Standard & Poor's Corp. downgraded $3.7 billion in Wells Fargo & Co. debt Monday, citing concerns over the San Francisco banking firm's high concentration of real estate and corporate-buyout loans.

The move is another blow to recent efforts by California banks to counter fears that their real estate loan portfolios are vulnerable. Monday's action by the New York rating agency is especially jolting because Wells Fargo has been the strongest performer among California's largest banks and is generally the most highly regarded by investors and analysts.

In announcing the decision, S&P cited Wells Fargo's "high-risk profile in an increasingly difficult business environment." The lower ratings makes it more expensive for Wells Fargo to raise money when issuing bonds and short-term debt instruments called commercial paper.

Concerns about California real estate lending have increased sharply in recent weeks as real estate problems have worsened in other areas of the country, particularly New England, Arizona, Florida and areas along the Eastern Seaboard. Earlier this month, Moody's Investors Service, another rating agency, lowered the debt ratings of Great Western Financial in Beverly Hills, citing concerns over the thrift's real estate lending in California.

In addition, Federal Deposit Insurance Corp. Chairman L. William Seidman shocked the state's bankers last month when he listed California's six largest metropolitan areas as places where real estate problems could be lurking.

California banks such as Wells Fargo argue that the state's economy is stronger and more diverse than economies in other states, adding that California has not been plagued by overbuilding, a particular problem in New England. They have been supported in that position by California banking regulators, who earlier this month took the unusual step of publishing a study challenging many of Seidman's points.

The ratings change for Wells Fargo includes the lowering of its senior debt to A+ from AA- and its commercial paper rating to A1 from A1+. S&P left untouched the debt of the Wells Fargo Bank subsidiary--a reflection of the fact that creditors of a bank unit have a higher priority in the case of a debt payoff problem than creditors of a bank holding company.

Despite being lower, the Wells Fargo ratings are still considered strong. They lag only Security Pacific among the state's largest banks.