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BofA Notches Perfect Trading Quarter, But Possible Rating Downgrade Looms

Date : 05/03/2012 @ 6:31PM
Source : Dow Jones News
Stock : Bank of America Corp. (BAC)
Quote : 14.98  -0.27 (-1.77%) @ 5:54PM
Bank of America share price Chart

BofA Notches Perfect Trading Quarter, But Possible Rating Downgrade Looms

Bank of America (NYSE:BAC)
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Bank of America (BAC) reported a perfect trading quarter for the first three months of the year, but also warned it could have to post $2.7 billion in additional collateral for trading partners if its credit rating is downgraded one notch, the bank said in its quarterly financial filing with the Securities and Exchange Commission.

BofA said it posted positive trading revenue in all 62 days of the trading quarter, and that it booked gains of more than $25 million on 95% of those days. In the prior quarter, BofA recorded positive trading revenue on 79% of trading days, with only 41% of those involving gains of more than $25 million--and one including its largest loss, of $37 million.

Despite the improvement in its trading operation, BofA continues to face a possible credit downgrade by Moody's. The bank said Moody's indicated it expects to conclude its review of BofA between early May and the end of June, and that any downgrade, if it occurred, "would likely be limited to one notch." Moody's is reviewing BofA's finances as part of an examination of 17 major financial institutions with global capital markets operations.

Such a move would require BofA to post $2.7 billion in additional collateral as of March 31, the filing said. The amount of additional required collateral for a one-notch downgrade increased from the prior quarter; in its annual report last year, BofA said a one-notch downgrade would require $1.6 billion in additional collateral.

The bank also increased the top of the range of its estimate of potential legal losses to $4.2 billion from $3.6 billion in the prior quarter. BofA did not specify which legal matters prompted it to raise the estimate, saying only that the figure "is based upon currently available information," while cautioning that it "does not represent the Corporation's maximum loss exposure."

Bank of America also faces a bit more risk related to an $8.5 billion August 2011 settlement with a group of 44 mortgage-backed securities investors over soured mortgages. Three investors have withdrawn from the proceeding, the bank said in its filing--one more than in the fourth-quarter, according the bank's filings. It did not say which party has withdrawn from the settlement.

-By Christian Berthelsen, Dow Jones Newswires; 212-416-2381; christian.berthelsen@dowjones.com.



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