Fitch: BofA Enhances Global Franchise with Merrill Buy; IDR Affirmed at 'AA-'

Business Wire, Jan 2, 2009

CHICAGO -- Bank of America Corporation's (BAC) completed acquisition of Merrill Lynch & Co., Inc., (MER) enhances the bank's already global presence in capital markets activities, investment banking, large corporate lending, real estate lending, credit cards, other lending to U.S. consumers, and investment and wealth management activities, according to Fitch Ratings, which has affirmed BAC's 'AA-/F1+' long- and short-term Issuer Default Ratings (IDRs) with a Stable Outlook. Fitch has also affirmed MER's 'A+' long-term IDR and removed it from Rating Watch Evolving. A detailed list of affected ratings follows the end of the release.

The affirmation of BAC's ratings reflects Fitch's opinion that the deal's strategic and long-term benefits of the merger offset shorter-term challenges. The addition of MER's investment banking, merger and acquisitions, and capital market activities will bring BAC into the front ranks of global investment banks, if merger integration is executed successfully. The transaction is projected to be slightly dilutive in 2009 but accretive thereafter. BAC raised $10 billion equity capital in October 2008 to increase its flexibility in absorbing MER, and will issue a total of $25 billion in preferred stock to the U.S. Treasury under the Capital Purchase Program.

Still, the combined entity faces a number of challenges. Integration risk is significant, due to MER's size and complexity as well as the cultural differences between a commercial bank and an investment bank. Also, management is already faced with the integration CFC and the 2007 acquisition of regional bank LaSalle Corporation. Like its large bank peers, BAC continues to face mark-to-market pressures in its holdings of ABS CDOs, and in leveraged loans and commercial mortgage related assets held for sale. In its loan portfolio, BAC has needed to build provisions to cope with weakening trends in home equity loans, credit cards, and homebuilder-related credits. While the portion of the commercial and industrial loan portfolio not related to homebuilder finance has performed well to date, asset quality in this portfolio may also weaken as the economic downturn progresses. If losses in any of these areas exceed current expectations, Fitch will re-evaluate its current ratings and/or Rating Outlook.

As part of the merger, Fitch has aligned the ratings of MER and its affiliates with those of BAC and affiliates. Specifically, the long-term and short-term Issuer Default ratings (IDRs) of MER's bank affiliates are equalized with the long-term IDRs of BAC's 'AA-/F1+' bank subsidiaries. The long-term and short-term IDRs of MER's parent, broker-dealer and other non-bank affiliates are equalized with the long-term IDRs of BAC's 'A+/F1+' rated parent and non-bank subsidiaries. The Rating Outlook is Stable.

BAC's Stable Outlook has two exceptions. Fitch has upgraded Countrywide Bank FSB's long-term IDR to 'AA-' from 'A+' to reflect the lower risk level that Fitch believes is present in BAC's banking operations. Conversely, Fitch has downgraded BofA Issuance B.V.'s long-term IDR to 'A+' from 'AA-'. This entity's ratings are based on a guarantee from the corporate parent Bank of America Corporation (long-term IDR also rated 'A+').

The long-term IDRs and debt ratings of BAC and its non-bank subsidiaries remain notched one level lower than BAC's bank subsidiaries due to the higher litigation risk created by the acquisition of mortgage specialist Countrywide Financial Corporation (CFC) in July 2008. While some of the litigation has been settled, Fitch believes that remaining lawsuits are substantial enough to justify the lower notching. Fitch will continue to evaluate the status of litigation, and could realign the corporate and bank IDRs if circumstances change.

Fitch has upgraded and removed the following ratings from Rating Watch Evolving:

Merrill Lynch Bank USA

-- Long-term IDR to 'AA-' from 'A+';

-- Long-term deposits to 'AA' from 'AA-'.

Merrill Lynch Bank & Trust Co., FSB

-- Long-term IDR to 'AA-' from 'A+';

-- Long-term deposits to 'AA' from 'AA-';

-- Individual to 'B' from 'B/C';

-- Support floor from 'NF' to 'A-'.

Merrill Lynch International Bank Ltd.

-- Long-term IDR to 'AA-' from 'A+'.

Fitch has affirmed and removed the following ratings from Rating Watch Evolving:

Merrill Lynch & Co., Inc.

-- Long-term IDR 'A+';

-- Long-term senior debt: 'A+';

-- Subordinated debt 'A';

-- Preferred stock 'A';

-- Rating Outlook Stable.

Merrill Lynch Canada Finance

-- Long-term IDR 'A+';

-- Long-term senior 'A+';

-- Rating Outlook Stable.

Merrill Lynch S.A.

-- Long-term IDR 'A+';

-- Long-term senior 'A+';

-- Support '1';

-- Rating Outlook Stable.

Merrill Lynch Preferred Capital Trust III, IV, and V

-- Trust preferred 'A'.

Merrill Lynch Capital Trust I, II and III

-- Trust preferred 'A'.

First Republic Bank

-- Subordinated debt 'A'.

First Republic Preferred Capital Corp.

-- Preferred stock 'A'.

First Republic Preferred Capital Corp. II

-- Preferred stock 'A'.

Fitch has upgraded the following ratings:

Countrywide Bank FSB