BofA Notches Perfect Trading Quarter, But Possible Rating Downgrade Looms
May 03 2012 - 6:31PM
Dow Jones News
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withdrawn from the proceeding, the bank said in its filing--one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did not say which party has withdrawn from the settlement.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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