Bank of America 2015 Annual Report Download - page 64

62 Bank of America 2015
outlook to positive on the ratings of Bank of America’s material
international operating subsidiaries, including MLI.
On December 2, 2015, Standard & Poor’s Ratings Services
(S&P) concluded its review of the ratings of eight U.S. G-SIBs,
including Bank of America. Consistent with prior guidance, S&P
downgraded our holding company long-term senior debt rating to
BBB+ from A- due to the removal of the remaining notch of uplift
for U.S. government support and revised the outlook to Stable
from CreditWatch Negative. The Corporation’s short-term ratings
were not affected. This action reflected S&P’s view that
extraordinary U.S. government support of the banking system is
less likely under the current U.S. resolution framework. S&P
concurrently left the long-term and short-term senior debt ratings
of Bank of America’s core rated operating subsidiaries, including
Bank of America, N.A., MLPF&S, MLI, and Bank of America Merrill
Lynch International Limited, unchanged at A and A-1, respectively.
S&P eliminated the remaining notch of uplift for potential
government support from those entities’ senior long-term debt
ratings, but the agency subsequently added a notch of uplift upon
implementing its new framework for incorporating loss-absorbing
holding company debt and equity capital buffers into operating
subsidiary credit ratings. Those ratings remain on CreditWatch
positive pending further clarity on what debt instruments will count
toward TLAC requirements. Additionally, S&P concluded its
CreditWatch Developing on the subordinated debt rating of Bank
of America, N.A., which the agency downgraded to BBB+ from A-.
On May 28, 2015, Moody’s Investors Service, Inc. (Moody’s)
concluded its previously announced review of several global
investment banking groups, including Bank of America, which
followed the publication of the agency’s new bank rating
methodology. Moody’s upgraded Bank of America Corporation’s
long-term senior debt rating to Baa1 from Baa2, and the preferred
stock rating to Ba2 from Ba3. Moody’s also upgraded the long-
term senior debt and long-term deposit ratings of Bank of America,
N.A. to A1 from A2. Moody’s affirmed the short-term ratings at P-2
for Bank of America Corporation and P-1 for Bank of America, N.A.
Moody’s now has a stable outlook on all of our ratings.
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 (1) Outlook Long-term Short-term Outlook
Bank of America Corporation Baa1 P-2 Stable BBB+ A-2 Stable A F1 Stable
Bank of America, N.A. A1 P-1 Stable A A-1
CreditWatch
Positive A+ F1 Stable
Merrill Lynch, Pierce, Fenner &
Smith NR NR NR A A-1
CreditWatch
Positive A+ F1 Stable
Merrill Lynch International NR NR NR A A-1
CreditWatch
Positive A F1 Positive
(1) S&P short-term ratings are not on CreditWatch.
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.
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 59.
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.