Moody's Downgrades Bank of America, Says May Need Aid

Bank of America might need another injection of capital from the U.S. government, Moody's Investor Service said after a downgrade.

Moody's cut the bank's senior debt to A2 from A1, the senior subordinated debt to A3 from A2, and the junior subordinated debt to Baa3 from A2. The preferred stock rating was downgraded to B3, or junk, from Baa1.

Moody's hinted that the downgrades would have been more severe save for "the expectation of very high systemic support," for senior and subordinated debt and likelihood that the "franchise" will recover in the medium to long term.

Moody's said Bank of America will likely have to turn to the U.S. government if its tangible common equity position deteriorates further.

"Moody's does not expect Bank of America to generate sizable amounts of capital until the second half of 2010, at the earliest," the ratings agency said in a press release.

The agency warned that government support could harm preferred stock holders and that loan loss provisions are likely to increase through 2009 and into 2010.

"Earnings are therefore likely to be weak and, in light of Bank of America's sizable preferred dividend, could place significant additional pressure upon the company's already modest tangible common equity position," Moody's President David Fanger said in a statement.

By Adam Button and edited by Sarah Sussman
©CEP News Ltd. 2009