Fitch Affirms BofA's IDR at 'A+'; Pfd & Trust Pfd Off Watch Negative

CHICAGO--()--With pressure on Bank of America Corporation's (BAC) preferred level ratings abating somewhat, it is less likely that BAC will need to defer dividends on trust preferred stock or omit dividends on preferred stock, according to Fitch Ratings. In response, Fitch has affirmed and removed BAC's preferred and trust preferred stock ratings from Rating Watch Negative. This action affects approximately $59 billion of preferred stock and $25 billion of trust preferred securities.

Management has been successful at capital-raising efforts during the second quarter of 2009 (2Q'09). Also, while core earnings were relatively weak, the company was able to avoid large losses in 2Q'09 despite rising problem asset levels.

Fitch has affirmed BAC's long-term and short-term Issuer Default Ratings (IDRs) at 'A+' and 'F1+', respectively, which are set at the support floor due to expected U.S. government support, and for which the Rating Outlook is Stable. Fitch has also affirmed ratings on senior, subordinated, and deposit instruments for all entities, since these ratings are based on the IDRs. Fitch notes that the government has repeated that it intends to provide support to Bank of America and its subsidiaries. In light of this, Fitch has affirmed BAC's Support Rating at `1' and Support Floor at 'A+.' The Support Ratings and Support Floors apply to the senior obligations of the parent company and other nonbank operating subsidiaries as well as of the bank entities. In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's individual ratings and the prospect of external support is reflected in Fitch's support ratings. Collectively these ratings drive Fitch's long- and short-term IDRs.

BAC was required to raise $33.9 billion under the Supervisory Capital Assessment Program (SCAP stress test) conducted by U.S. bank supervisors. Management was able to raise about $40 billion through a combination of tactics, including raising equity directly, conducting voluntary exchanges of non-governmental perpetual preferred stock for common equity, taking a gain by reducing its stake in a non-U.S. bank, and arranging a joint venture in its merchant processing business. Due to these efforts, management has raised Tier 1 common equity to 6.9% at 2Q'09, from 4.5% at 1Q'09. Total preferred stock (including about $40 billion in stock issued to the government) has declined to $59 billion at 2Q'09 compared to $73 billion in the prior quarter, while the projected annual preferred stock dividend is projected to decline by about $1 billion.

Asset quality concerns problems remain severe, and continue to restrain preferred, trust preferred and bank Individual ratings. Credit card losses continue to climb as employment trends in the U.S. worsen. BAC's experience in this portfolio is worse than peers, due in part to above average line size, a below average level of borrowers who pay in full monthly, and portfolio seasoning. One positive sign is a recent improvement in early stage delinquencies, but it is too early to determine whether this trend will be sustained. The home equity, commercial real estate, and residential loan portfolios are also experiencing considerable stress. Losses are still manageable in the commercial and industrial loan portfolio, but problem asset trends are rising, and Fitch expects further deterioration. Credit losses and mark to market charges on capital markets holdings continue to pressure earnings. Although BAC has reported positive net income in both 1Q'09 and 2Q'09, results have included the benefit from harvesting unusual gains on investments. With those gains excluded, core earnings have hovered near the break even point. Fitch expects asset quality trends to be the major earnings driver going forward, and that improvement in asset quality will likely be necessary for BAC to produce stronger core earnings results.

BAC is making changes to senior executive ranks and the board of directors. Shareholders voted to divide the roles of CEO and board Chairman at the annual shareholder meeting. Four new directors with industry experience have joined the board, while seven directors have departed. BAC has replaced the Chief Risk Officer and has also reassigned other experienced executives to new risk management roles. Fitch believes the changes in management and Board supervision have positive potential but notes that the new executives and directors are unseasoned in their current roles. BAC also faces significant litigation risk, particularly in connection with recent mergers. Fitch will continue to evaluate trends in litigation risk in future surveillance.

Fitch has withdrawn all ratings of Merrill Lynch Bank USA, since this entity has now been merged into Bank of America N.A. Also, since BAC has stated that the First Republic Bank subsidiary is for sale, Fitch has placed those ratings on Rating Watch Evolving. In the event that this subsidiary is sold and the debt remains the responsibility of the subsidiary, the ratings would likely be raised if it were acquired by a higher-rated entity. Conversely, the ratings would likely be lowered if acquired by a lower-rated entity.

Fitch has affirmed the following ratings and removed them from Rating Watch Negative:

Bank of America Corporation

--Preferred stock `B';

Merrill Lynch & Co. Inc.

--Preferred stock `B';

BankAmerica Corporation

--Preferred stock `B';

BAC Capital Trust I - VIII

--Trust preferred securities `BB-';

BAC Capital Trust X - XV

--Trust preferred securities `BB-';

BAC AAH Capital Funding LLC I - VII

--Trust preferred securities `BB-';

BAC AAH Capital Funding LLC IX - XIII

--Trust preferred securities `BB-';

BAC LB Capital Funding Trust I - II

--Trust preferred securities `BB-';

BankAmerica Capital II, III

--Trust preferred securities `BB-';

BankAmerica Institutional Capital A, B

--Trust preferred securities `BB-';

BankBoston Capital Trust III-IV

--Trust preferred securities `BB-';

Barnett Capital Trust III

--Trust preferred securities `BB-';

Countrywide Capital III, IV, V

--Trust preferred securities `BB-';

Fleet Capital Trust II, V, VIII, IX

--Trust preferred securities `BB-';

MBNA Capital A, B, D, E

--Trust preferred securities `BB-';

Merrill Lynch Preferred Capital Trust III, IV, and V

--Trust preferred securities `BB-';

Merrill Lynch Capital Trust I, II and III

--Trust preferred securities `BB-';

NB Capital Trust II, III, IV

--Trust preferred securities `BB-';

Fitch has affirmed the following ratings with a Stable Outlook:

Bank of America Corporation

--Long-term debt guaranteed by TLGP at `AAA';

--Short-term debt guaranteed by TLGP at `F1+';

--Long-term IDR (IDR) at `A+';

--Long-term senior debt at `A+';

--Long-term subordinated debt at `A';

--Short-term IDR at 'F1+';

--Short-term debt at `F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

Bank of America N.A.

--Long-term debt guaranteed by TLGP at `AAA';

--Short-term debt guaranteed by TLGP at `F1+';

--Long-term deposits at `AA-';

--Long-term IDR `A+';

--Long-term senior debt `A+';

--Long-term subordinated debt `A';

--Short-term IDR 'F1+';

--Short-term deposits `F1+';

--Short-term debt `F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

Banc of America Securities Limited

--Long-term IDR `A+';

--Short-term IDR 'F1+'.

Banc of America Securities LLC

--Long-term IDR 'A+';

--Short-term IDR 'F1+'.

B of A Issuance B.V.

--Long-term IDR `A+';

--Long-term senior debt 'A+';

--Subordinated debt 'A';

--Support '1'.

Bank of America Georgia, N.A.

Bank of America Oregon, National Association

Bank of America Rhode Island, National Association

Bank of America California, National Association

--Long-term IDR `A+';

--Short-term IDR 'F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

FIA Card Services N.A.

--Long-term deposits `AA-';

--Long-term IDR `A+';

--Long-term senior debt `A+';

--Long-term subordinated debt `A';

--Short-term IDR 'F1+';

--Short-term deposits `F1+';

--Short-term debt `F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

MBNA Canada Bank

--Long-term IDR `A+';

--Long-term senior debt `A+';

--Long-term subordinated debt `A';

--Short-term IDR 'F1+'.

MBNA Europe Bank Ltd.

--Long-term IDR `A+';

--Long-term senior debt `A+';

--Long-term subordinated debt `A';

--Short-term IDR 'F1+';

--Individual `D';

--Support '1'.

LaSalle Bank Corporation

--Long-term IDR (IDR) `A+';

--Short-term IDR 'F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

LaSalle Bank N.A.

LaSalle Bank Midwest N.A.

United States Trust N.A.

--Long-term deposits `AA-';

--Short-term deposits `F1+'.

Merrill Lynch & Co., Inc.

--Long-term IDR 'A+';

--Long-term senior 'A+';

--Subordinated debt 'A';

--Short-term IDR 'F1+';

--Commercial paper `F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

Merrill Lynch International Bank Ltd.

--Long-term IDR 'A+';

--Short-term IDR `F1+';

--Individual `D';

--Support '1'.

Merrill Lynch S.A.

--Long-term IDR 'A+';

--Long-term senior 'A+';

--Support '1'.

Merrill Lynch & Co., Canada Ltd.

--Short-term IDR `F1+';

--Short-term debt `F1+'

Merrill Lynch Bank & Trust Co., FSB

--Long-term IDR 'A+';

--Long-term deposits 'AA-';

--Short-term IDR `F1+';

--Short-term deposits 'F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

Merrill Lynch Canada Finance

--Long-term IDR 'A+';

--Long-term senior 'A+';

--Short-term IDR `F1+';

--Individual `D';

--Support '1'.

Merrill Lynch Finance (Australia) Pty LTD

--Short-term IDR `F1+';

--Commercial Paper `F1+'.

BankAmerica Corporation

--Long-term senior debt `A+';

--Long-term subordinated debt `A'.

Countrywide Bank FSB

--Long-term deposits `AA-;

--Short-term deposits `F1+'.

Countrywide Financial Corp.

--Long-term senior debt `A+';

--Long-term subordinated debt `A'.

Countrywide Home Loans, Inc.

--Long-term senior debt `A+'.

FleetBoston Financial Corp

--Long-term subordinated debt `A'.

LaSalle Funding LLC

--Long-term senior debt `A+'.

MBNA Corp.

--Long-term senior debt `A+';

--Long-term subordinated debt `A';

--Short-term debt 'F1+'.

NationsBank Corp

--Long-term senior debt `A+';

--Long-term subordinated debt `A'.

NationsBank, N.A.

--Long-term senior debt `A+'.

NCNB, Inc.

--Long-term subordinated debt `A'.

Fitch has placed the following ratings on Rating Watch Evolving:

First Republic Bank

--Subordinated debt 'A'.

Fitch has revised the Rating Watch for the following issues to Rating Watch Evolving from Rating Watch Negative:

First Republic Preferred Capital Corp.

First Republic Preferred Capital Corp. II

--Trust preferred securities `BB-'.

Fitch has withdrawn the following ratings:

Merrill Lynch Bank USA

--Long-term IDR 'A+';

--Long-term deposits 'AA-';

--Short-term IDR `F1+';

--Short-term deposits 'F1+';

--Individual `D';

--Support '1';

--Support Floor `A+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Contacts

Fitch Ratings
David Spring, CFA, 312-368-3194, Chicago
Sharon Haas, CFA, 212-908-0362, New York
or
Media Relations:
Brian Bertsch, 212-908-0549, New York
Email: brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
David Spring, CFA, 312-368-3194, Chicago
Sharon Haas, CFA, 212-908-0362, New York
or
Media Relations:
Brian Bertsch, 212-908-0549, New York
Email: brian.bertsch@fitchratings.com