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Rating Action:

Moody's upgrades Bank of America Corporation to A2/Prime-1 from A3/Prime-2, outlook stable

06 Mar 2019

New York, March 06, 2019 -- Moody's Investors Service ("Moody's") has upgraded all the long-term and short-term ratings of Bank of America Corporation (BAC, senior debt to A2 from A3, short-term to Prime-1 from Prime-2) as well as the long-term ratings and assessments of its lead bank, Bank of America, N.A. (BANA, deposits to Aa2 from Aa3, BCA to a3 from baa1, counterparty risk rating to Aa2 from Aa3) and of certain other subsidiaries. Moody's also affirmed the Prime-1 short-term ratings at BANA and its rated branches. The ratings outlook is stable. This concludes a review commenced on December 5, 2018. A complete list of affected ratings and entities can be found at the end of this press release.

RATINGS RATIONALE

The upgrade of Bank of America's BCA to a3 from baa1 reflects BAC's strengthened profitability, which has enhanced the bank's earnings diversification and reduced its reliance on the inherently more volatile earnings from capital markets businesses. Ongoing expense discipline has enabled the bank to generate consistent positive operating leverage over the last several years, notwithstanding significant investments in technology. In particular the bank's leading consumer banking and wealth management franchises have shown strong profitability improvements, while earnings growth in Global Banking has been more modest and earnings in Global Markets have been relatively flat. At the same time, the earnings drag from the firm's non-core activities and legacy exposures has declined.

Moody's expects that BAC's operating expenses should remain essentially flat over the next two years, even as the firm continues to make significant additional investments in technology and expands its retail banking presence into the relatively few major US markets where it currently lacks one. Moody's believes this should help sustain BAC's improved profitability while also ensuring that the bank's strong franchises are well positioned to compete against incumbents as well as potential digital disruptors.

Importantly for creditors, BAC has continued to maintain a more conservative risk appetite than at many of its peers even while it has strengthened its earnings profile. Evidence of this includes continued greater resiliency of its performance under the Federal Reserve's stress tests than most peers, the bank's more cautious approach to loan growth, its strict limits on concentrations, including in leveraged lending, and its focus across all of its businesses on better serving existing customers rather than aggressively seeking out new (and possibly riskier) customers. Moody's expects the bank's more conservative risk profile will be sustained going forward, despite occasional earnings pressures (such as was the case in BAC's investment banking franchise in 2018). Nonetheless, the rating agency noted that BAC's interest rate sensitivity is elevated relative to its closest peers, a risk which partially offsets the bank's more conservative credit risk and market risk profile.

The improved profitability has also helped sustain the bank's capital ratios, notwithstanding an increase in shareholder payouts. Going forward the rating agency expects BAC will seek to distribute all of its earnings, subject to regulatory approval. As a result, Moody's expects that BAC's ratio of tangible common equity to risk-weighted assets could decline by as much as 80 basis points over the next two years, although the extent of such decline will depend upon a number of factors including asset growth, the future rigor of Federal Reserve stress tests, and the finalization of the Federal Reserve's proposed stress capital buffer.

STRUCTURAL AND SUPPORT CONSIDERATIONS

Moody's existing assumptions of Loss Given Failure (LGF) uplift and Government support remain unchanged for BAC and its subsidiaries.

After the upgrade, BANA's deposit and counterparty risk ratings are Aa2, both four notches above the a3 baseline credit assessment, including 3 notches of LGF benefit reflecting Moody's expectation of an extremely low severity of loss in the event of a default, and one notch reflecting a moderate likelihood of systemic support. Senior debt at BANA is rated Aa2 and lead bank subordinated debt is rated Aa3 as both classes are also expected to face extremely low loss given failure and receive three notches of LGF benefit. Senior debt at the lead bank level also receives a further one notch of benefit reflecting a moderate likelihood of systemic support.

After the upgrade, the senior debt rating of the holding company, Bank of America Corporation, is A2, one notch above the bank's a3 baseline credit assessment reflecting expectation of low loss given failure. Although the holding company currently exceeds its regulatory requirements for total loss absorbing capacity and long-term debt, Moody's expects the amount of holding company long-term debt is unlikely to decrease meaningfully from current levels given internal funding needs.

BAC's holding company debt ratings do not incorporate any uplift to reflect the potential for US government support. For subordinated securities issued by the holding company, Moody's LGF analysis indicates a high loss-given-failure, and are rated one notch below the BCA at Baa1. The ratings on more junior holding company obligations also incorporate additional downward notching from the BCA reflecting the coupon suspension risk ahead of potential failure.

WHAT COULD CHANGE THE RATINGS UP/DOWN

After the upgrade, the ratings outlook is stable. BAC's ratings could be upgraded if the bank were to lower its interest rate sensitivity on a sustainable basis without significantly reducing its profitability, or were it to sustain its tangible common equity above 12.0% of risk-weighted assets on an advanced approach basis.

Bank of America's ratings could be downgraded if the bank suffers a sustained decline in profitability, experiences a significant deterioration in capital or liquidity levels relative to peers and targets, exhibits a marked increase in its risk appetite, or experiences a sizeable operational risk charge or control failure. Under Moody's loss-given-failure (LGF) analysis, a sustained reduction in the volume of holding company debt outstanding would increase the potential severity of loss for bondholders in the event of the bank's failure and could lead to downgrade of BAC's holding company senior debt ratings and possibly also BANA's subordinated and senior unsecured debt ratings, depending upon the magnitude of the reduction.

The following ratings actions were taken:

Upgrades:

..Issuer: Bank of America Corporation

.... Commercial Paper, Upgraded to P-1 from P-2

.... LT Issuer Rating, Upgraded to A2, Stable, from A3, Rating Under Review

.... Junior Subordinated Regular Bond/Debenture, Upgraded to Baa2 (hyb) from Baa3 (hyb)

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

.... Subordinate Medium-Term Note Program, Upgraded to (P)Baa1 from (P)Baa2

.... Other Short Term Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

.... Senior Unsecured Shelf, Upgraded to (P)A2 from (P)A3

.... Pref. Shelf Non-cumulative, Upgraded to (P)Baa3 from (P)Ba1

.... Pref. Shelf, Upgraded to (P)Baa2 from (P)Baa3

.... Junior Subordinate Shelf, Upgraded to (P)Baa2 from (P)Baa3

.... Subordinate Shelf, Upgraded to (P)Baa1 from (P)Baa2

.... Pref. Stock Non-cumulative, Upgraded to Baa3 (hyb) from Ba1 (hyb)

.... Subordinate Regular Bond/Debenture, Upgraded to Baa1 from Baa2

.... Senior Subordinated Regular Bond/Debenture, Upgraded to Baa1 from Baa2

.... Senior Unsecured Regular Bond/Debenture, Upgraded to A2, Stable, from A3, Rating Under Review

..Issuer: Bank of America, N.A.

.... Adjusted Baseline Credit Assessment, Upgraded to a3 from baa1

.... Baseline Credit Assessment, Upgraded to a3 from baa1

.... LT Counterparty Risk Assessment, Upgraded to Aa2(cr) from Aa3(cr)

.... LT Counterparty Risk Rating, Upgraded to Aa2 from Aa3

.... LT Issuer Rating, Upgraded to Aa2, Stable, from Aa3, Rating Under Review

.... Subordinate Bank Note Program, Upgraded to (P)Aa3 from (P)A1

.... Senior Unsecured Bank Note Program, Upgraded to (P)Aa2 from (P)Aa3

.... Subordinate Regular Bond/Debenture, Upgraded to Aa3 from A1

.... Senior Unsecured Regular Bond/Debenture, Upgraded to Aa2, Stable, from Aa3, Rating Under Review

.... LT Deposit Rating, Upgraded to Aa2, Stable, from Aa3, Rating Under Review

..Issuer: B of A Issuance B.V.

.... Senior Unsecured Regular Bond/Debenture, Upgraded to A2, Stable, from A3, Rating Under Review

..Issuer: BAC Capital Trust XIII

.... Pref. Stock Non-cumulative, Upgraded to Baa3 (hyb) from Ba1 (hyb)

..Issuer: BAC Capital Trust XIV

.... Pref. Stock Non-cumulative, Upgraded to Baa3 (hyb) from Ba1 (hyb)

..Issuer: BAC Capital Trust XV

.... Pref. Stock, Upgraded to Baa2 (hyb) from Baa3 (hyb)

..Issuer: LaSalle Bank N.A.

.... LT Deposit Note/CD Program, Upgraded to Aa2, Stable, from Aa3, Rating Under Review

..Issuer: LaSalle Funding LLC

.... Senior Unsecured Shelf, Upgraded to (P)A2 from (P)A3

.... Subordinate Shelf, Upgraded to (P)Baa1 from (P)Baa2

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

.... Senior Unsecured Regular Bond/Debenture, Upgraded to A2, Stable, from A3, Rating Under Review

..Issuer: BA Australia Limited

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)Aa2 from (P)Aa3

..Issuer: BAC Canada Finance Company

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

.... Subordinate Medium-Term Note Program, Upgraded to (P)Baa1 from (P)Baa2

.... Senior Unsecured Regular Bond/Debenture, Upgraded to A2, Stable, from A3, Rating under Review

.... Senior Unsecured Shelf, Upgraded to (P)A2 from (P)A3

..Issuer: Bank of America, N.A. (Sydney Branch)

.... LT Counterparty Risk Assessment, Upgraded to Aa2(cr) from Aa3(cr)

.... LT Counterparty Risk Rating, Upgraded to Aa2 from Aa3

.... Subordinate Medium-Term Note Program, Upgraded to (P)Aa3 from (P)A1

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)Aa2 from (P)Aa3

..Issuer: Bank of America, N.A., London Branch

.... LT Counterparty Risk Assessment, Upgraded to Aa2(cr) from Aa3(cr)

.... LT Counterparty Risk Rating, Upgraded to Aa2 from Aa3

.... LT Deposit Note/CD Program, Upgraded to (P)Aa2 from (P)Aa3

..Issuer: BofA Finance LLC

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

.... Senior Unsecured Regular Bond/Debenture, Upgraded to A2, Stable, from A3, Rating under Review

.... Senior Unsecured Shelf, Upgraded to (P)A2 from (P)A3

..Issuer: FleetBoston Financial Corporation

.... Subordinate Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Merrill Lynch & Co., Inc.

.... Subordinate Regular Bond/Debenture, Upgraded to Baa1 from Baa2

.... Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to A2, Stable, from A3, Rating under Review

.... Senior Unsecured Regular Bond/Debenture, Upgraded to A2, Stable, from A3, Rating under Review

..Issuer: Merrill Lynch International & Co. C.V.

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

.... Other Short Term Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

..Issuer: Merrill Lynch Japan Finance GK

.... Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

.... Other Short Term Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

..Issuer: Merrill Lynch S.A.

.... Senior Unsecured Regular Bond/Debenture, Upgraded to A2, Stable, from A3, Rating under Review

Affirmations:

..Issuer: BA Australia Limited

.... Other Short Term Medium-Term Note Program, Affirmed (P)P-1

..Issuer: Bank of America, N.A. (Sydney Branch)

.... ST Counterparty Risk Assessment, Affirmed P-1(cr)

.... ST Counterparty Risk Rating, Affirmed P-1

.... Commercial Paper, Affirmed P-1

..Issuer: Bank of America, N.A., London Branch

.... ST Counterparty Risk Assessment, Affirmed P-1(cr)

.... ST Counterparty Risk Rating, Affirmed P-1

.... ST Deposit Note/CD Program, Affirmed (P)P-1

.... Commercial Paper, Affirmed P-1

..Issuer: Bank of America, N.A.

.... ST Counterparty Risk Assessment, Affirmed P-1(cr)

.... ST Counterparty Risk Rating, Affirmed P-1

.... ST Deposit Rating, Affirmed P-1

.... ST Bank Note Program, Affirmed (P)P-1

.... Commercial Paper, Affirmed P-1

Outlook Actions:

..Issuer: B of A Issuance B.V.

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: BA Australia Limited

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: BAC Capital Trust XIII

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: BAC Capital Trust XIV

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: BAC Capital Trust XV

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: Bank of America Corporation

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Bank of America, N.A.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Bank of America, N.A. (Sydney Branch)

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: Bank of America, N.A., London Branch

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: BofA Finance LLC

....Outlook, Changed To Stable From Rating Under Review

..Issuer: LaSalle Bank N.A.

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: LaSalle Funding LLC

....Outlook, Changed To Stable From Rating Under Review

..Issuer: BAC Canada Finance Company

....Outlook, Changed To Stable From Rating Under Review

..Issuer: FleetBoston Financial Corporation

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: Merrill Lynch & Co., Inc.

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: Merrill Lynch International & Co. C.V.

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: Merrill Lynch Japan Finance GK

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: Merrill Lynch S.A.

....Outlook, Changed To No Outlook From Rating Under Review

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit 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: 1 212 553 0376
Client Service: 1 212 553 1653

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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