Rating outlooks on hybrid securities no longer negative
New York, May 14, 2009 -- Moody's Investors Service today put on review for possible upgrade
the D bank financial strength rating (BFSR) of the U.S.
bank subsidiaries of Bank of America Corporation (BAC). The rating
agency also changed the ratings outlook on BAC's non-cumulative
preferred securities to developing from negative, and changed the
outlook on the BAC's junior subordinated trust preferred securities
to stable from negative. All other ratings of BAC and its subsidiaries
(holdco senior unsecured at A2, bank deposits at Aa3) were affirmed
with a stable outlook.
These actions had no impact on the ratings of the FDIC-guaranteed
debt issued by BAC and its lead bank subsidiary, which remain at
Aaa with a stable outlook.
"The review of the BFSR reflects our view that BAC's capital
raising initiatives, if successful, should strengthen BAC's
capital position without impairing BAC's franchise or future earnings
power," said Moody's Senior Vice President, David
Fanger. BAC's capital raising initiatives are being undertaken
in response to the U.S. government's Supervisory Capital
Assessment Program (SCAP). Moody's will focus on the likelihood
that BAC will succeed in its efforts during the review.
"By strengthening BAC's tangible common equity position,
the proposed capital increase would reduce the likelihood of the U.S.
government needing to provide additional capital support to BAC.
The BFSR is intended to express an opinion about the likelihood of such
an event," explained Mr. Fanger.
In reponse to BAC's capital raising initiatives, Moody's
also changed the rating outlook on BAC's preferred stock and trust
preferred securities. The outlook on BAC's B3 preferred stock
rating was changed to developing from negative. "The previous
negative outlook reflected the risk that BAC could suspend preferred dividends
or even offer a distressed exchange to preferred shareholders in order
to boost its common equity position, said Mr. Fanger.
We believe that BAC's capital raising initiatives, if successful,
should reduce that risk." The developing outlook reflects
the remaining uncertainty regarding BAC's ability to avoid a dividend
omission or distressed exchange while the capital raising initiatives
are still pending.
The outlooks on BAC's junior-subordinated-backed trust
preferred securities, rated Baa3, and BAC's Hybrid Income
Trust Securities (HITS), rated Ba3, were changed to stable
from negative. Similar to the preferred stock, the previous
negative outlook on the ratings of these instruments also reflected the
risk of a dividend deferral or distressed exchange, although their
higher ratings also reflected Moody's view that this risk was more
remote than for BAC's preferred stock. The inclusion of new
common equity issuance and asset sale gains in BAC's capital raising
initiatives makes it more unlikely that BAC will need to defer dividends
on, or seek conversion of, its junior subordinated-backed
trust preferred securities or the HITS. In light of this,
Moody's believes that a stable outlook is now more appropriate for
the ratings on these securities.
Although the capital raising should improve BAC's capital position,
Moody's noted that BAC continues to face 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. Higher unemployment, a weak U.S.
economy, and challenging real estate markets are likely to contribute
to a rise in delinquent and problem loans, most notably in credit
cards, residential mortgages, and commercial real estate 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 leaves
it more exposed to adverse developments in the capital markets,"
Mr. Fanger added. 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 BAC's
At the same time, Moody's affirmed the ratings for BAC's
deposits, senior debt and senior subordinated debt, which
continue to have a stable outlook. Those ratings are based on Moody's
expectation of very high systemic support for these instruments,
and the view that such support will enable the substantial value of BAC's
franchise to materialize in the medium to long-term.
Today's rating actions are consistent with Moody's recent announcement
that it is recalibrating some of the weights and relative importance attached
to certain rating factors within its current bank rating methodologies.
Capital adequacy, in particular, takes on increasing importance
in determining the BFSR in the current environment. Meanwhile,
debt and deposit ratings will reflect the fact that Moody's expects that
its support assumptions will continue to increase for systemically important
institutions during this global financial crisis. (Please see Moody's
special comment "Calibrating Bank Ratings in the Context of the Global
The last rating action on BAC was on March 25, 2009, when
Moody's lowered BAC's senior unsecured debt rating to A2 from
A1. The last rating action on BAC Capital Trust XII and BAC Capital
Trust XIV was on April 24, 2009, when Moody's lowered
the ratings on the HITS to Ba3 from Baa3.
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 and outlooks were affected:
Bank of America, N.A., Merrill Lynch Bank &
Trust Company, and Merrill Lynch Bank USA:
....Bank Financial Strength Rating Placed
on Review for Possible Upgrade, currently D
....Outlook Changed To Rating Under Review
Outlook Changed To Developing From Negative for the Following Issuers:
BAC AAH Capital Funding LLC I
BAC AAH Capital Funding LLC II
BAC AAH Capital Funding LLC III
BAC AAH Capital Funding LLC IV
BAC AAH Capital Funding LLC IX
BAC AAH Capital Funding LLC V
BAC AAH Capital Funding LLC VI
BAC AAH Capital Funding LLC VII
BAC AAH Capital Funding LLC VIII
BAC AAH Capital Funding LLC X
BAC AAH Capital Funding LLC XI
BAC AAH Capital Funding LLC XII
BAC AAH Capital Funding LLC XIII
BAC AAH Capital Funding LLC XIV
BAC AAH Capital Funding LLC XIX
BAC AAH Capital Funding LLC XV
BAC AAH Capital Funding LLC XVI
BAC AAH Capital Funding LLC XVIII
BAC LB Capital Funding LLC I
BAC LB Capital Funding LLC II
BAC North America Holding Company
Banc of America Preferred Funding Corp.
Barnett Banks, Incorporated (Old)
LaSalle National Corporation
Shawmut National Corporation
Outlook Changed To Stable From Negative for the Following Issuers:
BAC Capital Trust I
BAC Capital Trust II
BAC Capital Trust III
BAC Capital Trust IV
BAC Capital Trust IX
BAC Capital Trust V
BAC Capital Trust VI
BAC Capital Trust VII
BAC Capital Trust VIII
BAC Capital Trust X
BAC Capital Trust XI
BAC Capital Trust XII
BAC Capital Trust XIII
BAC Capital Trust XIV
BAC Capital Trust XIX
BAC Capital Trust XV
BAC Capital Trust XVI
BAC Capital Trust XVII
BAC Capital Trust XVIII
BAC Capital Trust XX
BankAmerica Capital I
BankAmerica Capital II
BankAmerica Capital III
BankAmerica Institutional Capital A
BankAmerica Institutional Capital B
BankBoston Capital Trust III
BankBoston Capital Trust IV
Barnett Capital Trust III
Countrywide Capital III
Countrywide Capital IV
Countrywide Capital V
Fleet Capital Trust II
Fleet Capital Trust IX
Fleet Capital Trust V
Fleet Capital Trust VII
Fleet Capital Trust VIII
MBNA Capital A
MBNA Capital B
MBNA Capital C
MBNA Capital D
MBNA Capital E
MBNA Capital F
MBNA Capital G
Merrill Lynch Capital Trust I
Merrill Lynch Capital Trust II
Merrill Lynch Capital Trust III
Merrill Lynch Preferred Capital Trust III
Merrill Lynch Preferred Capital Trust IV
Merrill Lynch Preferred Capital Trust V
Merrill Lynch Preferred Capital Trust VI
Merrill Lynch Preferred Funding I, L.P.
Merrill Lynch Preferred Funding II, L.P.
Merrill Lynch Preferred Funding III, L.P.
Merrill Lynch Preferred Funding IV, L.P.
Merrill Lynch Preferred Funding V, L.P.
Merrill Lynch Preferred Funding VI, L.P.
NB Capital Trust I
NB Capital Trust II
NB Capital Trust III
NB Capital Trust IV
NB Capital Trust V
Financial Institutions Group
Moody's Investors Service
Moody's reviews BofA's financial strength rating for upgrade
Financial Institutions Group
Moody's Investors Service