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Rating Action: Moody's reviews US bank holding company ratings to consider reduced government support

Global Credit Research - 22 Aug 2013 Ratings on bank-level subordinated debt also affected

New York, August 22, 2013 -- Moody's Investors Service has placed the senior and subordinated debt ratings of the holding companies for the six largest US banks on review as it considers reducing its government (or systemic) support assumptions to reflect the impact of US bank resolution policies. Four -- Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo -- are on review for downgrade. Two, Bank of America and Citigroup, are on review direction uncertain, as the rating agency considers the potentially offsetting influence of improvements in the standalone credit strength of their main operating subsidiaries, the ratings on which were simultaneously placed on review for upgrade. Included in the review are the short-term ratings of several of these bank holding companies, as described further below. Two additional banks, Bank of New York Mellon and State Street, whose ratings were previously placed on review for downgrade, are also included in this review. At the same time, and also in response to the possible reduction of government support assumptions, the ratings on the bank-level subordinated debt of JP Morgan Chase Bank N.A. and Wells Fargo Bank N.A. were placed on review for downgrade, while those at Bank of America N.A. are on review direction uncertain. The bank-level subordinated debt ratings of The Bank of New York Mellon and State Street Bank and Trust, which were previously placed on review for downgrade, are also included in the review. There is no rated bank-level subordinated debt outstanding at Citibank N.A., Goldman Sachs Bank USA or Morgan Stanley Bank N.A. Moody's actions follow its March 2013 announcement that it would reassess its support assumptions for bank holding companies in the US and that it would consider whether to revise these assumptions by the end of the year. As US bank resolution policies continue to evolve, Moody's will assess the opposing forces that may have an impact on bondholders at the holding company level should a bank become financially distressed. The first is a lower level of systemic support that could result in a higher probability of default. The second is the potential for a more orderly workout and a required minimum level of holding company debt that may well limit losses in the event of a default. The reviews will also consider the implications of such policies for bank-level subordinated bonds, which may also be subject to burden-sharing in the event of severe financial distress. In addition, for four of the eight banks -- Bank of America, Citigroup, Bank of New York Mellon, and State Street -- the reviews will also consider the banks' standalone or baseline credit assessments -- positively for the first two, and negatively for the latter two.

"In the past year, we have seen progress towards establishing a framework to credibly resolve these large systemically-important banks, as called for under the Dodd-Frank Act," said Robert Young, Managing Director. "We have also seen greater cooperation and discussion among international banking regulators to manage the coordinated resolution of global banking groups." The following ratings were placed on review for downgrade: The Goldman Sachs Group, Inc. -- A3 senior, Baa1 subordinated and Baa3 (hyb) trust preferred vehicles JP Morgan Chase & Co. -- A2 senior, A3 subordinated, Baa2 (hyb) trust preferred vehicles and Prime-1 short-term rating JP Morgan Chase Bank N.A. -- A1 subordinated Morgan Stanley -- Baa1 senior, Baa2 subordinated, Ba1 (hyb) trust preferred vehicles and Prime-2 short-term rating Wells Fargo & Company, Inc. -- A2 senior, A3 subordinated, Baa1 (hyb) trust preferred vehicles and Prime-1 short-term rating Wells Fargo Bank, N.A. -- A1 subordinated and A3 (hyb) trust preferred vehicles Bank of America Corporation -- Prime-2 short-term rating Citigroup, Inc. -- Prime-2 short-term rating The following ratings continue to be on review for downgrade, as initiated on July 2, 2013: The Bank of New York Mellon Corporation -- Aa3 senior, A1 subordinated, A2 (hyb) trust preferred vehicles and Baa1 (hyb) noncumulative preferred The Bank of New York Mellon -- B bank financial strength rating (BFSR)/aa3 baseline credit assessment (BCA), Aa1 deposits and senior and (P)Aa2 subordinated State Street Corporation -- A3 (hyb) trust preferred vehicles and Baa1 (hyb) noncumulative preferred State Street Bank and Trust Company -- B BFSR/aa3 BCA, Aa2 deposits and senior and Aa3 subordinated The following ratings were placed on review for upgrade: Bank of America, N.A. -- D+ BFSR/baa3 BCA, A3/Prime-2 deposits and senior Bank of America Corporation -- B1 (hyb) noncumulative preferred

Citibank, N.A. -- D+ BFSR/baa3 BCA, A3/Prime-2 deposits and senior Citigroup, Inc. -- B1 (hyb) noncumulative preferred The following ratings were placed on review direction uncertain: Bank of America Corporation -- Baa2 senior, Baa3 subordinated and Ba2 (hyb) trust preferred vehicles Bank of America, N.A. -- Baa1 subordinated Citigroup, Inc. -- Baa2 senior, Baa3 subordinated and Ba2 (hyb) trust preferred vehicles State Street Corporation -- A1 senior, A2 subordinated (direction of review initiated July 2 changed from review for downgrade) The Prime-2 short-term rating of The Goldman Sachs Group, Inc. was affirmed. The noncumulative preferred stock ratings of The Goldman Sachs Group, Inc., JP Morgan Chase & Co., Morgan Stanley and Wells Fargo & Company, Inc. have also been affirmed. The standalone credit assessments and the short- and long-term deposit, issuer, and senior debt ratings of Goldman Sachs Bank USA, JP Morgan Chase Bank N.A., Morgan Stanley Bank N.A. and Wells Fargo Bank, N.A. were also affirmed. For a full list of all affected ratings, click here: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_157695. This list is an integral part of this release. RATINGS RATIONALE PROGRESS TOWARDS CREDIBLE RESOLUTION MECHANISM AFFECTS RISKS FOR BANK HOLDING COMPANY CREDITORS As US bank resolution policies evolve, Moody's will review two opposing effects that influence risks for bondholders at the holding company level. The first effect is the reduced likelihood and predictability of systemic support that would result from a credible bank resolution mechanism. Such mechanisms are designed to allow regulators to restore the solvency of a distressed bank without using taxpayer funds. The second, opposing effect is the possible reduction in the severity of losses for holding company creditors in the event of a default under a future US bank resolution. If executed as intended, more of a banking group's value may be preserved versus a bankruptcy scenario due to a more orderly resolution of the entity. And expected requirements regarding holding company debt levels may provide greater resources for restoring solvency, reducing the size of haircuts imposed on holding company creditors.

"In other words, the risk of default may be increasing because authorities may be less likely to support a banking group, while losses in the event of default (loss severity) may be decreasing," said Robert Young, Managing Director. MOODY'S CONTINUES TO ASSESS EVOLVING RESOLUTION POLICIES In June 2012, Moody's placed negative outlooks on the holding company ratings of all systemically-important US banking groups whose debt ratings benefit from "uplift" due to government support above what they would be rated based solely on their standalone credit quality. The negative outlooks reflected the progress the Federal Deposit Insurance Corporation (FDIC) had made in devising a mechanism to implement the Orderly Liquidation Authority (OLA) enacted as part of the Dodd-Frank Act. OLA gives the FDIC the authority to resolve financiallydistressed systemically-important financial institutions but also requires that it be done without using taxpayer funds while avoiding financial market contagion. At the same time, Moody's assigned stable rating outlooks to the bank/operating subsidiary obligations of these firms. In a March 2013 comment, "Reassessing Systemic Support in US Bank Ratings - An Update and FAQs," Moody's outlined the four areas where major hurdles remained to an orderly resolution of these banks: international regulatory cooperation, capital structure, corporate structure, and market structure. Although hurdles to the successful use of OLA by the FDIC remain, conviction is clear, progress continues, and momentum has built. This progress includes continued dialogue among international regulators, an expectation that the Federal Reserve will establish minimum standards for holding company debt to facilitate OLA, further refinement of "living wills," and some reduction in interconnectedness among banks. IF USED, SINGLE POINT-OF-ENTRY RECEIVERSHIP WOULD RESULT IN A DEFAULT FOR HOLDING COMPANY CREDITORS In its review, Moody's will focus on the resolution mechanism referred to as Single Point-of-Entry Receivership (SER). SER is the FDIC's stated preferred mechanism for implementing OLA. Under this framework, the FDIC would impose losses on bank holding company creditors in order to recapitalize and maintain the operations of its systemically-important subsidiaries. If resolution through SER is likely to be attempted in the event of distress at these banks, this will result in a lower expected probability of government support for bank holding company debt, signifying a higher risk of default. Seven of the eight holding companies on review currently benefit from one notch (for Bank of New York Mellon and Wells Fargo) or two notches (for Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, and Morgan Stanley) of uplift from government support. State Street's holding company ratings do not currently incorporate any uplift. A conclusion that the probability of government support is lower may result in either a partial or complete removal of this uplift from the

current ratings. HOWEVER, LOSSES MAY BECOME LESS SEVERE UNDER SINGLE POINTOF-ENTRY RECEIVERSHIP Moody's will also consider whether the use of SER is likely to reduce the severity of loss for holding company creditors. Moody's current ratings anticipate that these creditors would sustain very high losses in the event of a default because bank holding company defaults have typically involved a holding company bankruptcy following the seizure and liquidation of its bank subsidiary. In contrast, under SER, a distressed banking group's systemically-important subsidiaries continue to operate, thus potentially preserving their value to the benefit of senior holding company creditors. Another development that may reduce loss severity is the US regulators' plan to require banks to hold a certain amount of debt at the holding company level. This holding company debt is designed to be the primary cushion to absorb losses in the event of a workout. For a given loss, the larger the cushion, the more likely that not all of the holding company debt would be written down or converted to equity in a default scenario under SER . For each of the banks on review, a reduction in Moody's severity of loss assumptions for holding company bondholders may offset some or all of the negative ratings effect of a higher probability of default stemming from a reduction in government support assumptions. However, any ratings benefit from a lower loss severity assumption is unlikely to exceed one notch. SUBORDINATED CREDITORS AT BANK LEVEL COULD ALSO FACE GREATER RISKS The review will also consider the implications of the evolving US bank resolution policies on bank-level subordinated debt that currently includes uplift due to the potential for systemic support. SER is intended to allow systemically-important subsidiaries to continue to operate without defaulting on their own obligations, even if holding company creditors experience a default. However, Moody's sees two potential risks for bank-level subordinated creditors. The first is that even if SER were to be utilized, there remains the risk that bank-level subordinated creditors could be subject to a distressed exchange at the outset of the resolution. The second is that, unlike senior creditors at the operating bank level, bank-level subordinated creditors may not benefit from any incremental government support the authorities may feel compelled to provide to ensure systemic stability if SER is not sufficient to prevent a default at the operating bank. During the review, Moody's will evaluate these risks and will also consider the risk to bank-level subordinated creditors relative to holding company senior creditors. While these risks may result in lower ratings for bank-level

subordinated debt, the ratings are unlikely to fall below the holding company senior debt ratings. STANDALONE CREDIT CONSIDERATIONS The standalone credit assessments of four of the eight banks are also on review. Moody's today placed the standalone credit assessments of Bank of America and Citigroup on review for upgrade. An upgrade of either Bank of America's or Citigroup's standalone credit assessment may offset some or all of the negative ratings effect of a potential reduction in government support assumptions. The standalone credit assessments of State Street and Bank of New York Mellon had been placed on review for downgrade last month (see "Moody's Places BNY Mellon, Northern Trust and State Street on Review for Downgrade," July 2, 2013). They remain on review. A downgrade of Bank of New York Mellon's standalone credit assessment could amplify the ratings effect of a potential reduction in government support. State Street's ratings would be negatively affected only by a lower standalone credit assessment; its holding company ratings do not currently incorporate any uplift due to government support. However, as with the other seven banks, its holding company debt ratings may benefit from a lower loss severity assumption. OTHER SYSTEMICALLY-IMPORTANT SUBSIDIARIES As part of today's rating action, Moody's placed the ratings of a number of these firms' systemically-important and highly-integrated subsidiaries on review, primarily for upgrade. SER is designed to stabilize all systemically-important operating subsidiaries of these firms, which may include non-banks and nondomestic subsidiaries. Historically, Moody's has not attributed the full benefit of potential government support to these subsidiaries' ratings. In addition to the factors discussed above, the review of these entities will consider whether support is more likely for them under SER. The ratings of Bank of New York Mellon's other systemically-important subsidiaries were placed on review for downgrade last month, reflecting pressures on their baseline credit assessments. Today's rating action changes the direction of the review to uncertain to consider the potential for more support under SER. BANK --SPECIFIC CONSIDERATIONS Bank of America and Citigroup The review of Bank of America N.A.'s D+/baa3 baseline credit assessment will consider the benefits to Bank of America's creditors from reduced tail risks and expenses related to its legacy mortgage exposures. The bank has reached settlements on a variety of legal fronts, and a legal decision expected this fall may well further reduce the risk of additional mortgage repurchase losses by approving the bank's settlement of Countrywide's repurchase obligations on private-label RMBS. In addition, as the US housing market improves, stress

losses on mortgages have declined and mortgage servicing costs are also expected to decline. During the review, Moody's will evaluate the extent to which these developments, together with ongoing efficiency initiatives, are likely to improve Bank of America's profitability as well the consistency of its earnings over the next few years. Stronger, more consistent earnings from Bank of America's core banking franchises would provide thicker shock absorbers to protect creditors from the potential volatility and inherent risk opacity of the bank's sizeable global capital markets business. Moody's placed Citibank N.A.'s D+/baa3 baseline credit assessment on review for upgrade, reflecting the firm's declining exposure to legacy assets, strengthened profitability and improved capital. Nonetheless, Citigroup remains one of the world's most complex and global banks and represents a formidable risk management challenge, particularly as pressure for growth and increased returns continues. Management incentives and risk controls are also important, given the absolute size of Citigroup's global markets activities. Given these challenges, Moody's review will focus on Citigroup's potential returns and earnings stability as management continues to hone its strategy. An upgrade of Bank of America's or Citigroup's baseline credit assessment may at least partially offset the ratings effect of a potential reduction in government support for holding company creditors. In addition, the holding company ratings may benefit from a lower loss severity assumption from Moody's. For these reasons, the review of Bank of America's and Citigroup's senior and subordinated holding company ratings is with direction uncertain. Because Moody's is not reconsidering its support assumptions for bank deposits and bank-level senior debt obligations, ratings for those obligations are on review for upgrade along with the baseline credit assessments. The holding company short-term ratings at Bank of America Corporation and Citigroup, Inc. are on review for downgrade, in contrast with the review direction uncertain of their long-term ratings. The potential negative impact of a lower government support assumption is not expected to be offset enough by other factors, including any positive benefits of improvements in their standalone credit strength, to result in a higher short-term rating. Bank of New York Mellon and State Street On July 2, 2013, Moody's placed the B/aa3 baseline credit assessments and all other long-term ratings of State Street and Bank of New York Mellon on review for downgrade. The review was initiated in order to examine the long-term profitability challenges facing these very highly-rated banks. These profitability challenges are driven by the aggressive pricing of these banks' core custody products and services, such that their overall fee revenue is roughly similar to their total expenses. The review will also examine the banks' ability to generate

more revenue from custody-related services and cut costs. The review for Bank of New York Mellon will now also include a reassessment of the level of systemic support incorporated into the holding company ratings. The review for both firms will now include a reassessment of Moody's loss severity assumptions for holding company creditors and the level of systemic support included in the subordinated debt ratings at the bank operating company level. State Street's ratings would be negatively affected only by a lower standalone credit assessment; its holding company ratings do not currently incorporate any uplift due to government support. However, as with the other seven banks, its holding company debt ratings may benefit from a lower loss severity assumption. For these reasons, the review of State Street's senior and subordinated holding company ratings has been changed from review for downgrade to review direction uncertain. Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo, The reviews will consider the level of systemic support incorporated into the bank holding company ratings, the loss severity assumptions in those ratings, and the level of systemic support included in the bank-level subordinated debt ratings of each firm. The holding company short-term ratings at JP Morgan Chase & Co., Morgan Stanley, and Wells Fargo & Company, Inc. are also on review for downgrade, reflecting the potential impact of a downgrade of their long-term ratings. The holding company short-term rating at Goldman Sachs Group, Inc. was affirmed because even if all government support is removed and no benefit from lower loss severity is included, the holding company's current Prime-2 short-term rating would not change. The baseline credit assessments of all four banks were affirmed, together with the ratings on their bank deposits and bank-level senior debt obligations. The principal methodology used in ratings of Citigroup Inc., Wells Fargo & Company, State Street Corporation, and Bank of New York Mellon Corporation (The) was Global Banks Methodology published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. The principal methodology used in ratings of Goldman Sachs Group, Inc. was Global Securities Industry Methodology published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. The methodologies used in ratings of JPMorgan Chase & Co., Bank of America Corporation, Morgan Stanley were Global Banks Methodology published in May 2013, and Global Securities Industry Methodology published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies..

REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Peter E Nerby Senior Vice President Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Robert Franklyn Young MD - Financial Institutions Financial Institutions Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New

York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212553-1653