Wachovia and Merrill Lynch brought into line

Following on from Fitch Ratings the week before, Standard & Poor's and Moody's Investors Service have raised their ratings on Wachovia Corporation and its banking operations, following its acquisition by Wells Fargo & Co. Standard & Poor's subsequently withdrew the credit ratings assigned to Wachovia Corp. as all of its debt has been assumed by Wells Fargo.

S&P raised its ratings on Wachovia Bank N.A. to 'AA+' from 'AA-' and affirmed its A-1+ short-erm rating. The outlook is negative. This move aligns the ratings with Wells Fargo Bank N.A.

Moody's moved its ratings on Wachovia Bank N.A. to 'Aa1' from 'Aa2' and affirmed its B financial strength rating and P-1 short-term rating. At the same time and in response to Wells Fargo's acquisition of Wachovia, Moody's lowered the ratings assigned to Wells Fargo.

The senior rating assigned to the holding company was lowered to 'Aa3' from 'Aa1' and the senior ratings on the bank were lowered to 'Aa1' from 'Aaa' and the financial strength rating lowered to 'B' from 'A'. The rating outlook on all entities is negative.

Similarly, S&P and Moody's raised their ratings on Merrill Lynch & Co. following its acquisition by Bank of America Corporation. S&P raised the long-term credit rating assigned to Merrills to 'A+' from 'A'  and affirmed its 'A-1' short-term rating. The rating outlook is negative.

Moody's raised the senior debt rating assigned to Merrills to 'Aa3' from 'A2', bringing it into line with the rating assigned to Bank of America Corporation after lowering its rating from 'Aa2'. Moody's also lowered the long-term debt and bank deposit ratings assigned to Bank of America N.A. to 'Aa1' from 'AAA' and lowered the bank financial strength rating to 'B' from 'A-'. P1 short-term ratings on all entities were affirmed and the rating outlook is negative.

Suncorp-Metway had the long-term credit ratings assigned by S&P split between the bank and the insurance company. The latter retained its 'A+' rating while the rating assigned to the bank was lowered one notch to 'A'.

S&P took the view that the bank is no longer core to the group but merely strategically important. The evidence for this was the willingness of the group to explore the opportunity to divest the bank, late last year. The outlook on both entities is stable.

Volkswagen Group, which has just $100 million of September 2009 FRNs outstanding in the domestic market, had its senior unsecured ratings lowered to 'BBB+' from 'A-'  by Fitch. The rating action followed the announcement by Porsche Automobil Holding SE that it had increased its stake in Volkswagen to 50.8 per cent.

Fitch has left Volkswagen's ratings on Rating Watch Negative on the assumption that Porsche will ultimately increase its stake in Volkswagen to 75 per cent, paving the way for a domination agreement and/or a profit- and loss-sharing agreement. This would lead to an eventual convergence of Porsche and Volkswagen's credit profiles at a level which is expected to be below 'BBB+'.

In the structured finance sector, Fitch affirmed the ratings that it assigns to four classes of notes (Classes A to D) issued by Seiza Augustus Series 2007-1 Trust and removed the ratings from Rating Watch Negative, and S&P revised the CreditWatch on one tranche of Nautilus Trust No.1 notes.

The ratings on the Seiza Augustus notes were placed on Rating Watch Negative on September 24 2008, when the Trust Manager, Seiza Management Pty Ltd, was placed in voluntary administration. This role has now been delegated to Pepper Australia Pty Limited for a term of three years.

S&P's CreditWatch on the 'AA+' rating assigned to the Class AB notes issued by Nautilus Trust has been revised to developing from negative to reflect the possibility that the build-up of subordination and excess spread that support the notes will offset the negative impact of the lowering of the rating on mortgage insurer, MGIC Australia Pty Ltd., to 'A-/Watch Neg'. The ratings on the Class AB notes could even be raised if MGIC Australia's A- rating is eventually affirmed but could also be lowered if the 'A-' rating assigned to MGIC Australia is lowered again.