TEXT - S&P says Bank of America ratings unaffected by Q4 results

Thu Jan 17, 2013 4:50pm EST

Jan 17 - Standard & Poor's Ratings Services today said its ratings on Bank
of America Corp. (BofA) are not affected by the company's relatively
weak fourth-quarter earnings, considering current operating conditions.

BofA posted Standard & Poor's adjusted pretax loss of $0.8 billion, compared 
with profits of $3.2 billion in third-quarter 2012 and $486 million in 
fourth-quarter 2011. Earnings were impacted by a $3 billion representations 
and warranties charge from a settlement with Fannie Mae, which reduces the 
bank's exposure to putback requests. In our view, remaining exposures to 
private-label requests, pending settlements, and other legal risk will 
continue to weigh on results.

Net interest income dropped versus the prior year but improved sequentially. 
Lower funding costs as a result of lower parent company debt and growth in 
low-cost deposits were not enough to offset falling yields on a smaller 
earning asset base. In 2013, we expect net interest income to be fairly flat, 
as yield pressure dampens improving funding costs, while earning assets hold 
relatively stable. Asset quality continued to improve across nearly all major 
loan portfolios, as net charge-offs and nonperforming assets declined. 

BofA has continued to reduce core operating costs, but various items, 
including legal reserves and this quarter's regulatory settlement related to 
foreclosure abuses, reduced the impact on earnings this quarter. Still, 
pursuant to the company's continuing plan to reduce the number of delinquent 
loans serviced, default-related servicing costs within legacy assets and 
servicing should decline in 2013, along with core costs, under its "New BAC" 
plan.

Estimated Basel III Tier 1 common equity improved 28 basis points from the 
previous quarter to 9.25%, reflecting lower risk-weighed assets. We expect 
BofA's RAC ratio (8.64% as of September 2012) to remain between 8.5% and 9% 
during the next 12-18 months, based on our expectations of continued declines 
in risk-weighted assets and greater returns to shareholders following the 
Fed's Comprehensive Capital Analysis and Review in 2013.

The outlook on BofA's is negative, reflecting the uncertainty and volatility 
of the company's legacy mortgage business and our expectation for continued 
muted earnings. We expect future costs associated with BofA's mortgage 
business, while declining, could be significant, though possible outcomes vary 
widely. We believe this issue will remain unresolved for years, which should 
continue to allow BofA to absorb the impact, using recurring earnings as a 
buffer. The outlook also reflects the outlook on the U.S. sovereign rating, 
given the two notches of extraordinary government support we incorporate into 
our issuer credit rating on BofA.