WELLS FARGO & COMPANY (WFC) ESG RATING BANKS US B LAST UPDATE: November 26, 2015 Overboarding and entrenchment in board drive downgrade GOVERNANCE SNAPSHOT INDUSTRY RATING DISTRIBUTION 81.3% Board Independence % Significant Votes Against Management NO Entrenched Board NO Pay Performance Gap NO 28% 14% NO Executive Pay Non-Disclosure NO Multiple Share Classes with Different Voting Rights ESG SCORE CARD 20% BB 25% 10% CCC SCORE QUARTILE Environment 8.0% 5.0 Financing Environmental Impact 8.0% 5.0 ●●● Carbon Emissions 0.0% 10.0 ●●● Toxic Emissions & Waste 0.0% 10.0 ●●● Water Stress 0.0% 10.0 ●●●● Social 60.0% 3.7 Access to Finance 15.0% 4.6 ●●● Financial Product Safety 15.0% 0.8 ● Human Capital Development 15.0% 6.1 ●●●● Privacy & Data Security 15.0% 3.2 ●●● Health & Safety 0.0% 8.8 ●●● Labor Management 0.0% 5.9 ●● Governance 32.0% 2.3 Corporate Governance 17.0% 2.8 ● Financial System Instability 15.0% 1.8 ● Anticompetitive Practices 0.0% 3.7 N/A Business Ethics & Fraud 0.0% 2.5 N/A View Corporate Governance Details Section → ● ●●●● CCC CCC Mar-11 Apr-12 2% 0% B BB BBB A AA AAA RATING COMMENT WEIGHT Key Issues ESG RATING HISTORY B B Oct-13 Oct-14 Nov-15 RATING DATE: November 26, 2015 Wells Fargo has been downgraded to 'B' from 'BB'. Wells Fargo has largely avoided the glare of regulators in contrast to US major peers, but governance concerns, including overboarding, entrenchment, and key committee independence drive the downgrade. While governance issues may take center stage for Wells Fargo's downgrade, progress remains slow in other areas. The company did not provide key metrics for 2014 leaving unclear how it may perform given recent layoffs and certain product risks, namely the growth in subprime auto loans. Amongst major US peers, Wells Fargo had the highest level of complaints per USD billion in assets (as reported to the CFPB), a potential leading sign of issues in product design or customer engagement. Analyst: Matt Moscardi MOST SIGNIFICANT RISKS Financial Product Safety - Score 0.8 November 26, 2015 Using Consumer Financial Protection Bureau data, Wells Fargo ranked as the worst for complaints per USD billion in assets among major US banks, and in the bottom half of all US banks for which we had coverage. We did note a steady downward trend in complaints, though complaint levels may correlate here to a number of product and borrower types the bank has targeted, particularly subprime auto loans. We estimated that 151% of Wells Fargo's tangible book value was comprised of loans to high-risk and sensitive borrowers or in high-risk product types, down from 173% YoY. While legacy assets have largely been sold off or foreclosed, the bank's credit card loans to borrowers with FICO scores below 660 and subprime auto loans were actually substantially up YoY by 17%. Further, the CFPB itself began investigating Wells Fargo for student loan servicing practices, and settlements in the recent past have ranged across foreclosure practice, fee charging, unauthorized product enrollment, and even credit defamation. The efficacy of Wells Fargo's product committees, complaints handling, and internal controls are clearly in question given trends, though without updated strategic disclosure, it is unclear how the bank is position to limit potential future liabilities. Bottom Quartile Top Quartile Issues that we determine do not present material risks or opportunities to companies in a given industry receive 0% weight and do not impact the overall ESG rating. ESG RATINGS TEARSHEET ©2015 MSCI INC. ALL RIGHTS RESERVED. WELLS FARGO & COMPANY (WFC) ESG RATING Financial System Instability - Score 1.8 B November 26, 2015 Wells Fargo remains a regulator-labelled SIFI with higher capital requirements, regulatory scrutiny, and potential moral hazard attached. From a systemic risk perspective, Wells Fargo continues to grow bigger, more complex, and more interconnected, though falls short of other US major competitors. Intrafinancial assets (notional repurchase agreements and interbank loans) grew fastest YoY, up 67% to 6.8% of total assets. Wholesale funding was also up nearly 9% YoY. From a regulatory risk standpoint, we ranked Wells Fargo as the fourth most visible bank to regulators in our global peer group of 215 companies, 47x more likely to be scrutinized than the average bank (such as BBVA or SunTrust). Regulatory visibility rankings are calculated using a combination of total equity and total controversial activity in rolling three year periods, and we found that higher levels of visibility have a strong relational correlation to future settlements, redress, and legal payouts. To that point, we estimated Wells Fargo to face at least USD 200m in payouts over the next three years, but more likely between 0.1% and 0.5% of total equity. In contrast, we estimated that Wells Fargo returned 13.9% of its total capitalization in the form of benefits, compensation, and taxes to customers, staff, and governments, net of legal costs, the highest of major global peers. High social returns (and more vanilla business models) have historically correlated to lower levels of sociopolitical scrutiny. However, conflicts of interest may be a serious issue at the board level for Wells Fargo. We found only 14% of the group's risk committee (1 in 7) had financial expertise, and only as a regulator rather than a practitioner. The Chair of the risk committee is also long-tenured (12 years) and overboarded (on 4 other company boards and 11 committees, including on the board of Chevron with Wells Fargo's CEO). Given this, there is room to question the ability of the risk committee as a whole to be uncompromised in making decisions. Corporate Governance - Score 2.8 November 26, 2015 Key governance issues at Wells Fargo include overboarded directors, long-tenured directors that control most of the board’s key leadership positions, and discretionary pay practices that suggest independent directors may not be serving as an effective counterbalance to management. Ownership at Wells Fargo is widely dispersed with no shareholder owning more than 10% of the shares. Warren Buffett controls 9.3% of the company’s total voting power, having added about 50 million shares annually. MOST RECENT CONTROVERSIES HEADLINE ASSESSMENT TYPE DATE USD500,000 Penalty and USD241,974 Restitution over Alleged Failure to Make Suitable Recommendations about Structured Repackaged Asset-Backed Trust Securities Moderate Bribery & Fraud November 2015 Oakland: Lawsuit over Alleged Discriminatory Predatory Lending Practices of Minority Borrowers Moderate Customer Relations October 2015 Preliminary Investigation over Alleged Illegal Student Loan Servicing Practices Moderate Customer Relations October 2015 Missouri: USD 17.8 Million Penalty in a Civil Lawsuit over Alleged Breach of Fiduciary Duty and Mismanagement of Trusts Minor Customer Relations October 2015 Montana: USD750 Penalty by the Department of Environmental Quality over Alleged Underground Storage Tank Compliance Violations Minor Bribery & Fraud September 2015 ESG RATINGS TEARSHEET PAGE 2 OF 3 ©2015 MSCI INC. ALL RIGHTS RESERVED. WELLS FARGO & COMPANY (WFC) CEO Name John G. Stumpf Tenure 8 Years Total Realized Pay USD 75,993,658 Total Summary Pay USD 21,426,391 ESG RATING BOARD OF DIRECTORS SHAREHOLDERS 9 7 Men on Board 1 Inside Directors B Majority Shareholder Control (%) N/A Insider Holdings (%) 0.0% Women on Board 2 5% Holdings 20.3% 13 Outside related Directors % Held by Largest Shareholder N/A Outside Directors LARGEST 10 INDUSTRY PEERS (BANKS) FINANCING ENVIRONMENTAL IMPACT ACCESS TO FINANCE FINANCIAL PRODUCT SAFETY HUMAN CAPITAL DEVELOPMENT PRIVACY & DATA SECURITY CORPORATE GOVERNANCE FINANCIAL SYSTEM INSTABILITY RATING AND TREND ING Groep N.V. ●●●● ●●● ● ●● N/A ●●●● ● BBB ↔ INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED ●●● ●●● ●● ●●● N/A ●●● ● BB ↑ China Construction Bank Corp (Wuxi Branch) ●●●● ●●●● ● ● N/A ●●● ● BB ↔ Agricultural Bank of China Limited ●●● ●●●● ● ●● N/A ●●● ● BB ↔ Bank of China Limited ●●● ●●● ● ●●● N/A ●●● ● B ↔ BANK OF AMERICA CORPORATION ●●●● ●●●● ●● ●●●● ●● ● ● B ↔ CITIGROUP INC. ●●●● ●●● ● ●●●● ●●●● ● ● B ↓ HSBC HOLDINGS PLC ●●●● ●●● ● ● N/A ●● ● B ↔ JPMORGAN CHASE & CO. ●●●● ●●● ● ●●● ●● ● ● B ↔ WELLS FARGO & COMPANY ●●● ●●● ● ●●●● ●●● ● ● B ↓ QUARTILE KEY: ● Bottom Quartile ●●●● Top Quartile RATING TREND KEY: ↔ maintain ↑ upgrade ↑↑ two or more notch upgrade ↓ downgrade ↓↓ two or more notch downgrade ESG RATINGS TEARSHEET PAGE 3 OF 3 ©2015 MSCI INC. ALL RIGHTS RESERVED.