Back to top

Analyst Blog

Zacks Equity Research

BofA's Ratings Affirmed by Fitch

BCS C BAC

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

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 (BAC - Analyst Report). 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 MBIA Inc. 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 related problems.

Fitch believes that the settlement of the legal issues will help BofA restrict its potential litigation expenditures in the near term.

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 requirements.

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 Barclays PLC (BCS - Snapshot Report) and Citigroup, Inc. (C - Analyst Report). 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).

 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%