Moody's raises BofA's bank strength ratings

NEW YORK Nov 18 (Reuters) - Moody's Investors Service on Wednesday raised its bank financial strength rating on Bank of America (BAC.N), saying it expects a sustained improvement in the bank's capital ratios.

Bank of America raised significant capital in the second quarter, adding over $35 billion in common equity and reducing its annual preferred dividend by about $1.0 billion, Moody's said.

"The increased capital provides an important cushion against the larger credit costs that Moody's thinks Bank of America will have to absorb over the coming quarters," Moody's senior vice president David Fanger said in a statement.

After loan loss provisions, Bank of America is not expected to generate sizable earnings until 2011, Moody's said.

High unemployment, a weak economy, and challenging real estate markets will lead to more delinquent and problem loans at the bank, especially in credit cards, residential mortgages, and commercial real estate loans, which account for roughly two-thirds of the bank's managed loan portfolio, the agency said.

Moody's raised the bank financial strength rating to C- from D. It also raised Bank of America's non-cumulative preferred stock rating by three notches to Ba3, the third-highest junk rating, from B3.

It affirmed Ba3 ratings on Bank of America's hybrid income trust securities and affirmed Baa3 ratings, the third-lowest investment grade, on its cumulative junior subordinated trust preferred securities.

The rating changes reflect Moody's revised methods for rating bank hybrid securities, the agency said.

Bank of America's deposit rating is unchanged at Aa3, the fourth-highest investment grade, while the holding company's senior debt is unchanged at A2, the sixth-highest investment grade.

These ratings reflect a very high probability that Bank of America would receive systemic support if needed and that its franchise will remain intact after the current credit crisis, Moody's said.

(Reporting by Dena Aubin, Editing by Chizu Nomiyama)