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Related Research

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Rating Action:

Moody's reviews Bank of America's preferred stock for upgrade

17 Aug 2009

Other ratings not affected

New York, August 17, 2009 -- Moody's Investors Service put on review for possible upgrade the B3 ratings on the noncumulative preferred securities issued by Bank of America Corporation (BAC), including the noncumulative trust preferred securities originally issued by subsidiaries of ABN Amro North America Holding Company and LaSalle Banking Corporation. The rating agency also put on review for upgrade the Ba3 rating on the cumulative preferred security issued by Banc of America Preferred Funding Corporation. No other ratings for BAC were affected by this action.

"Bank of America's recently completed capital raising initiative considerably reduces the near-term risk that it might be forced to suspend dividends on these preferred securities, said Moody's Senior Vice President, David Fanger. "This risk was a significant factor behind the downgrade of the ratings on these securities in March," he added. Today's action follows BAC's success in raising sufficient capital to satisfy the requirement mandated by the U.S. government following its earlier 'stress test' under the Supervisory Capital Assessment Program (SCAP). Through the issuance of new common shares, the sale of assets, and a series of exchanges of preferred securities, BAC has added over $32.4 billion in common equity and will reduce its annual preferred dividend by about $1.0 billion. The capital raise successfully increased BAC's Tier I common by $38.1 billion (plus an anticipated $1.6 billion by year-end 2010 due to reduced preferred dividends), which is in excess of the $33.9 billion buffer required by the SCAP test.

Moody's said that it plans to conclude the review at the same time as it concludes the pending review for upgrade of the D bank financial strength rating (BFSR) of BAC's lead bank subsidiary, Bank of America, N.A. (BANA). The review of the BFSR is considering the positive impact on BAC's and BANA's stand-alone credit profile from the capital raise, but also the significant challenges stemming from the current economic environment as well as the ongoing integration of Merrill Lynch. "After loan loss provisions, Moody's does not expect Bank of America to generate sizable earnings until the second half of 2010 at the earliest," Mr. Fanger noted. High unemployment, a weak U.S. economy, and challenging real estate markets are likely to contribute to a rise in delinquent and problem loans. This will require significant additional loan loss provisions in 2009 and into 2010. The bank's decision to end negotiations to acquire asset protection from the U.S. government on a pool of $118 billion in legacy capital markets assets also could leave it more exposed to adverse developments in the capital markets if losses in the pool were to exceed the $10 billion first loss position originally agreed upon with the U.S. government. Until there is greater clarity on the economic outlook and the likely future trends in BAC's asset quality, these challenges are likely to limit the extent of any upgrade of the BFSR as well as the ratings on BAC's preferred securities.

Moody's last rating action on BAC was on May 14th, 2009 when the D BFSR of BANA was placed on review for possible upgrade, the ratings outlook on BAC's non-cumulative preferred securities was changed to developing from negative, and the outlook on the BAC's junior subordinated trust preferred securities was changed to stable from negative.

The principal methodologies used in rating this issuer were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

The following ratings were affected:

On Review for Possible Upgrade:

..Issuer: Bank of America Corporation

....Multiple Seniority Shelf, Placed on Review for Possible Upgrade, currently (P)B3