The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Bank of America loses more Ayes

Chase Bank

Image via Wikipedia

Moody’s just downgraded America’s heritage bank from the A levels to the highest its long term debt the BAA1 rating. That’s down two notches from A2 as the gaping Capital hole gets tough for the bank. According to Moody’s they thought that it was unlikely this time the government would stop the TBTF insititutions from falling down the hill. the review was announced in june. The rating agency continues a negative outlook on the bank and has also cut its short term debt to Prime 2 rating. A BAA2 rating is a High Credit rating in layman terms but still moves down the bank from Bery high credit ratings it continued to enjoy after the mortgage lenders were downgraded in 2009

The downgrade happened despite a lot of positive moves at the Bank. According to Moody’s

(Forbes) “BAC has made significant progress in improving in its capital and liquidity positions, in shedding legacy and noncore assets, in measuring and monitoring risk, and in managing its risk appetite.”

The Bank is sitting on $37 bln in provisions for losses even as its Alt A purchase of Countrywide and First Franklin from the ML purchase continued to list high in FHA action and continuing losses on sub standard housing loans Bank of America is actively mulling declaring bankruptcy at its countrywide operation. The strategic act will avoid much egg on the Banks’ leadership’s face but may not proceed till the housing market perks up so the bank’s portfolio in the business may not be at stake

Moody’s also cut ratings at Wells Fargo even as it continues oto pull the Wachovia acquisition without undue losses. Citi is also on the chopping block since June and may be downgraded before the week is over

BofA shares fell 5.7%, Citi 2.2% and Wells Fargo 0.5%. JPMorgan Chase, which was not subject to the same review, was down 2.6%. The banks could also face pressure to their net interest margins if Ben Bernanke and the Fed decide to launch an Operation Twist aimed at flattening the yield curve.

Wells Fargo was downgraded to A2 while Citi’s long term rating was affirmed at A3 also citing significant improvements on the bank’s financial statements/credit profile. Short term ratings were downgraded for all 3 banks

Enhanced by Zemanta


%d bloggers like this: