Thursday, February 16, 2012

Bank of America bonds also on review for downgrade

Moody's Investor Services announced Thursday that it is also putting Bank of America's covered bonds on review for downgrade, driven by Wednesday's decision to question the bank's long-term rating.

The covered bonds rating -- or corporate securities backed by a pool of loans -- was last downgraded Sept. 23, Moody's said. Should the review of the bank's long-term rating be lowered, the bonds would likely be downgraded one notch, to A1.

Moody's said it considers this type of investment to be highly exposed to market value risk. If the bank were to default, the loan pool might need to be liquidiated quickly.

On Wednesday, Moody's placed the long-term rating for Bank of America and a number of other big banks on review for a downgrade, citing continued difficulty in capital markets.

Moody's will be looking at "structural vulnerabilities in the business models of global investment banks," the agency said, including their interconnectedness with other firms and the possibility for sudden, unexpected losses like those that toppled some banks in 2008.

Joining the Charlotte bank were Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Royal Bank of Canada.

Bank of America could be downgraded up to one notch. Citigroup and JPMorgan could fall up to two notches.

A report from CreditSights earlier this week predicted the review. All three of the major credit ratings agencies downgraded Bank of America last year.

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