Standard & Poor's Ratings Services lowered its long-term counterparty credit rating on Bank of America ( BAC) Tuesday and repeated its negative outlook on the company and its bank subsidiaries. The agency cut BofA's long-term rating to "A" from "A+" while at the same time affirming its "A-1" short-term ratings on the financial-services firm. In addition, S&P dropped its ratings on BofA's bank units to "A+/A-1" from "AA-/A-1+". The "AAA" rating was affirmed on the debt of BofA and its divisions that's guaranteed by the Federal Deposit Insurance Corp.
"We downgraded BofA one notch because we believe that the economic weakness will persist and that in turn, earnings pressures will be more intense than we anticipated as recently as Dec. 19, 2008, the date of our last downgrade of BofA," S&P analyst John K. Bartko, wrote in a research report. The report said BofA's creditworthiness "has deteriorated given its exposure to consumer credit and more generally to various asset types that have approached -- and, in certain instances, exceeded -- the stress tests we used as a basis for our Dec. 19, 2008, sector review of large complex banks and brokers." Shares of BofA closed up 2 cents at $3.65, but they had been much stronger before the downgrade. At one point in the session, the stock reached $4.08. The late drop-off in BofA also weighed on the Dow Jones Industrial Average, of which it is a component. Since the end of 2008, BofA's stock has fallen 74% as it and other financials have been pummeled by the continuing credit crisis and worries about the value of their common equity. S&P also cut its hybrid capital rating because of its growing fear that Charlotte-based BofA could defer dividend payments, either by its own accord or under instruction from regulators. Citigroup's ( C) recent decision on suspending payouts, "demonstrates a precedent for a highly systemic bank to defer hybrid dividends," the research note said.