Moody's: Wells Fargo outlook negative

Moody's Investors Service said it changed the outlook on Wells Fargo & Co. (senior Aa1) and its subsidiaries to negative from stable following Wells Fargo's announcement that it signed a definitive agreement to acquire Wachovia Corp. for about $15.1 billion.

Following Wells Fargo's announcement, Citigroup Inc. alleged that Wells Fargo's conduct constituted tortuous interference with an exclusivity agreement between Citigroup and Wachovia. Citigroup has agreed to acquire most of the assets and liabilities and all senior and subordinated notes of Wachovia for $2.1 billion in a regulatory-assisted transaction.

The agency said the outlook change reflects its opinion that Wells Fargo's proposed acquisition of Wachovia signals an increase in its risk appetite. The terms of the transaction would result in an increase in Wells Fargo's leverage and pose sizable integration risks at a time when it has to navigate its own asset quality pressures in a deteriorating economy.

Moody's noted that the proposed transaction is strategically attractive in that Wells Fargo is buying a substantial market position in direct banking on the East Coast, a sizable retail brokerage business and a sizable increase in its asset management operations.

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