Bank of America, Merrill Preferreds Downgrade (Dow Jones Newswire)

DOW JONES NEWSWIRES

MAY 18, 2009, 9:47 A.M. ET Fitch Cuts Some BofA Rtgs On Capital Needs, Asset Quality

Fitch Ratings downgraded some of Bank of America Corp. (BAC) ratings and those of several units on asset-quality and capital-needs concerns, but the ratings agency affirmed its main ratings on the bank.

As a result of the government's bank stress tests, Bank of America must raise another $33.9 billion in common stock by early November, which Fitch called "a daunting task in any environment." The amount is by far the largest required of any of the 19 banks tested.

The ratings agency cut its preferred-stock ratings on Bank of America and units Merrill Lynch & Co. and BankAmerica Corp. three notches to B, saying the risk of dividend deferral or omission has increased. It also cut the company's trust preferred securities ratings one notch to BB-.
But Fitch reaffirmed the company's long- and short-term issuer default ratings at A+, linked to government support.

Bank of America's shares were recently up 8.4% at $11.57 as Goldman Sachs put the stock on its conviction buy list. The firm's previous investment rating on the shares was neutral. Despite jumping more than threefold in the last two months, the shares are still off by more than two-thirds in the last year.

Fitch said the downgrades reflected the uncertainty surrounding near-term credit costs and market conditions, which have led to heightened risk in meeting the capital requirement. The company's management has outlined a plan to raise the mandated amount of capital and sold part of its stake in China Construction Bank (601939.SH) as part of the plan.

But Fitch said in order to achieve the $33.9 billion goal, the company will need market access, the ability to sell off other units at a sufficient price and the ability to keep earnings above stress-test projections. Fitch said keeping the earnings up may be the hardest part.

The ratings agency added that besides the capital requirements, Bank of America still faces a challenging operating environment, including the potential for higher losses in some sectors - especially home equity loans and credit cards. It also faces the integration of several mergers, including that of Merrill, which may cause more write-downs.

-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089; kerry.grace@dowjones.com