In conjunction with the periodic review of 12 Global Trading
and Universal Banks (GTUBs), Fitch Ratings reiterated its long
and short- term Issuer Default Rating (IDRs) on
Bank of America Corporation
). The rating agency re-affirmed BofA's long-term IDR at 'A' and
short-term IDR at 'F1'.
As per Fitch's rating methodology, a bank's IDR is either its
Viability Rating (VR) or its Support Rating Floor (SRF),
whichever is higher. VR reflects the company's inherent
creditworthiness, while SRF reflects Fitch's view on the
probability of a bank receiving sovereign support. Fitch upgraded
BofA's Viability Rating (VR) to 'a-' from 'bbb+' whereas the
Support Rating (SR) was maintained at '1' and Support Rating
Floor (SRF) at 'A'.
Fitch upgraded BofA's VR in view of the significant progress made
by the company in settling its legal issues in the last few
quarters. BofA successfully lowered its litigation risks besides
considerably enhancing its capital and liquidity position. This
led to the company's improved credit-worthiness.
Recently, in May 2013, BofA reached an agreement to settle its
legal tussle with
) under which BofA will pay nearly $1.6 billion in cash and
return $137 million worth of MBIA's 5.70% senior notes maturing
in 2034. Earlier, in Jan 2013, the company announced a settlement
worth nearly $11.6 billion with Fannie Mae to end its mortgage
Fitch believes that the settlement of the legal issues will help
BofA restrict its potential litigation expenditures in the near
Further, under Basel III, BofA's Tier 1 common ratio was 9.52% as
of Mar 31, 2013, up from 9.25% in the previous quarter. This was
also higher than Fitch's expectations. Moreover, BofA's global
excess liquidity continues to be in excess of $370 billion.
According to Fitch, the company's Liquidity Coverage Ratio (LCR)
is expected to remain above the stipulated regulatory
Though BofA reported improved first-quarter 2013 results, its
legal and other expenses led to below its peer core earnings.
However, the company reported improved results in its investment
banking, trading business and wealth management operations. As
per Fitch, BofA is expected to gradually improve its overall
earnings by focusing more on reducing litigation costs and
concentrating more on core businesses.
BofA's ratings reflect Fitch's view that the banking major will
continue to receive support from the government in case of
default as it is counted among the Globally Systematically
Important Financial Institutions (G-SIFIs). Moreover, the rating
agency affirmed the company's outlook at 'Stable'.
As a part of Fitch's review of GTUBs, long-term IDRs of
). has been affirmed at 'A'. Moreover, these companies' outlook
has been maintained at Stable.
Amid a protracted economic recovery and various regulatory
issues, the news of the rating affirmation by Fitch is expected
to enhance investors' confidence in the company.
BofA currently carries a Zacks Rank #3 (Hold).
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MBIA INC (MBI): Free Stock Analysis Report
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