New York, September 21, 2011 -- Moody's Investors Service has downgraded the ratings of Bank of
America Corporation's (BAC) holding company to Baa1 from A2 for
long-term senior debt and to Prime-2 from Prime-1
for short-term debt. The long-term deposit ratings
of Bank of America N.A. (BANA) were downgraded to A2 from
Aa3, while BANA's short-term rating was affirmed at
Prime-1. The actions conclude a review for downgrade announced
on June 2, 2011. The outlook on the long-term senior
ratings remains negative.
The downgrades result from a decrease in the probability that the US government
would support the bank, if needed. Moody's believes that
the government is likely to continue to provide some level of support
to systemically important financial institutions. However,
it is also more likely now than during the financial crisis to allow a
large bank to fail should it become financially troubled, as the
risks of contagion become less acute. Moody's is therefore lowering
the amount of support it incorporates into Bank of America's ratings to
levels reflected prior to the crisis.
The downgrades do not reflect a weakening of the intrinsic credit quality
of BAC. BAC has made significant progress in improving in its capital
and liquidity positions, in shedding legacy and noncore assets,
in measuring and monitoring risk, and in managing its risk appetite.
These improvements have not, however, resulted in an upgrade
of its stand-alone financial strength rating or in an offset to
the declining assumption of systemic support in the long-term ratings.
This is due in large part to the risks that continue to be presented by
the bank's exposures in its mortgage business.
The ratings affected are as follows:
Bank of America Corporation (BAC), Merrill Lynch & Co.,
Inc., and all rated debt guaranteed or assumed by BAC or
Merrill Lynch (including the rated debt of Countrywide Financial Corporation):
Moody's downgraded the long-term senior debt rating to Baa1
from A2 and the short-term rating to Prime-2 from Prime-1 for BAC and to (P)Prime-2 from (P)Prime-1 for Merrill Lynch.
The holding company senior debt ratings now incorporate two notches of
uplift due to systemic support, down from four notches previously.
BAC's senior subordinated debt rating was downgraded to Baa2 from
A3, and its cumulative junior subordinated-backed trust preferred
securities were lowered to Ba1 (hyb) from Baa3 (hyb),
Bank of America, N.A. (BANA): Moody's
downgraded the long-term bank deposit and senior bank debt ratings
to A2 from Aa3 and the short-term Prime-1 rating was affirmed.
The bank financial strength rating (BFSR) of C- was also affirmed,
and the bank's corresponding baseline credit assessment (BCA),
or unsupported rating, remains unchanged at Baa2. The outlook
on the BFSR is stable. The bank deposit and senior debt ratings
now incorporate three notches of uplift due to systemic support,
down from five notches previously. BANA's subordinated debt
was downgraded to A3 from A1.
Please see the link for a full list of rating actions.
Moody's will publish separate press releases on other institutions covered
by the review announced on June 2, 2011.
RATINGS RATIONALE
Moody's continues to see the probability of support for highly interconnected,
systemically important institutions as very high, although that
probability is lower than it was during the financial crisis. During
the crisis, the risk of contagion to the US and global financial
system from a major bank failure was viewed as too great to allow such
a failure to occur -- a view borne out in the aftermath of the Lehman
failure. This led the government to extend an unusual level of
support to weakened financial institutions and Moody's to incorporate
the expectations of such support in its ratings. Now, having
moved beyond the depths of the crisis, Moody's believes there
is an increased possibility that the government might allow a large financial
institution to fail, taking the view that contagion could be limited.
Moody's decision to assign a negative rating outlook reflects the
possibility it may further reduce its systemic support assumptions in
the future as a consequence of the process set in motion by the enactment
of the Dodd-Frank Act. Under the rules recently finalized
by the FDIC, the orderly liquidation authority included in Dodd-Frank
demonstrates a clear intent to impose losses on bondholders in the event
that a systemically important bank such as BAC was nearing failure.
If fully implemented, the provisions of Dodd-Frank could
further lower systemic risk by reducing interconnectedness among large
institutions and could further strengthen regulators' abilities
to resolve such firms.
However, the final form of several critical components of Dodd-Frank
intended to reduce such interconnectedness, such as resolution plans
or changes to the over-the-counter derivatives market,
are still pending. There is also no global process yet in place
whereby regulators could resolve a global financial company such as Bank
of America in an orderly fashion. As a result, Moody's
believes that it would be very difficult for the US government to utilize
the orderly liquidation authority to resolve a systemically important
bank without a disruption of the marketplace and the broader economy.
The affirmation with a stable outlook of the stand-alone bank financial
strength rating at C-, which continues to map to a baseline
credit assessment of Baa2, reflects the challenges posed by the
significant contingent risks BAC continues to face in its mortgage business.
BAC has made significant improvements to its capital and liquidity positions,
continues to focus on shedding legacy and noncore assets, has improved
its ability to measure and monitor risk, and has adopted a lower
risk appetite. Nonetheless, the bank remains exposed to potentially
significant risks related to both the residential mortgage and home equity
loans on its balance sheet, as well as to mortgages previously sold
to investors.
Moody's believes BAC has ample resources to absorb the additional
losses it is likely to experience on these exposures. However,
if the economic environment were to deteriorate and the bank were to receive
adverse legal rulings on the claims pending against it related to its
mortgage business, it could have a significant impact on BAC's
capital position. Moody's also believes the variability around
potential negative outcomes is substantial, and their resolution
is not entirely within the direct control of management.
The resulting uncertainty is a constraining factor on BAC's baseline
credit assessment, especially in light of the bank's still
relatively modest capital position compared to its major peers.
The ratings for BAC's cumulative junior subordinated-backed
trust preferred securities were lowered by one notch to Ba1 (hyb) from
Baa3 (hyb), reflecting a reduction in the rating agency's
support assumption for those securities. Those ratings are now
consistent with Moody's guidelines for rating bank hybrid securities
whereas previously they had included an additional notch of uplift for
systemic support. The ratings for BAC's noncumulative preferred
stock and the HITS issued by BAC Capital Trust XIII and BAC Capital Trust
XIV, which do not incorporate any government support, were
confirmed at Ba3 (hyb). (The HITS, or Hybrid Income Trust
Securities ultimately have a non-cumulative preferred stock claim
on BAC under the terms of a forward contract.)
The methodologies used in this rating were "Bank Financial Strength
Ratings: Global Methodology" published in February 2007,
"Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology" published in March 2007,
and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated
Debt" published in November 2009. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
Bank of America Corporation is headquartered in Charlotte, North
Carolina. Its reported assets were $2,261 billion
at June 30, 2011.
A detailed list of the affected ratings is available on Moody's website,
which may be accessed by clicking here
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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
.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
David Fanger
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 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: 212-553-1653
Moody's downgrades Bank of America Corp. to Baa1/P-2; Bank of America N.A. to A2, P-1 affirmed
