Bank of America 2014 Annual Report Download - page 68

66 Bank of America 2014
orderly liquidation provisions of the Dodd-Frank Wall Street Reform
and Consumer Protection Act. On November 14, 2013, Moody’s
concluded its review of the ratings for Bank of America and certain
other systemically important U.S. BHCs, affirming our current
ratings and noting that those ratings no longer incorporate any
uplift for U.S. government support. Concurrently, Moody’s
upgraded Bank of America, N.A.’s senior debt and stand-alone
ratings by one notch, citing a number of positive developments at
Bank of America. Moody’s also moved its outlook for all of our
ratings to stable.
Table 21 presents the Corporation’s current long-term/short-
term senior debt ratings and outlooks expressed by the rating
agencies.
Table 21 Senior Debt Ratings
Moody’s Investors Service Standard & Poor’s Fitch Ratings
Long-term Short-term Outlook Long-term Short-term Outlook Long-term Short-term Outlook
Bank of America Corporation Baa2 P-2 Stable A- A-2 Negative A F1 Negative
Bank of America, N.A. A2 P-1 Stable A A-1 Stable A F1 Negative
Merrill Lynch, Pierce, Fenner & Smith NR NR NR A A-1 Stable A F1 Negative
Merrill Lynch International NR NR NR A A-1 Stable A F1 Negative
NR = not rated
A reduction in certain of our credit ratings or the ratings of
certain asset-backed securitizations may have a material adverse
effect on our liquidity, potential loss of access to credit markets,
the related cost of funds, our businesses and on certain trading
revenues, particularly in those businesses where counterparty
creditworthiness is critical. In addition, under the terms of certain
OTC derivative contracts and other trading agreements, in the
event of downgrades of our or our rated subsidiaries’ credit ratings,
the counterparties to those agreements may require us to provide
additional collateral, or to terminate these contracts or
agreements, which could cause us to sustain losses and/or
adversely impact our liquidity. If the short-term credit ratings of
our parent company, bank or broker-dealer subsidiaries were
downgraded by one or more levels, the potential loss of access to
short-term funding sources such as repo financing and the effect
on our incremental cost of funds could be material.
Table 22 presents the amount of additional collateral that
would have been contractually required by derivative contracts and
other trading agreements at December 31, 2014 if the rating
agencies had downgraded their long-term senior debt ratings for
the Corporation or certain subsidiaries by one incremental notch
and by an additional second incremental notch.
Table 22 Additional Collateral Required to be Posted
Upon Downgrade
December 31, 2014
(Dollars in millions)
One
incremental
notch
Second
incremental
notch
Bank of America Corporation $ 1,402 $ 2,825
Bank of America, N.A. and subsidiaries (1) 1,072 1,886
(1) Included in Bank of America Corporation collateral requirements in this table.
Table 23 presents the derivative liabilities that would be subject
to unilateral termination by counterparties and the amounts of
collateral that would have been contractually required at
December 31, 2014, if the long-term senior debt ratings for the
Corporation or certain subsidiaries had been lower by one
incremental notch and by an additional second incremental notch.
Table 23 Derivative Liabilities Subject to Unilateral
Termination Upon Downgrade
December 31, 2014
(Dollars in millions)
One
incremental
notch
Second
incremental
notch
Derivative liability $ 1,785 $ 3,850
Collateral posted 1,520 2,986
While certain potential impacts are contractual and
quantifiable, the full scope of the consequences of a credit rating
downgrade to a financial institution is inherently uncertain, as it
depends upon numerous dynamic, complex and inter-related
factors and assumptions, including whether any downgrade of a
company’s long-term credit ratings precipitates downgrades to its
short-term credit ratings, and assumptions about the potential
behaviors of various customers, investors and counterparties. For
more information on potential impacts of credit rating downgrades,
see Liquidity Risk – Time-to-required Funding and Stress Modeling
on page 63.
For more information on the additional collateral and
termination payments that could be required in connection with
certain OTC derivative contracts and other trading agreements as
a result of such a credit rating downgrade, see Note 2 – Derivatives
to the Consolidated Financial Statements.
On June 6, 2014, S&P affirmed its AA+ long-term and A-1+
short-term sovereign credit rating on the U.S. government with a
stable outlook. On March 21, 2014, Fitch affirmed its AAA long-
term and F1+ short-term sovereign credit rating on the U.S.
government with a stable outlook. This resolved the rating watch
negative that was placed on the ratings on October 15, 2013. On
July 18, 2013, Moody’s revised its outlook on the U.S. government
to stable from negative and affirmed its Aaa long-term sovereign
credit rating on the U.S. government.