OREANDA-NEWS. Fitch Affirms Bank of America's Ratings at 'A/F1'

Fitch Ratings- Chicago - 08 December 2015: Fitch Ratings has affirmed Bank of America's (BAC's) Long-Term and Short-Term Issuer Default Ratings (IDR) at 'A'/'F1', respectively. The Outlooks for the Long-Term IDRs are Stable.

At the same time, Fitch has affirmed the company's Viability Rating (VR) at 'a' due to the the company's slowly improving earnings profile, the maintenance of good liquidity levels, satisfactory capital ratios, and materially lower looming litigation costs than at any point over the last few years.

The rating actions have been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUB), which comprise 12 large and globally active banking groups. Fitch's outlook for the GTUBs is stable as we expect the stable outlook for the groups' commercial banking and wealth and asset management businesses in 2016 to mitigate pressure on earnings from capital markets activities, particularly in fixed income trading.

As globally active universal banks, the 12 GTUBs are among the most affected by evolving regulation, which is bringing capital and resource constraints to some businesses. This means that business models are being adjusted. Specific changes and their timing vary by bank. In the medium term, we believe that the GTUBs with the strongest franchises in their core businesses, sound business models, and clear strategies are best placed in this environment, and these company profiles are an important rating factor for many of the GTUBs.

KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT

Today's rating action and Stable Outlook are supported by the company's slowly improving earnings profile, which had been masked over the last few years as management worked to resolve the company's large litigation exposures.

Fitch believes that now that the bulk of litigation charges are behind the company, the strength of BAC's core franchises will start to be more evident. While the revenue environment for BAC as well as other banks continues to be challenged, Fitch believes that BAC should be able to further improve its earnings performance through continued cost reductions, a greater emphasis on simplifying the company's operations, and through a more targeted use of technology solutions to drive efficiencies.

The key near-term opportunity for additional cost reductions is from the company's Legacy Assets & Servicing (LAS) segment. To this end, as more and more of BAC's problem loans and loans serviced are either resolved or sold, management should be able to reduce headcount in this segment.

Over the medium term, Fitch expects BAC to continue to optimize its overall branch network through branch closings, the introduction or reformatted branches, as well as corresponding headcount reductions across its branch banking platform. In addition to the branch work, Fitch would expect BAC to continue to rationalize overall staffing levels, particularly in the company's mid- and back-offices, by utilizing technology solutions to streamline operations and simplify processes across the company's various businesses.

Longer-term, BAC - as well as others in the industry - will have to find a way to create an advantage in performing various compliance and regulatory functions with greater efficiency.

To the extent that management is successful in these various efforts detailed above, Fitch believes that BAC's efficiency ratio could drop to the mid-to-high 60% range over the medium-term time horizon. This could lead to some upwards rating momentum.

Potentially giving a further boost to the company's efficiency ratio is the potential for short-term interest rates to eventually rise. Should this occur at some point, BAC may get a stronger net interest income (NII) benefit than some peers given its proportionately larger retail deposit base. This revenue pick-up would increase the denominator of efficiency ratio calculations, helping drive it lower over time.

Fitch continues to note that BAC's liquidity position is good and continues to be supported by its very strong retail deposit base. This is a key advantage for the company relative to some peers, and is supportive of today's actions.

In order to exit parallel-run with the Federal Reserve, BAC has had to make modifications to its internal credit loss modelling, which has caused the company's pro-forma Basel III Common Equity Tier 1 (CET1) ratio under the advanced approaches to be revised downward to 9.7%. Fitch notes that this is below the averages of peer institutions, though it does incorporate a significant component of operational risk weighted assets (RWA) in the denominator of the calculation.

SUBSIDIARY AND AFFILIATED COMPANY

Fitch notes that The VRs remain equalized between BAC and its material operating subsidiaries. The common VR of BAC and its operating companies reflects the correlated performance, or failure rate between the BAC and these subsidiaries.

However, the Long-Term IDRs for the material U.S. operating entities are one notch above BACs Long-Term IDR to reflect Fitch's belief that the U.S. single point of entry (SPE) resolution regime, the likely implementation of total loss absorbing capacity (TLAC) requirements for U.S. global systemically important banks (G-SIBs), and the presence of substantial holding company debt reduces the default risk of domestic operating subsidiaries' senior liabilities relative to holding company senior debt.

Additionally, The 'F1' Short-Term IDRs of BAC's bank subsidiaries are at the lower of two potential Short-Term IDRs, mapping to an 'A' Long-Term IDR on Fitch's rating scale to reflect a greater reliance on wholesale funding than some smaller institutions. BAC's and its non-bank operating companies' Short-Term IDRs at 'F1' reflect Fitch's view that there is less surplus liquidity at these entities than at the bank, particularly given their greater reliance on the holding company for liquidity.

Fitch notes that the MBNA Limited subsidiary is one notch below the IDR of BAC, as Fitch views it as a strategically important subsidiary to the overall franchise. Additionally the ratings of both Secured Asset Finance Company B.V. and Secured Asset Finance Company, LLC are based on parent company guarantees, and are thus aligned with the ratings of BAC.

MATERIAL INTERNATIONAL SUBSIDIARIES

Merrill Lynch International (MLI) and Bank of America Merrill Lynch International Limited are wholly owned subsidiaries of BAC whose IDRs and debt ratings are aligned with BHC's because of their core strategic role in and integration into the BHC group.

Fitch's Positive Outlook for BAC's material international operating subsidiaries reflects the likelihood of internal TLAC as required by the Financial Stability Board (FSB). The Positive Outlook reflects the agency's belief that the internal TLAC of material international operating companies will likely be large enough to meet and exceed Pillar 1 capital requirements and will then be sufficient to recapitalize them.

A one-notch upgrade is likely once Fitch has sufficient clarity as to additional disclosure on the pre-positioning of internal TLAC and its sufficiency in size to cover a default of senior operating company liabilities. Sufficient clarity may, however, take longer to come through than the typical Outlook horizon of one to two years.

Specific factors that Fitch seeks additional clarity on before resolving the Rating Outlook and potentially upgrading the subsidiary ratings will include host country clarification on internal TLAC, the quantum of internal TLAC and whether it will be pre-positioned. The quantum is relevant because per Fitch's criteria the agency will look to the sufficiency of the amount of capital available to that subsidiary to recapitalize it.

If the amount of TLAC is sufficient for recapitalization in Fitch's opinion and is pre-positioned, Fitch will likely upgrade the subsidiary ratings. Further, if home and host country regulators reach agreements where pre-positioning is not required, the rating will not be upgraded and the Outlook will be revised to Stable.

If clarity on host country internal TLAC proposals are further delayed beyond the next six months, Fitch will likely revise the subsidiary Outlooks to stable until such clarity on these proposals.

The outlook for Merrill Lynch International Bank Ltd (MLIB) has been revised to Stable from Positive as MLIB is no longer a material legal entity in BAC's resolution plan.

SUPPORT RATING AND SUPPORT RATING FLOOR

The SR and SRF for BAC reflect Fitch's view that senior creditors cannot rely on receiving full extraordinary support from the sovereign in the event that MS becomes non-viable. In Fitch's view, implementation of the Dodd Frank Orderly Liquidation Authority legislation is now sufficiently progressed to provide a framework for resolving banks that is likely to require holding company senior creditors participating in losses, if necessary, instead of or ahead of the company receiving sovereign support.

BAC's international entities have a support rating of '1', which is reflective of Fitch's view of institutional support for the entities.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by BAC are all notched down from the common VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably.

BAC's subordinated debt is one notch down from BAC's VR, its preferred stock is five notches from the VR, which encompasses two notches for non-performance and three notches for loss severity, and BAC's trust preferred stock is four notches from the VR, encompassing two notches for non-performance and two notches for loss severity.

Subordinated debt issued by the operating companies is rated at the same level as subordinated debt issued by BAC reflecting the potential for subordinated creditors in the operating companies to be exposed to loss ahead of senior creditors in BAC. This is also supported by the FSB's proposal to have internal TLAC rank senior to regulatory capital at the operating company.

DEPOSIT RATINGS

Deposit ratings are one notch higher than senior debt ratings reflecting the deposits' superior recovery prospects in case of default given depositor preference in the U.S. BAC's international subsidiaries' deposit ratings are at the same level as their senior debt ratings because their preferential status is less clear and disclosure concerning dually payable deposits makes it difficult to determine if they are eligible for U.S. depositor preference.

RATING SENSITIVITIES
IDRS, VR AND SENIOR DEBT

Fitch sees limited downside to BAC's ratings and notes that the company's ratings are likely near the lower end of their potential range.

Further upside to BAC's VR would likely be predicated on continuing to improve the company's earnings performance such that BAC's returns consistently exceed those of peers as well as the company's cost of equity, which Fitch estimates to be approximately 12%, over an extended period.

Fitch notes that this would likely require BAC to sustainably improve its efficiency ratio to the mid-to-high 50's through some of both the cost reduction initiatives and revenue growth opportunities described above.

Should management be unable to achieve these targets over a longer-term time horizon, it is likely that ratings would remain at current levels.

Downside risks to ratings, while not expected, include any remaining litigation exposures or other unforeseen charges that result in a significant net earnings loss, or if the company's regulatory or tangible capital ratios begin to meaningfully decline over a multi-quarter period.

Additionally, should BAC's overall credit quality materially deteriorate over the near term, or the company experience a severe and unexpected risk management failure, this could also negatively impact the VR.

SUBSIDIARY AND AFFILIATED COMPANY

All U.S. bank subsidiaries carry a common VR, regardless of size, as U.S. banks are cross-guaranteed under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Thus subsidiary ratings would be sensitive to any change in BAC's VR.

MATERIAL INTERNATIONAL SUBSIDIARIES

A one-notch upgrade is likely once Fitch has sufficient clarity on additional disclosure on the pre-positioning of internal TLAC and its sufficiency in size to cover a default of senior operating company liabilities. Sufficient clarity may, however, take longer to come through than the typical Outlook horizon of one to two years

MLI and and Bank of America Merrill Lynch International Limited ratings are sensitive to the same factors that might drive a change in BAC's IDRs.

SUPPORT RATING AND SUPPORT RATING FLOOR

Support ratings would be sensitive to any change in Fitch's view of support. However, since support ratings were downgraded in May 2015, there is unlikely to be any change to support ratings.

BAC's international entities Support Rating of '1' is sensitive to any change in Fitch's views of potential institutional support for this entity.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid ratings are primarily sensitive to any change in BAC's VR.

DEPOSIT RATINGS

BAC's deposit ratings are sensitive to any change in the IDRs, which are sensitive to any change in the VRs, as the IDR receives a one-notch uplift from the VR. Thus, deposit ratings are ultimately sensitive to any change in the VR.
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Fitch has affirmed the following:

Bank of America Corporation
--Long-Term IDR at 'A'; Outlook Stable;
--Long-Term senior debt at 'A';
--Long-Term subordinated debt at 'A-';
--Long-Term market linked securities at 'A emr';
--Senior shelf at 'A';
--Short-Term IDR at 'F1';
--Short-Term debt at 'F1';
--Viability Rating at 'a';
--Preferred stock at 'BB+'';
--Support at '5';
--Support floor at 'NF'.

Bank of America N.A.
--Long-Term IDR at 'A+'; Outlook Stable;
--Long-Term senior debt at 'A+';
--Long-Term subordinated debt at 'A-';
--Short-Term IDR at 'F1';
--Short-Term debt at 'F1';
--Long-Term deposit rating at 'AA-';
--Short-Term deposits at 'F1+';
--Viability Rating at 'a';
--Support at '5';
--Support floor at 'NF'.

Bank of America California, National Association
--Long-Term IDR at 'A+'; Outlook Stable;
--Short-Term IDR at 'F1';
--Viability Rating at 'a';
--Support at '5';
--Support floor at 'NF'.

Merrill Lynch & Co., Inc.
--Long-Term senior debt at 'A';
--Long-Term market linked notes at 'A emr';
--Long-Term subordinated debt at 'A-';
--Short-Term debt at 'F1';

Merrill Lynch, Pierce, Fenner & Smith, Inc.
--Long-Term IDR at 'A+'; Outlook Stable;
--Short-Term IDR at 'F1'.

Bank of America Merrill Lynch International Limited
--Long-Term IDR at 'A'; Outlook Positive;
--Short-Term IDR at 'F1'.

Secured Asset Finance Company B.V.
--Senior debt at 'A'.

Secured Asset Finance Company LLC
--Senior debt at 'A'.

BofA Canada Bank
--Long-Term IDR at 'A'; Outlook Stable;
--Long-Term senior debt at 'A';
--Long-Term subordinated debt at 'A-';
--Short-Term IDR at 'F1'.

MBNA Limited
--Long-Term IDR at 'A-'; Outlook Stable;
--Short-Term IDR at 'F1'
--Support at '1'.

Merrill Lynch International
--Long-Term IDR at 'A'; Outlook Positive;
--Short-Term IDR at 'F1';
--Support at '1'.

Merrill Lynch International Bank Ltd.
--Long-Term IDR at 'A'; Outlook Stable from Positive;
--Short-Term IDR at 'F1';
--Support at '1'.

Merrill Lynch B.V.
--Long-Term IDR at 'A'; Outlook Stable;
--Long-Term senior debt at 'A';
--Long-Term market linked securities at 'A emr';
--Support at '1'.

Merrill Lynch & Co., Canada Ltd.
--Short-Term IDR at 'F1';
--Short-Term debt at 'F1'.

BAC Canada Finance
--Long-Term IDR at 'A'; Outlook Stable;
--Long-Term senior debt at 'A';
--Short-Term IDR at 'F1';
--Support at '1'.

Merrill Lynch Japan Finance GK.
--Long-Term IDR at 'A'; Outlook Stable;
--Long-Term senior debt at 'A';
--Short-Term IDR at 'F1';
--Short-Term debt at 'F1';
--Support at '1'.

Merrill Lynch Japan Securities Co., Ltd.
--Long-Term IDR at 'A'; Outlook Stable;
--Short-Term IDR at 'F1';
--Support at '1'.

Merrill Lynch S.A.
--Long-Term market linked securities at 'A emr'.

Countrywide Financial Corp.
--Long-Term senior debt at 'A';
--Long-Term subordinated debt at 'A-'.

Countrywide Home Loans, Inc.
--Long-Term senior debt at 'A';
--Long-Term senior shelf unsecured rating at 'A'.

FleetBoston Financial Corp
--Long-Term subordinated debt at 'A-'.

LaSalle Funding LLC
--Long-Term senior debt at 'A'.

MBNA Corp.
--Long-Term subordinated debt at 'A-'.
--Short-Term debt at 'F1'.

NationsBank Corp
--Long-Term senior shelf debt at 'A';
--Long-Term senior debt at 'A';
--Long-Term subordinated debt at 'A-'.

BAC Capital Trust VI-VIII
BAC Capital Trust XI - XV
--Trust preferred securities at 'BBB-'.

BAC AAH Capital Funding LLC I - VII
BAC AAH Capital Funding LLC IX - XIII
--Trust preferred securities at 'BBB-'.

BankAmerica Capital III
BankBoston Capital Trust III-IV
Countrywide Capital III, IV, V
Fleet Capital Trust V
MBNA Capital B
NB Capital Trust III
--Trust preferred securities at 'BBB-'.

Merrill Lynch Preferred Capital Trust III, IV, and V
Merrill Lynch Capital Trust I, II and III
--Trust preferred securities at 'BBB-'.