at

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